ITAT accepts insurance value of cars instead of its WDV for wealth tax purposes

Where assessee-company owned several motor cars, 80 per cent of insurance value of motor cars to be accepted for wealth tax purpose instead of written down value of these cars.

Facts:

a) The assessee-company owned several motor cars and offered 80 per cent of the insurance value of the motor cars for wealth-tax purpose instead of their written down value;

b) The Assessing Officer (‘AO’) held that the method used by the assessee was not acceptable because as per the Wealth-tax Act the valuation of the motor vehicles is based on the written down value, i.e., considering the wear and tear and usage of the same. Therefore, he, accordingly, made addition to the net wealth of assessee;

c) On appeal, the Commissioner of Wealth-tax (Appeals) upheld the order of AO. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The value of motor cars shown in their insurance policies had to be taken as the basis for determining their market value;

2) However, as the insurance company would also take other things into consideration in arriving at a particular value for the purpose of insurance, market value of motor cars could be reasonably estimated at 80 per cent of their insurance value;

3) Therefore, the AO was to be directed to take 80% insurance value of the cars shown by the assessee for wealth tax purpose. - Zee Entertainment Enterprises Ltd. v. Assistant Commissioner of Wealth-tax [2013] 40 taxmann.com 74 (Mumbai - Trib.)

Sale of business in lieu of shares under an amalgamation scheme not a ‘slump sale’; in sync with Bharat Bijilee’s case

Where no monetary consideration was involved in transfer of manufacturing division along with all its assets and liabilities under amalgamation scheme, same could not be considered as slump sale under section 50B

Facts:

a) The assessee transferred its manufacturing division to NIL under a scheme of amalgamation as per which all the assets and liabilities of the assessee were vested in NIL;

b) The assessee in return received certain investments held by NIL besides allotment of equity shares to the shareholders of the assessee;

c) The Assessing Officer held that the transfer of the manufacturing division to NIL would tantamount to a 'slump sale' attracting liability of capital gains under section 50B;

d) On appeal, the CIT(A) deleted the order of Assessing Officer. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) To qualify as slump sale two conditions have to be satisfied, viz., (A) there must be transfer of one or more undertakings as a result of sale, and (2) the sale should be for a lump sum consideration without values being assigned to the individual assets and liabilities;

2) In the instant case it was not disputed that there was no monetary consideration involved for transfer of the assets and liabilities of the manufacturing division to NIL, though there might have been transfer of an undertaking;

3) Since there was no monetary consideration involved in transferring the manufacturing division under scheme of amalgamation approved by the High Court, it couldn’t be considered to be a slump sale so as to attract the liability of the capital gain under section 50B – ITO v. Zinger Investments (P.) Ltd [2013] 38 taxmann.com 388 (Hyderabad - Trib.)

‘Equipment’ includes Ship and charter fees thereof is ‘royalty’; HC refers to Sec. 43(3) to define word ‘equipment’

‘Equipment' includes ship, fee paid for use of ship to be considered as royalty under sec. 9(1)(vi). Meaning of the word ‘plant’ as defined under Sec. 43(3) would be relevant to determine meaning of the word ‘equipment’.

The aggrieved assessee appealed against order of Tribunal holding that the payment made for taking ship on time charter basis would constitute ‘royalty’ as defined under Section 9(1)(vi)(b) of the Income Tax Act (‘the I-T Act’). Assessee contended that the ship was not equipment and, consequently, there was no question of use or right to use of any equipment which could be construed as ‘royalty’.

The High Court held in favour of revenue as under:

1) The consideration paid for use of the industrial, commercial and scientific equipment is ‘royalty’ in view of clause (iva) of Explanation 2 to Section 9(1)(vi) of the I-T Act. The word ‘equipment’ is not defined under Section 9, however, the word ‘plant’ has been defined under Section 43(3). In view of Section 43(3), the word ‘plant’ is widely defined to include a ship;

2) In absence of any definition of ‘equipment’ under the I-T Act and considering the business of the foreign enterprise, the definition of ‘plant’, as including ‘ship’ would be appropriate for understanding the scope of the expression ‘equipment’;

3)  ‘Plant’ includes every tool, apparatus, equipment or machinery, not limited to machinery used in tool. Thus, with the inclusive definition of plant embracing within its fold so diverse a matter from a ship to a book, or medical equipment, every tool, apparatus, ‘plant’ includes all equipments used by an assessee for carrying on his business;

4) The word ‘equipment’ construed in the light of Section 9(1)(vi) extends the normal meaning of the word to cover even those specified categories of machinery or plant that would themselves not be construed within its plain and ordinary meaning. As rightly pointed out by the Revenue, the only limitation that one may read into the word ‘equipment’ would be that which is specifically excluded;

5) In context of Section 9(1)(vi)(b), the presence of the word ‘any’ preceding the word ‘equipment’, clearly points out the need for construing ‘equipment’ widely, so as to embrace every article employed by the employer for the purposes of his business. ‘Equipment’, by whatever name called either as an apparatus or as plant or machinery, so long as they are employed for the purposes of one’s income, the same shall stand covered by clause (iva) of Explanation 2;

6) Therefore, in absence of any word of limitation other than what was explicitly provided for, we do not find any legal necessity of reading a limitation on the word equipment. Thus, ship being a plant, an equipment with which the ship owner operates the business and commercially exploits it for earning the income from chartering of ship, the payment thereof would be clearly in nature of ‘royalty’ - Poompuhar Shipping Corporation Ltd. v.  ITO, International Taxation [2013] 38 taxmann.com 150 (Madras)

Share issue exp. remains a capital expenditure even if SEBI disapproves of issue of shares; no sec. 37(1) allowance

Share issue expenses cannot be allowed as revenue expenditure even when shares could not be issued due to non-approval by SEBI

In the instant case the assessee incurred expenditure for issuing shares. However, on account of non-clearance from the SEBI, shares could not be issued. It claimed deduction for share issue expenses as revenue expenditure by contending that since the expenditure did not yield any desired result, the character of the expenditure had to be decided on the basis of the result that would yield benefit in assessee's business. The AO and the CIT (A) disallowed such expenses. The Tribunal also affirmed the view of the AO. Aggrieved assessee filed the instant appeal.

The High Court held in favour of revenue as under:

1) The impugned expenses were incurred by the assessee for the purpose of widening its capital base. The assessee, admittedly, took steps to go
in for public issue and after incurring expenditure, just before the public issue, by reason of the orders from the SEBI, the assessee could not go in for public issue. Thus, the efforts were aborted;

2) There was no justifiable ground to accept the plea of the assessee that on account of the abortive efforts, the expenditure incurred would lose its character as capital expenditure for the purpose of allowing it as a revenue expenditure - Mascon Technical Services Ltd. v. CIT [2013] 37 taxmann.com 253 (Madras)

Transactions among Indian subsidiaries pursuant to contract with their parent co’s out of purview of TP

Assessee sold its medical imaging business to another Indian Co. namely, 'C' Ltd. in pursuance of a transaction whereby holding co. of assessee sold its imaging business to holding co. of 'C' on global basis. Both transactions were independent of each other, therefore, revenue authorities were not justified in making TP adjustment to such transaction.

In the instant case, assessee, an Indian company sold its medical imaging business to ‘C’, Indian company disclosing sale transaction as normal domestic transaction. On perusal of documents, AO concluded that such transaction was on global basis, wherein holding company of assessee sold its imaging business to C Inc. TPO proceeded to determine ALP based on worldwide revenue break up amongst countries submitted by assessee.

The Tribunal held as follows:

a) It was undisputed that the transaction involved two domestic companies who were individual and independent subsidiaries of their own and independent holding companies;

b) Transaction could only become international transaction, if either both of the associated enterprises (‘AE’) or one of the AEs was non-Resident.

c) As per the wordings of section 92B, there had to be an AE, with whom there existed international transaction, only then it could be examined as to whether international transaction with ‘such other person’ existed or not;

d) Transactions entered into by holding foreign companies and subsidiary Indian companies were independent of each other. Though the instant transaction was as a consequence of the global agreement entered into by the holding companies, yet the entire exercise of transfer of imaging segment was independently done on its own terms by the assessee and the other party, i.e, 'C' India.

e) No element of international transaction was involved in sale of imaging segment by assessee of its business to C and it was purely a domestic transaction.

f) Therefore, the impugned adjustment made by revenue authorities was to be set aside - Kodak India v. Addl.CIT [2013] 37 taxmann.com 233(Mumbai –Trib.)

Where assessee had no tax incidence but otherwise was liable to tax in the UAE, benefits of India-UAE DTAA were applicable

In the instant case the assessee, a resident of the UAE, was engaged in the business of shipping.  It claimed that Article 8 of the India-UAE treaty would be applicable to it. The AO, however, held that the assessee was not eligible for treaty benefit. He, therefore, invoked the provisions of section 44B and computed the presumptive profit on total receipt. On appeal, the CIT (A) deleted the order of the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) The revenue’s contention was that since the assessee had not paid taxes in the UAE, there could be no curtailment of tax liability, by pressing the treaty. The reason could being that DTAA applies on juridical double taxation, i.e., if income was not taxed in one State, then it would be taxed in full in the other, if it was otherwise taxable, without granting any benefit of the Treaty;

2) This argument couldn’t be sustained, because the assessee was 'otherwise liable to tax' in UAE. Simply because there was no tax incidence in the UAE, didn’t mean that the assessee ceased to be otherwise liable to tax as per Article 4 of India-UAE treaty;

3) Treaty becomes applicable once the assessee gets within the expression 'otherwise liable to tax' in Treaty. Therefore, the order of CIT (A) was to be set aside and the AO was to be directed to consider the nature of income in issue and, consequently, the availability of Article 8 of the India UAE Treaty – ADIT v. Simatech Shipping Forwarding LLC [2013] 37 taxmann.com 232 (Mumbai - Trib.)

Wife proves to be a lucky mascot; husband gets HRA exemption on rent paid to wife

In the instant case the AO disallowed assessee's claim for HRA exemption on the ground that assessee and his wife were living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability. The CIT(A) confirmed the addition on the ground the tenant (i.e., assessee) landlord (i.e., his wife) were staying together which indicated that the whole arrangement was a colourable device. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The section 10(13A) provides that exemption would be allowable to an assessee for any allowance granted to him by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the him;

2) However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent;

3) Admittedly, the AO had given a finding of fact that the assessee and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife of the assessee was occupied by the assessee also;

4) The assessee had submitted the rent receipt(s) and payments had been duly verified. Therefore, the assessee had fulfilled the twin requirements of the provision, i.e., occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A) - Bajrang Prasad Ramdharani v. ACIT [2013] 37 taxmann.com 186 (Ahmedabad - Trib.)

Arrears received by lawyer who stopped his practice on being elevated as judge not taxable as business income

Arrears of professional fee received by assessee after he had discontinued his legal profession of lawyer on being elevated as a judge of High Court couldn’t be taxed as business income despite insertion of section 176(4) in the Act

In the instant case the assessee was a practising lawyer before his elevation as a judge of the Delhi High Court. He received certain amount of arrears of his professional fees for professional services rendered in the earlier years before his elevation as a Judge of the High Court. The AO held that such receipts were chargeable to tax under section 176(4). On appeal, the CIT (A) deleted the addition made by the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) As per provisions of section 176(4), in the case of cessation of a profession by a professional, the receipt of any sum after such cessation shall be deemed to be the income of the professional and would be taxed in the year of receipt as if, it had been received prior to the cessation of the profession;

2) Section 176(4) introduces a legal fiction, which should be limited only to the purpose for which it has been created. Section 176(4) merely treats the receipt as the income of the recipient. In the absence of any further fiction in the section, the character of such receipt cannot be determined and no further fiction can be introduced so as to determine the head of charge under which such receipt would fall;

3) Thus, the express language of section 176(4) does not render the receipt to be treated as profit and gains of business or profession (PGBP). Therefore, in spite of introduction of section 176(4) in the Act, the receipts in question couldn’t be treated as the assessee's income falling under the head "PGBP”, even though they were the fruits of the assessee's professional activities;

4) It was due to the absence of any legislative provision that these receipts couldn’t be treated as business income falling under the head "PGBP”. They couldn’t be included in the total income of the assessee, even though the amount was received by the assessee before the discontinuance of his profession due to his elevation as the High Court Judge. Thus, the order of CIT (A) was to be confirmed. – ITO v. Justice Rajiv Shakdher [2013] 36 taxmann.com 585 (Delhi - Trib.)

Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty

In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.

The Tribunal held in favour of assessee as under:

1) The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal;

2) Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal;

3) The remittance made by the assessee was not for availing of technical services and did not amount to royalty.  It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld – ITO, TDS v. Kendle India (P.) Ltd [2013] 37 taxmann.com 140 (Delhi - Trib.)

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 taxmann.com 227 (Delhi - Trib.)

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;

5) 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 taxmann.com 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;

4) 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 taxmann.com 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 taxmann.com 526 (Mumbai - Trib.)

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 taxmann.com 581 (Ahmedabad - CESTAT)

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

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

The Tribunal held as under:

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

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

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

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

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

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

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

The Tribunal allowed the stay application with the following observation:

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

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

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

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

The Tribunal held as under:

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

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

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

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

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

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

The Tribunal held as under:

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

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

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

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

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

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

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

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

The Tribunal held in favour of assessee as under:

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

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

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

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

No deduction of tax from medical allowances paid to employees along with salary before incurring of such exp

Employer was not at fault for not deducting tax at source from medical allowances paid to its employees before incurring of actual medical expenditure. It couldn’t be deemed to be in default for non-deduction of tax on medical reimbursements if it has made bona fide estimate of taxable salary of its employees

In the instant case the payments made by assessee to its employees every month included a component towards medical expenditure. The AO treated assessee as an ‘assessee-in-default’ for not deducting tax at source from medical reimbursements upto Rs. 15,000 paid to the employees. In this regard, AO held that the payment of medical expenditure had not to precede the actual incurring of the expenses and it should be only by way of reimbursement. On assessee’s appeal, the CIT(A) quashed the order of the AO Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The exemption in respect of medical expenditure was to be restricted to expenditure actually incurred by the employees, or Rs. 15,000 whichever was lower. The exemption was to be granted even if the payment preceded the incurrence of expenditure;

2) Though the allowance paid by the assessee to the employees would not form part of taxable salary of an employee, yet if the employer was required to deduct tax at source treating it as part of salary, then that would be contrary to the provisions of Sec.192(3) of the Act;

3) The liability of the person deducting tax at source couldn’t be greater than the liability of the person on whose behalf tax at source was deducted. No tax could be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee was made by the employer. Thus, the order passed by the AO was rightly quashed by the CIT(A) – ACIT v. SAP Labs India (P.) Ltd. [2013] 36 taxmann.com 200 (Bangalore - Trib.)