Saturday, January 31, 2015

Aluminium dross and skimmings aren't manufactured goods; decision of larger bench of CESTAT reversed


Aluminium dross and skimmings and similar non-ferrous metal drosses and skimmings which arise as by-products in process of manufacture of aluminium/non-ferrous metal products are "not manufactured goods" and, hence, not liable to excise duty.

Facts:


a)The assessee was a manufacturer of aluminium sheets and coils falling under heading 7607 1190 of the Central Excise Tariff Act using major raw material 'aluminium ingots'.

b)In the course of manufacture of aluminium sheets/coils, aluminium dross/skimmings emerge as by products. The assessee sold these by products on a regular basis.

c)The department raised demand of duty on "aluminium dross/skimmings" on ground that it was a manufactured product and liable to excise duty in view of Explanation to section 2(d) of the Central Excise Act, 1944. The Tribunal's Larger Bench held in favour of revenue.

d)Assessee argued that 'aluminium dross/skimmings' were not 'manufactured goods' and were not, therefore, liable to duty. It further argued that the Explanation was inserted in section 2(d) in order to clarify that the goods which could be bought and sold in the market were deemed to be marketable. The explanation deals only with the marketability aspect of the question and does not say that even non-manufactured goods are deemed to be manufactured goods.

The High Court held in favour of assessee as under:

1)In case of Indian Aluminium Co. Ltd. v. A. K. Bandyopadhyay 1980 (6) ELT 146 (Bom.), it was held that dross and skimmings are not manufactured goods.

2)In Union of India v. Indian Aluminium Co. Ltd. 1995 (77) ELT 268 (SC), the Supreme Court agreed with the reasons and conclusions of the Single Judge and confirmed the view taken in case of A.K. Bandyopadhyay (supra).

3)Further, the Supreme Court has held in Grasim Industries Ltd. v. Union of India 2011 (273) ELT 10(SC) that the conditions contemplated under section 2(d) and section 2(f) have to be satisfied conjunctively in order to entail imposition of excise duty under section 3 of the Act, therefore the impugned judgment of the Tribunal could not be agreed with. The larger Bench's decision did not take into account the fact that the authoritative pronouncement by the Supreme Court was binding on it.

4)Merely because the goods satisfying the test of being maerketable and saleable, it does not mean that the test of being manufactured in India has been satisfied. The Supreme Court had in aforesaid cases rejected argument of addition of dross, cinder, skimmings, etc. in the list of the items to the Schedule to the Central Excise Tariff and also held 'that is not safe to make it excisable as it has to pass further test of manufactured or produced in India.'

5)Fact that the revenue did not wish to abide by them would not mean that the Tribunal was justified in not following them. The issue stood completely covered by the Judgments of the Supreme Court and which had been totally disregarded by the Tribunal.

6)All Circulars impugned in this Writ Petition brought to the notice of this Court would not survive after the legal position had been set out as above – Hindalco Industries Ltd. v. Union of India (2015) 53 taxmann.com 156 (Bombay).

Friday, January 30, 2015

Amended definition of NPA allowing different regulators to lay down different NPA norms isn't unconstitutional


Facts:

a)Prior to an amendment to definition of NPA, it was defined as 'an account of a borrower which has been classified' by a bank or financial institution ('Creditor') either 'as a sub-standard asset or a doubtful asset or a loss asset' of the Creditor and such a classification was required to be made in accordance with the guidelines issued by the RBI

b)However, under the amended definition, such a classification of NPA is required to be made in accordance with the guidelines issued by any authority which regulates such creditor and if the Creditor is not administered or regulated by any such Regulator then NPA classification is to be made in accordance with the guidelines issued by the RBI.

c)Amendment to definition of NPA i.e Section 2(1)(o) of SARFAESI Act was challenged in various High Courts. The Gujrat High Court, by a common judgment in a batch of writ petitions, held amended definition of NPA as unconstitutional.

d)On the other hand, the Madras High Court rejected the submission of the petitioners that the impugned provision suffers from the vires of excessive delegation

e)Learned counsel appearing for the borrowers/petitioners argued that the amended definition of NPA was unconstitutional on following grounds:

1.that the Parliament, by authorizing the various bodies to frame the guidelines in accordance with which the account of a borrower could be classified as a NPA abdicated its essential legislative function by making an excessive delegation;

2.the amended provision enables different Banks and Financial Institutions ('Creditors') to adopt different guidelines to classify account of a borrower as NPA

3.As the Act does not provide for a reasonable opportunity to demonstrate that the classification of the borrower's account as a NPA is untenable, the power to make such a classification itself becomes arbitrary and violative of Article 14 of the Constitution. On writ, The Supreme Court upheld the Constitutional validity of amended definition of NPA and made following observations:

1)Authorizing different Regulators for e.g. National Housing Bank or Asian Development Bank and Housing Finance corporations to prescribe different norms for the identification of a NPA with reference to different Creditors would not amount to unreasonable classification for the reason that all the Creditors do not form a uniform/homogenous class

2)The function of prescribing the norms for classifying a borrower's account as a NPA was not an essential legislative function. The amendment of the definition of the expression 'NPA' under Section 2(1) (o) was not bad on account of excessive delegation of legislative function

3)Parliament was only stipulating that the expression "NPA" must be understood by all the Creditors in the same sense in which such expression is understood by the expert body i.e., the RBI or other Regulators which are in turn subject to the supervision of the RBI- KESHAVLAL KHEMCHAND AND SONS PVT. LTD. & OTHERS (2015) 53 TAXMANN.COM 470 (SC)

Thursday, January 29, 2015

I-T authorities can collect relevant info to check tax evasion; HC upholds constitutional validity of sec. 133(6)


High Court has upheld the constitutional validity of amendment made to section 133(6) by the Finance Act, 1995 which widened the scope of the said section and gave power to AO to call for information not only in case of 'pending proceedings' but also as a part of the enquiry as said amendment was brought in to tackle tax evasion.

Facts:


a)The income tax authorities had issued notice to petitioner ('Co-Operative Bank'), asking it to furnish details of cash deposit in 'Savings Bank Accounts', aggregating to Rs.5 lakhs and details of payment of interest exceeding Rs.10,000/- to the depositors.

b)Consequently, the petitioner filed the instant writ to challenge the constitutional validity of section 133(6) which empowered the tax authorities to call for information not only in case of 'pending proceedings' but also as a part of the enquiry.

c)The petitioner contended that rights of privacy is an integral part of Article 21 of the constitution of India, which in turn, was violated.

The High Court dismissed the writ by holding as under:

1)Even assuming that the right to privacy is itself a fundamental right, such fundamental right must be subject to restriction, on the basis of compelling 'public interest'.

2)There is no prohibition on the State in gathering information for preventing tax evasion and curbing black money as proceedings can be pursued against wrongdoers only on basis of some information.

3)It is well-settled principle that the 'taxation entry' confers powers upon the Legislature to legislate in matters 'ancillary or incidental', including the provisions for evasion of tax.

4)Thus, no case was made out for striking down section 133(6) or second proviso thereto as unconstitutional, in so far as they apply to inquiries when no proceeding is pending- Pattambi Service Co-operative Bank Ltd. v. Union of India (2015) 53 taxmann.com 453 (Kerala)

Uttarakhand HC denies quashing of notification that blacklisted Cyprus for not sharing tax information


The Government had specified ‘Cyprus’ as notified jurisdictional area' for the purposes of the section 94A via NOTIFICATION NO.86/2013 as it was not providing information sought for by Indian Tax authorities. The instant petition was filed to quash such notification on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as they had never denied any information and they had been ready and willing to supply the information sought for by the Indian Government. The High Court denied quashing of said notification.

Facts:


The instant petition was filed to quash the Notification no. 86/2013, on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as Cyprus have never denied any information and they had been ready and willing to supply the information sought by the Government of India.

The High Court denied to quash the notification and made following observations:

1)Bare perusal of the notification would reveal that Cyprus had not been providing the information as requested by the Indian Authorities under the provisions of Exchange of Information Agreement, therefore, Government of India had decided to notify Cyprus as notified jurisdictional area under Section 94-A.

2)While exercising the writ jurisdiction ordinarily Court should not proceed to look into whether information sought by the Indian Authorities was declined by the Government of Cyprus or whether the Government of Cyprus was ready and willing to supply the information sought for by the Indian Authorities. Moreover, there seemed to be no valid reason to disbelieve the satisfaction so recorded by the Indian Authorities.

3)Thus, relief sought for by petitioner could not be granted. - EXPRO GULF LTD. V. UNION OF INDIA [2015] 53 taxmann.com 413 (Uttarakhand)

Saturday, January 24, 2015

Delhi High Court reads down first proviso to sec. 2(15); rescues genuine charities from its clutches


Facts:

a)The instant writ petition was filed for quashing of the first Proviso to Section 2(15) of the Income-tax Act, 1961 (‘Act').

b)The petitioner contended that the first proviso was arbitrary and unreasonable since the Finance Act, 2008 introduced it to deny the benefit of exemption to "purely" commercial entities, which wore the mask of a charity but it, hit even genuine charitable organizations.

c)The petitioner also contended that the first proviso clubs together two unequal entities, i.e., 'purely business and commercial entities' and 'charitable entities'; therefore, it is violative of Article 14 of the Constitution of India.

The High Court upheld the constitutional validity of first proviso and made following observations:

1)The Finance Act, 2008 introduced the first proviso to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit those institutions, which had the advancement of the objects of general public utility at their heart and were charitable institutions.

2)First Proviso carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In order to determine whether the institution would fall within the ambit of first proviso to section 2(15), the dominant and the prime objective has to be seen behind both the activities.

3)If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'.

4)On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it would be regarded as an institution established for charitable purposes- INDIA TRADE PROMOTION ORGANIZATION V. DGIT (EXEMPTIONS) [2015] 53 taxmann.com 404 (Delhi)

Friday, January 23, 2015

Mere cash deposit of above 10 lakhs in bank account doesn’t indicate that income has escaped assessment, says ITAT


The assessee had deposited cash in excess of Rs 10 lakhs in his saving bank account but he had not filed return of income. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income in respect of cash deposited in bank account. The Tribunal held that the AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that the source of deposit need not necessarily be income of the assessee.

Facts:


a)The assessee had deposited Rs 10 lakhs (approx) in his saving bank account but no return of income was filed by him. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income of Rs 10 lakhs on part of assessee.

b)The instant appeal was filed against validity of reassessment proceedings.

The Tribunal held in favour of assessee as under:

1)At the stage of recording the reasons for reopening the assessment, the formation of prima facie belief that an income has escaped the assessment is necessary. However, it is also necessary that there must be something which indicates, even if not establishes, the escapement of income from assessment.

2)Merely because some further investigation had not been carried out, which, could have led to detection to an income escaping assessment could not be a reason enough to hold the view that income had escaped assessment.

3)In the instant case, merely the fact that deposits have been made in a bank account do not indicate that these deposits constitute an income which had escaped assessment.

4)AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked the fact that the sources of deposit need not necessarily be income of the assessee. The reassessment proceedings could not be resorted to unless there was reason to believe, rather than suspect, that income had escaped assessment. Thus, reassessment proceeding was to be set aside. – BIR BAHADUR SINGH SIJWALI V. ITO [2015] 53 taxmann.com 366 (Delhi - Trib.)

Thursday, January 22, 2015

Longer credit period allowed to AE on realization of sale proceeds would be an international transaction under TP


Longer credit period to AE is 'international transaction' in terms of Explanation to section 92(1) but same is 'closely linked' to international transaction of sale or service to AE in terms of Rule 10A(d). This is not a transaction of loan or advance to the AE but is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest rate would be the average cost of the total fund available to the assessee and not the rate at which a loan is available.

The issues that arose before the Tribunal were as follows:


a)Whether allowance of longer credit period to AE could be treated as an international transaction in terms of Explanation to section 92(1)?

b)Whether allowance of longer credit period to AE could be treated as transaction of loan or advance to AE so as to determine arms’ length interest rate at a rate at which a loan was available?

The Tribunal held as under:

1)After the insertion of Explanation to section 92B(1), the payment or deferred payment or receivable or any debt arising during the course of business would fall under the expression international transaction. Thus, in view of the expanded meaning of the international transaction, the delay in realization of dues from the AE in comparison to non-AE would certainly fall in the ambit of international transaction.

2)As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregation and clubbing of closely linked transaction are permitted under said rule.

3)When the transactions are influenced by each other, particularly in determining the price and profit involved in the transactions, then those transactions can safely be regarded as closely linked transactions.

4)In the instant case, the credit period extended to the AE was a direct result of sale transaction. The sale price of the product or service determined between the parties would always influenced by the credit period allowed by the seller. Therefore, the transaction of sale to the AE and credit period allowed in realization of sale proceeds were closely linked.

5)When the assessee was not making any difference for not charging the interest from AE as well as non-AE then the only difference between the two could be considered as the average period allowed along with outstanding amount.

6)If the average period multiplied by the outstanding amount of the AE was at arm's length in comparison to the average period of realization and multiplied by the outstanding from non-AEs then no adjustment could be made being the transaction was at arm's length.

7)The transaction in question was not a transaction of loan or advance to the AE but it was only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan was available. - GOLDSTAR JEWELLERY LTD. V. JCIT [2015] 53 taxmann.com 353 (Mumbai - Trib.)

Wednesday, January 21, 2015

Trust entitled to exemption even if it charged fee for commercial activity, being incidental to its charitable nature


Fee charged by trust for processing subsidy applications could not be deemed as commercial receipts if it was incidental to its charitable objectives. Thus, assessee-trust was entitled to exemption under Section 10(23C)(iv).

Facts:


a)The assessee, National Horticulture Board (NHB) was an autonomous society set up by the Government to promote, develop horticultural activities and to enhance the social and economic well-being of the farmers, etc.

b)As a part of pursuing these objectives, one of the activities in which assessee was involved in was disbursement of subsidy received from the ministry of agriculture in respect of qualified horticulture projects and, in this regard, assessee had received certain sum on account of cost of application form and the brochure from subsidy seekers.

c)Assessee had filed its return (including the amount received from subsidy seekers) and it claimed exemption under section 10(23C)(iv).

d)The Assessing Officer (‘AO’) disallowed the exemption by contending that the amount so received were for services rendered to the customers, which were in the nature of business, commerce and trade and, therefore, the activities of assessee could not be treated as charitable activities.

e)On appeal, CIT(A) affirmed the order of AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)First proviso to Section 2(15) provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.

2)Thus, the above proviso has two limbs, one is related to carrying on of any activity in the nature of trade, commerce or business and other one is related to carrying on any activity of rendering any service in relation to any trade, commerce or business.

3)There was no dispute that first limb of first proviso was not attracted on facts of the instant case, in as much as it was not even revenue’s case that the assessee was engaged in activity in the nature of trade commerce or business. The addition was made by revenue by invoking the second limb, i.e., rendering of services in relation to any trade, commerce or business.

4)The Delhi High Court in case of GS1 vs DGIT (Exemption) [2013] 38 taxmann.com 364 (Delhi) held that even for invoking second limb of first proviso to Section 2(15), it was sine qua non that the assessee had extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee.

5) It was, thus, clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as

No TDS liability of buyer when capital gain arose to NR wasn't taxable due to sec. 54 relief


Where on date of purchase of house property from non-resident vendor, assessee was aware of fact that capital gain was not taxable in vendor's hands due to availability of deduction under section 54, he was not required to deduct tax at source while making payment of sales consideration

Facts:


a)Assessee had purchased a residential property from a non-resident (‘NR’) and made payment to him without deducting tax at source.

b)He argued that that he was not required to deduct tax at source while making payment to NR since NR was eligible to claim relief under section 54 in respect of capital gain arising out of sale of residential property.

c)The Assessing Officer (‘AO’) opined that capital gain tax would be chargeable in the hands of the recipient on sale of the house property. Hence, assessee was required to deduct tax while making payment irrespective of fact that recipient was entitled to deduction under section 54. Consequently, the AO raised demand under section 201 by treating assessee as assessee-in-default.

d)The CIT(A) affirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)The ultimate levy of taxes depends upon many circumstances like exemption, deduction etc. In the instant case assessee did not deduct tax on payment as he was aware that such payment to NR did not require deduction of tax due to availability of Section 54 relief to NR.

2)If facts of the instant case were to be examined in the light of instruction No. 2/2014 dated 26-02-2014, it would indicate that the AO is required to determine the appropriate proportion of the sum chargeable to tax to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201.

3)The facts on record indicated that from the date of payments, parties were aware that these payments would not be subject to taxes, because of exemption, hence, there was no need to deduct the taxes. Thus, assessee could not be treated as assessee in default under section 201. - A. MOHIUDDIN V. ADIT(INTERNATIONAL TAXATION) [2015] 53 taxmann.com 102 (Bangalore - Trib.)

Monday, January 19, 2015

Fee charged by bank for receiving payments from customers of assessee via credit card won't attract sec. 194H


'Commission' paid to bank on payments received from customers via credit cards is not liable to TDS under section 194H.

The issue that arose before the High Court was as under:

Whether ‘commission’ paid to bank on payments received from customers via credit cards could be treated as a commission or brokerage under section 194H so as to attract TDS?

The High Court held in favour of assessee as under:

1)The intention of the legislature behind introducing the provisions of section 194H was to include commission or brokerage within its ambit when a third person interacts between the seller and the buyer as an agent and, thereby, renders services in the course of buying and/or selling of goods

. 2)In the instant case, bank was providing services to its client (i.e., trader) which could not be treated as services rendered by an agent during course of buying or selling of goods as banker does not render any service in nature of agency.

3)Thus, the amount charged by bank was a fee for rendering banking services to its client and same could not be treated as a commission or brokerage under section 194H for the purposes of TDS. - CIT V. JDS APPARELS (P.) LTD. [2015] 53 taxmann.com 139 (Delhi)

Saturday, January 17, 2015

Sec. 143(1) intimation won't be deemed as completion of assessment to bar filing of revised return, rules HC


Issue of intimation under section 143(1) could not amount to completion of assessment so as to bar an assessee from filing a revised return under section 139(5)

The issue that arose before the High Court was as under-

Whether issue of intimation under section 143(1) could not amount to completion of assessment so as to bar an assessee from filing of revised return under section 139(5)?

The High Court held in favour of assessee as under-

1)The provision of section 143(1)(i) contemplates an assessment without prejudice to the provisions of Section 143(2).

2)Section 143(2) allows Assessing Officer (AO), if he considers it necessary, to serve on the assessee a notice requiring him, on a date to be specified therein, to attend his office or to produce or cause to be produced thereon, any evidence on which the assessee may rely on in support of the return and after taking into account all relevant materials the AO shall by an order in writing make an assessment.

3)Thus, AO could resort to the provisions of section 143(2) even after issuing of intimation under section 143(1) and, therefore, processing of return under section 143(1) could not be said to be completion of assessment so as to restrict assessee from filing a revised return under section 139(5)- TATA METALIKS LTD V. CIT [2014] 52 taxmann.com 480 (Calcutta)

Thursday, January 15, 2015

Excel template for Ind-AS Financials


IndAS standards have been gathering momentum to replace existing Accounting Standards. IndAS provides disclosures for a particular topic but none of the standards provide the format of balance sheet, statement of profit and loss and statement of changes in equity. Although MCA and ICAI provides for proposed Ind AS but one of the key elements missing till date was the format of the financial statements as per Ind AS. Now an exposure draft has been released which provides the format of Ind AS financials complying with Schedule III of the Companies Act, 2013.

Read more

Click here to download excel template

TWISTS AND TURNS IN TAX ACCOUNTING STANDARDS: TAS v. AS


In December, 2010 the CBDT constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the income-tax Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to 'disclosure' requirement, whilst some other contained matter that was adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards ('TAS') issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in the public domain for comments. After examining the comments, the CBDT revised the draft of twelve TAS submitted by the Committee. It has withdrawn draft of TAS which corresponded to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". Click here to view comparative study of Accounting Standards issued by ICAI, TAS and revised TAS issued by CBDT.

Saturday, January 10, 2015

A Comprehensive Guide to Accounts and Audit

Petitioner couldn't ask for transfer of case for his convenience to participate in proceedings, says High Court


Facts:

a)Petitioner was residing with her husband at Tanjore till 2008, after which they moved to Chennai. Petitioner's husband as well as the petitioner were Income-tax assessee and the petitioner's husband died on 29-3-2013, leaving behind two sons and a daughter as his legal heirs.

b)The Income-tax Officer (‘ITO’) issued notices to the petitioner and her two sons under section 148, calling upon them to produce the accounts and documents pertaining to the estate of her husband.

c)Pursuant to the notice, the petitioner had sought for transfer of the files from Tanjore to Chennai.

d)The assessee submitted that merely because notices were issued at Tanjore and statement of the petitioner's son was recorded at Tanjore, it could not be a ground to compel the petitioner to travel from Chennai to Tanjore on each occasion for participating in the assessment proceedings.

The High Court held in favour of revenue as under:

1)On a reading of the provisions of section 127, it was seen that the object for which such provision was enacted is for the purpose of administrative convenience. The said provision does not empower the Assessing Officer to transfer a case from his jurisdiction to that of another and even when the Director General or the Chief Commissioner or the Commissioner exercising such power, can transfer any case after recording his reasons for doing so.

2)For the purpose of recording reasons, it is obvious that the Commissioner has to consider the circumstances involved in each case.

3)When the transactions have taken place within the jurisdiction of the ITO and the transaction pertained to the immovable property, the petitioners could not insist that the files should be transferred from Tanjore to Chennai solely on the ground that it would be convenient for the first petitioner to partake in the assessment proceedings.

4)The ITO after considering the representation of petitioner, called for a report from the Assessing Officer and the contentions raised by the representative of the petitioner was considered and reasoned order had been passed.

5)Thus, the impugned order being a reasoned order and nothing has been placed before Court to show that the impugned order was either ex facie perverse or vitiated by any patent error. In the impugned order reasons have been assigned for rejecting the request for transfer, which was based on the records. Therefore, Court was not inclined to interfere with the discretion exercised by the ITO in refusing to transfer the case from Tanjore to Chennai. - D.V. MERCY V. ITO [2014] 52 taxmann.com 519 (Madras)

Friday, January 9, 2015

Insurer rightly rejected claim for damages as complainant didn’t intimate to it transfer of interest in property


Where complainant in terms of insurance policy failed to intimate insurer about transfer of interest of insured property in favour of bank, insurer was not guilty of unfair trade practice in rejecting complainant's claim for damages as a result of fire

Facts:


a) The complainant-company obtained Standard Fire and Special Perils Policy (‘The Policy’) from the Insurer in respect of the plant, machinery and stocks.

b) The Policy provided for cessation of insurer's liability on failure of insured to intimate if property remained unoccupied or if interest of property passed from insured otherwise than by will or operation of law.

c) The complainant had taken loan from bank, but failed to repay the same and as a result of recovery proceedings its property was attached. While the property was lying sealed, a fire broke out resulting in damages and, accordingly, the complainant informed the insurer about the fire incident.

d) The Insurer rejected complainant’s claim for damages. The complainant filed petition under section 36B of the Monopolies And Restrictive Trade Practices Act, 1969 declaring that decision of insurer amounted to unfair trade practice.

The Competition Appellate Tribunal held as under:

1) As complainant had not informed insurer about sealing of property and that custody of property was with bank and not with insured, the complainant had violated general conditions of policy and, therefore, the insurer was not guilty of unfair trade practice and complainant was not entitled to any compensation or damages-- Anu Texchem Products (P.) Ltd. V. New India Assurance Co. Ltd. [2014] 52 taxmann.com 463 (CAT)

Thursday, January 8, 2015

No deduction of legal fee incurred by assessee to defend his criminal case on charges of customs duty evasion


Legal fees incurred to defend criminal case related to customs duty evasion would meet disallowance under section 37(1) as it did not have any connection with business of assessee

Facts:


a) Assessee was arrested by the Department of Revenue Intelligence (DRI) on charge of evading customs duty on import of palm oil.

b) It claimed deduction of legal fees paid to lawyers for representing his criminal case before High Court and Lower Courts.

c) The Assessing Officer (AO) held that legal expenditure was in the nature of personal expenditure and disallowed the same.

d) CIT(A) affirmed the order of AO by holding that the expenditure incurred for defending the criminal proceedings could not be allowed under any provision of Income Tax Act.
e) Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

The tribunal held in favour of revenue as under:

1) Expenditure on legal fees and proceedings could be allowed under section 37 if it was wholly or exclusively related to carrying on the business of the assessee, but in this case, legal fees was paid to defend criminal prosecution which was totally unrelated to the business of assessee.

2) Therefore, the expenditure so incurred was rightly disallowed as it was having no connection with carrying on business of assessee- Praveen Saxena v. Joint CIT [2014] 52 taxmann.com 451 (Delhi - Trib.)

CBDT plans to celebrate 'Good Governance day' on every Wednesday by holding it as 'public meeting day'


As a part of PM’s 'Good Governance Day' promise to provide an "open and accountable administration" it has been decided by CBDT that all field offices of the Income-Tax department will observe 'Public Meeting Day' from 10.00 AM to 1.00 PM on every Wednesday with effect from January 7, 2015 to address the grievances of the public.

Further, the CBDT has decided that a suitable feedback mechanism shall also be put in place to record the number of grievances attended to and solved on every 'public meeting day', and to identify the deficiencies to avoid delays in redressal of grievances.

Tuesday, January 6, 2015

Even on sale of land held jointly with son Sec. 54B relief to be allowed to father on purchase of land in son's name


Where son of assessee was also joint owner of land, which was sold and subsequently new land was purchased only in name of son because of assessee's old age and other technical reason, assessee was entitled to deduction under section 54B

Facts:


a) During assessment proceedings the Assessing Officer (‘AO’) noticed that proceedings under section 153C were initiated against assessee when documents regarding sale of land was unearthed during search. Ultimately capital gain was computed and the assessee had claimed deduction under section 54B of the Act.

b) The AO denied the deduction on the ground that new land was purchased by the assessee in the name of his son. The CIT(A) upheld the action of AO. The assessee contended that he was an old person and had only one son, who was going to be the legal heir, there was no purpose for purchasing the new land in the name of the assessee himself and that is why land was purchased in the name of his son.

c) The aggrieved assessee filed the instant appeal before ITAT.

The ITAT held in favour of assessee as under:

1) The land which was sold by the assessee was in the joint name of the assessee along with his son, which means the son was also part owner of the land, therefore the issue would stand covered by the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Gurnam Singh [2008] 170 Taxman 160 (Punj. & Har.) wherein it was held as under :

"The Tribunal had recorded a pure finding of fact that the land in question was purchased out of the sale proceeds of the agricultural land which was used only for agricultural purposes and merely because the assessee's son was shown in the sale deed as co-owner, it did not make any difference. It was not the case of the Revenue that the land in question was exclusively used by his son. Therefore, the assessee was entitled to deduction under section 54B."

2) If the land was purchased in the name of the son of the assessee because of old age and other technical reasons, the assessee would still be entitled to deduction under section 54B. Accordingly, the order of the CIT(A) was to be set-aside and AO was to be directed to allow deduction under section 54B. - Bant Singh v. ITO [2014] 52 taxmann.com 364 (Chandigarh - Trib.)