Tuesday, October 8, 2013

IPL in FEMA violation; Special Director had to form an opinion before calling BCCI President for personal hearing

Special Director was directed to first form his opinion whether to proceed against petitioner President of BCCI, for remittances in violation of FEMA before calling petitioner for personal hearing as per rule 4 of Adjudication Rules
  1. The petitioner was President of BCCI during years 2008 to 2011. In 2009, after the second edition of IPL at South Africa, the Assistant Director, Directorate of Enforcement filed a complaint with Special Director alleging that the provisions of FEMA had been violated by the Board and its officers while conducting second edition of IPL;
  2. On basis of the complaint, show-cause notices were issued to the Board and its office bearers calling upon the Board to show cause in respect of a particular conduct/transaction amounting to violation of the Act;
  3. The petitioner was also called upon in each of the notices to show cause as to why penalty should not be imposed upon him in his capacity as the President of the Board in terms of section 42. Special Director issued notice to petitioner for personal hearing according to rule 4 of Adjudication Rules;
  4. Petitioner filed writ petition contending that he had no role in remittances and receipts of foreign exchange in 2009 and a separate committee had been constituted to administer IPL with a separate bank account to be operated by Treasurer, BCCI.
The High Court held as under:
  1. The petitioner was not in charge of and responsible to BCCI for aforesaid matters, as far as opening and operating of bank account of IPL or obtaining permission of Reserve Bank of India for making remittances or receipts of foreign exchange was concerned;
  2. It would be necessary for adjudicating authority to form an opinion whether petitioner could at all be considered as covered by substantive part of section 42(1), since petitioner himself was not in charge for opening and operating bank accounts involving receipts and remittances of foreign exchange to parties outside India;
  3. That communication calling petitioner for personal hearing was to be set aside since adjudicating authority had not considered aforesaid aspects before forming an opinion to proceed further with inquiry under sub-rule (4) of rule 4 of Adjudication Rules;
  4. The Special Director was to be directed to first form his opinion, after recording reasons before proceeding against petitioner with regard to impugned show-cause notices in accordance with rule 4(3) of Adjudication Rules – Shashank Vyankatesh Manohar v. Union of India [2013] 37 taxmann.com 151 (Bombay)

Institution-wise aid of about 45% entitles a society for sec. 10(23C) exemptions

For computing 'substantial government aid' so as to avail section 10(23C) exemption, receipts of individual institution are to be considered, not aggregate receipts of various institutions run by a society; 45 per cent government aid is substantial for such purpose

In the instant case two issues that came for consideration of the Tribunal were as under:

a) Whether the aggregate gross receipts of various institutions run by the assessee-society were to be considered for the purpose of section 10(23C)(iiiab) or the individual receipts of each institution run by the assessee are to be considered?

b) Whether the assessee had received substantial Govt. aids to be eligible for exemption under 10(23C)(iiiab)?
On first issue, it held as under:

For purpose of applying provisions of section 10(23C), receipts of individual institution are to be considered, and not aggregate gross receipts of various institutions run by assessee.

On second issue, it held as under:

1) The percentage of grant was within the range of 41% to 82% if considered individually for each institution. If the percentage was considered for the society as a whole even then the percentage was 44.52% and 45.15% in the two years;

2) The Hon'ble Court in case of CIT v. Deshiya Vidyashala  [I.T.A. No.1133 of 2008, dated 8.2.2011] has considered 34.33% as substantial aid for the purpose of eligibility under the above said sections;

3) In the instant case the percentage of grants in aid with respect to total receipts are more than 34.33%. Thus, following the case of Deshiya Vidyashala (supra) with respect to definition of substantial interest, aid of more than 34. 33% was to be considered as substantial aid.

Therefore, the assessee’s institutions were substantially aided by the Govt. and, hence, were eligible for exemption under section 10(23C)(iiiab) - Jat Education Society v. ITO [2013] 37 taxmann.com 187 (Delhi - Trib.)

School to apply sec. 194C and not sec. 194I on transport contract if transporter incurs running cost and keeps possession of vehicle

Contract awarded by assessee-school to transporter for carrying students would be covered by sec. 194C and by not sec. 194I if bus remained in possession of transporter and all running and maintenance costs were incurred by him

In the instant case the assessee-school awarded contracts to various transporters for carrying its students from their homes to school and from school back to homes. It had deducted tax under section 194C for making payments to bus owners. The AO held that the assessee should have deducted tax under section 194I on such payments. On appeal, the CIT(A) reversed the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The object of the assessee to enter into such agreement was a simple activity of carrying its students from their homes to the school and similarly from school back to their homes;

2) The assessee had no responsibility whatsoever regarding the buses to be utilized for that purpose which was the sole responsibility of the transport contractor;

3) The transport contractor only was liable to keep and maintain the required number of buses for such activity at its own expenses with the specified standards;

4) Therefore, the said contract was purely in the nature of services rendered by the transport contractor to the assessee. The assessee was not having any responsibility whatsoever regarding the transport vehicles used in such activity;

5) The assessee itself had not utilized the buses but they were used by the transport contractor for fulfilling the obligations set out in the contract. Thus, the aforesaid payments were not covered in the definition of 'rent' which was defined in Explanation to section 194-I,;

6) Therefore, the provisions of section 194-I could not be applied in the instant case. The assessee had rightly deducted tax at source under the section 194C on the aforesaid payments – ACIT (TDS) v. Delhi Public School [2013] 37 taxmann.com 211 (Delhi - Trib.)