Monday, September 23, 2013

Yog trust is tax exempt; its main object is to impart training in Yoga, for education and curing of diseases

The predominant object of imparting Yoga training through well structured Yoga shivirs is to provide medical relief and impart education, which fall under the category of charitable objects defined under section 2(15).

The Tribunal held as under:

1) Yoga can be safely accepted as a system that fits into the definition of medical relief. As a science it is a well recognized system of medicine, which has therapeutic effects in treating serious ailments;

2) The predominant objective of the assessee-trust was to provide medical relief through Ayurveda and propagation of  Yoga for the purpose of curing various diseases;

3) Any form of educational activity involving imparting of systematic training, to develop the knowledge, skill, mind and character of  students is to be regarded as 'education', covered under section 2(15);

4) Thus, imparting of Yoga training through well structured Yoga shivirs would fall under the category of imparting education, which is one of the charitable objects defined under section 2(15);

5) The various other objectives of assessee-trust were merely ancillary to its main object, which was to provide medical  relief and impart education and would not in any way constitute objectives of  general public utility;

6) The proviso to section 2(15) applies only to trusts falling in the last limb of the definition of charitable purpose, that too if such trust carries on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to a trust providing education and medical relief. Thus, revenue was not justified in refusing the exemption claimed by assessee-trust under sections 11 and 12 - Divya Yog Mandir Trust v. JCIT [2013] 37 227 (Delhi - Trib.)

Safe Harbour Rules finalized; assessees can opt for any period up to five assessment years

Safe Harbour means the circumstances in which the income-tax authorities accept the transfer price declared by assessee. Draft Safe Harbour Rules were placed in public domain on 14.08.2013 for seeking comments from various stakeholders. After receiving their inputs Safe Harbour Rules (‘SHRs’) have been finalized. The gist of modifications incorporated in the final Safe Harbour Rules are as under:

1) The SHRs shall be applicable from the assessment year 2013-14 for five assessment years. An assessee can opt for the safe harbour regime for a period of his choice but not exceeding 5 assessment years;

2) Earlier ceiling of Rs 100 crores has been removed for transactions in the nature of routine ITES/ITS, corporate guarantees and KPO;

3) Routine IT/ITES transactions have been provided safe harbour margin of 20% for transactions up to 500 crores and 22% for transactions above Rs.500 crores;

4) On corporate guarantees reduced safe harbour margin of 1.75% is applicable for transactions above Rs 100 crores if wholly owned subsidiary has been rated to be having adequate to highest safety norms by rating agency;

5) The definition of KPO has been rationalized to provide a reasonable distinction from routine BPO activity and its safe harbour margin has been reduced from 30% to 25%;

6) Once the option exercised by the assessee is held as valid it shall remain so for the opted period unless the assessee voluntarily opts out of safe harbour regime by furnishing a statement to this effect to the Assessing Officer;

7) The assessee is required to submit a statement regarding the quantum of international transactions, its nature, the operating margins, etc., for the period for which safe harbour option is exercised;

8) The option exercised by the assessee can be held as invalid subsequently if there is change in the facts and circumstances relating to the eligibility of the assessee or in international transaction.

Transaction amongst Indian PE of foreign co. and another resident entity isn’t an ‘international transaction’

Substance over form rule under section 92B(2) applies only when third party is interposed in international transaction (‘IT’) between two associated enterprises (‘AEs’). Transactions between resident assessee and resident AE of foreign parent company can't be deemed as IT by invoking the substance over form rule under section 92B(2).

The Tribunal held as under:

1) The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs. Section 92A defines the term "AEs". Section 92A(1) provides the broad parameters on satisfaction of which two or more enterprises constitute AEs;

2) Sub-section (2) of section 92A enlists specific situations which make two or more enterprises associates of each other for the purposes of sub-section (1). One of the essential limbs or constituents of an IT is "AEs".

3) The deeming fiction under section 92A(2) are limited to the parameters of management, control or capital. Section 92B(2)travels beyond these parameters. Though section 92B(2) is a part of section 92B with the heading "Definition of IT", yet it is to be read as an extension of section 92A(2) and not as an extension of section 92B(1);

4) Section 92B(2) only deems certain transactions to be 'transactions between AEs' and not as 'IT between two enterprises'. Section 92B(2) was enacted to hit at those cases where two AEs intend to have an IT but want to avoid transfer pricing provisions by interposing a third party as an intermediary. In such cases, the third party intermediary will generally not be the ultimate consumer of the services or goods;

The intermediary would facilitate the transfer of services or goods from one enterprise to its AE with no value addition or insignificant value addition. The intermediary is used to break a transaction into two different parts, which when viewed in isolation would not satisfy the requirements of section 92A;

6) The legal form of the transaction in such circumstances is ignored. The substance of the transaction is given effect to, not by disregarding the existence of the intermediary but by deeming the transaction with the intermediary itself to be one with an AE.

7) The legal fiction created in respect of the specified transaction can be used only for the purpose of examining whether such transaction constitutes an 'IT' under section 92B(1)? In case section 92B(1) is not attracted, the fiction under section 92B(2) ceases to operate - IJM (India) Infrastructure Ltd. v. ACIT [2013] 37 200 (Hyderabad - Trib.)

ITAT elucidates law on condonation of delay; arguments as to sufficient cause isn’t a license to file belated appeal

Liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, which can't be equated with a license to file appeals at will-disregarding the time-limits fixed by the statutes

In the instant case the assessee moved an application before the FAA for condoning the delay in filing appeal. The FAA dismissed the appeal filed by assessee.

On appeal, the Tribunal explains basic principles of condonation of delay as under:

1) If sufficient causes for delay are presented, discretion is available to the FAAs to condone the delay and admit the appeal. The expression 'sufficient cause' is not defined, but it means a cause which is beyond the control of the assessee;

2) Any cause which prevents a person approaching the FAA within given time limit is considered as a sufficient cause. The test whether or not a cause is sufficient is to see whether it could have been avoided by the party by the exercise of due care and attention;

3) In every case of delay, there is some lapse on the part of the assessee. If there are no mala fides the FAA should consider the application of the assessee. But when there is reasonable ground to think that the delay was occasioned otherwise than a bonafide conduct, then the FAA should lean against acceptance of the explanation;

The application for condonation of delay should be supported by an affidavit, showing that there is sufficient cause for condonation.

Condonation of delay, though an equitable relief, yet, cannot be accorded merely on sympathy or compassion and the grounds offered have to be evaluated to test whether the party in default had been guilty of conscious and deliberate inaction.

Based on the above principles it held in favour of revenue as under:

A. Adopting a liberal view in condoning delay is one of the guiding principles in the realm of belated appeals, but liberal approach cannot be equated with a license to file appeals at will-disregarding the time-limits fixed by the Statutes;

B. For a period of more than three years, it did not bother to find out the outcome of the appeal it had filed. The behaviour of the assessee could be termed as personified inaction and negligence which would not constitute reasonable cause;

C. Assessee, a corporate-assessee, filing returns of income of lacs of Rupees and assisted by highly qualified professionals couldn't take umbrella of ignorance of the provisions of law. Therefore, the order of FAA was to be upheld - Prashant Projects Ltd. v. Dy. CIT [2013] 37 137 (Mumbai - Trib.)

Payment for lease is different from ‘for obtaining a lease’; only former is subject to sec. 194-I TDS, says ITAT

ayment of lease premium for allotment of plot of land is not liable to TDS liability under section 194-I
In the instant case, the assessee-realtors took a plot of land from MMRD Ltd. and made payment of lease premium for allotment of a plot. It also paid for additional FSI. The AO held that the assessee was required to deduct tax under section 194-I in respect of the aforesaid payment to MMRD. According to him, the assessee had not complied with the provisions of section 194-I, it had committed default within the meaning of section 201(1) and, therefore, the assessee was to be treated as assessee-in-default. On appeal by the assessee, the CIT (A) reversed the findings of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

From lease deed it was clear that the premium was not paid under a lease but was paid as a price for obtaining the lease, hence, it preceded the grant of lease. Therefore, it couldn’t be equated with the rent which was paid periodically. Thus, the assessee had made payment to MMRD under development control for acquiring leasehold land and additional built-up area. The case of CIT v. Khimline Pumps Ltd. [2002] 125 Taxman 104 (Bom.) was squarely and directly applicable to the facts of the case wherein the jurisdictional High Court had held that payment for acquiring leasehold land was a capital expenditure. Considering the facts in totality - in the light of the judicial decisions vis-à-vis provisions of section 194-I, definition of rent as provided under the said provision, there was no reason to tamper or interfere with the findings of the CIT (A) – ITO(TDS) v. Wadhwa & Associates Realtors (P.) Ltd [2013] 36 526 (Mumbai - Trib.)

Flat owner can sell or mortgage his flat to seek borrowings without the permission of society

The Supreme Court held as under:

It was too late to contend that flat owners couldn’t sell, let out, hypothecate or mortgage their flats for availing of loans without permission of the builder, Society or the Company. So far as a builder was concerned, the flat owner would pay the price of the flat;

2) So far as a society or company was concerned, in which the flat owner was a member, he was bound by the laws or Articles of Association of the Company, but his right over the flat was exclusive. That right was always transferable and heritable. Of course, he would have charge over the flat if any amount was due to them of the flat;

3) Neither the Companies Act nor any other Statute has any provision prohibiting the transfer of interest to third parties or to avail of loan for the flat owners' benefit. A legal bar on the transferability of such a interest would create chaos and confusion. The right or interest to occupy any such flat was in respect of property and, hence, had a stamp of transferability - Hill Properties Ltd. v. Union Bank of India [2013] 37 150 (SC)

ST demand can't be made under a category not specified in the show cause notice

Where show cause notice sought classification under consulting engineering services but demand was confirmed under "Erection, Commissioning and Installation Services", demand was, prima facie, not maintainable

In the instant case the department issued a show-cause notice to the assessee for the period from 1997-98 to 9-9-2004 seeking payment of service tax under category of consulting engineering services. The adjudicating authority came to conclusion that services rendered by assessee were not 'consulting engineers' services but were taxable under Erection, Commissioning and Installation Services and confirmed demand accordingly. The assessee argued that demand was invalid as show-cause notice did not put them on notice as to that services would be classified under 'Erection, Commissioning and Installation Services'. Thus, this stay petition was filed by assessee for the waiver of pre-deposit requirement.

The Tribunal held as under:

1) The assessee  was not put to notice as regards the classification of its services under "Erection, Commissioning and Installation Services";

2) The assessee had made out a prima facie case for the waiver of the pre-deposit requirement of the amounts involved, as the Board's circular dated 8-8-2007 specifically clarified that services provided by assessee would be classifiable under the category of Erection, Commissioning and Installation Services from 10-9-2004 only;

3) In view of this, the application filed by the assessee for the waiver of the pre-deposit requirement and stay of recovery was allowed -  Kalpataru Power Transmission Ltd. v. Commissioner of Central Excise  [2013] 36 581 (Ahmedabad - CESTAT)

Consideration received by an advocated in form of land to undertake patta and layout of properties is taxable as capital gains and not as professional receipts

Facts of the case:

A. The assessee, an practising advocate, entered into an agreement as per which he had to undertake the job of obtaining patta and design the layout of the properties and for the services rendered the owners agreed to transfer 3 plots of land to him;

B. In pursuance of the agreement, possession of the property was handed over to the assessee and General Power of Attorney was executed in his favour;

C. Sale agreement was executed in respect of three plots of land for a consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as ‘confirming party’.

D. The AO held that such receipt was to be assessed as income from professional services. On appeal, the CIT(A) reversed the order of AO and held that the receipt could only be taxed as capital gains. The Tribunal upheld the order of AO.

The High Court held as under:

1) The agreement entered between the assessee and the owners made no reference at all to the professional status of the assessee for taking his services. There was no mention about his being an Advocate and that his services were being taken only in that capacity;

2) The possession given of the entire 5 plots of land to the assessee was with the specific object of getting patta and layout of the property. The sale agreement made it very clear that the transfer of 3 plots of land to the assessee was intended by way of consideration for securing patta and layout and, as such, the original owners had entrusted the entire land to the assessee;

3) The assessee had rightly placed his reliance on section 2(47)(v) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, that the receipt would attract capital gains at his hands. There was nothing on record to show that the services to be rendered were taken in the capacity as a lawyer. Therefore, the Consideration received by an advocated in form of land to undertake patta and designing of layout of properties is taxable as capital gains and not as professional receipts  – CIT v. J. Mahalingam [2013] 37 38