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.)

Gift received by assessee on the occasion of his daughter’s marriage isn’t exempt from tax

Gift received by assessee on occasion of his daughter's marriage won't be exempt as the word individual appearing in proviso to sub-clause (vi) of sec. 56(2) relates to marriage of assessee and not of his daughter

The High Court held as under:

1) Proviso to sec. 56(2)(vi) provides that gift received on the occasion of the marriage of an individual would be exempt from tax. There is no ambiguity in such proviso;

2) The expression "individual" appearing in proviso (b) to section 56(2)(vi) of the Act, is preceded by the word "marriage" and, therefore, relates to the marriage of the individual concerned, i.e., the assessee and not to the marriage of any other person related to him in whatsoever degree, whether as his daughter or son;

3) The expression "marriage of the individual" is unambiguous in its intent and does not admit of an interpretation, that it would include an amount received on the marriage of a daughter;

4) If the Legislature had intended that gifts received on the occasion of marriage of the assessee's children would be exempted, nothing would prevent the Legislature from adding the words "or his children", after the words "marriage of the individual";

5) Thus, in view of unambiguous legislative intent appearing in the proviso, the addition made to the appellant's income on account of gifts received on the occasion of his daughter's marriage was to be affirmed - Rajinder Mohan Lal v. Dy.CIT [2013] 36 taxmann.com 250 (Punjab & Haryana)

‘Tax avoidance’ arrangement is legitimate if it’s within four corners of law, says HC

Where arrangement of assessee to avoid payment of tax did not contravene any statutory provision and was achieved within four corners of law, it couldn’t be found fault with

In the instant case the assessee was holding shares in BFSL, which had purchased 15 acres of land from assessee. The assessee sold its shareholding in BFSL for a certain consideration to DLF through Stock Exchange after paying STT and claimed exemption from gain on sale of shares under section 10(38). The AO held that sale of shares by assessee was a colourable device and that virtually the immovable property had been transferred to DLF and assessee was liable to tax on short-term capital gain on sale of immovable property. Further, the CIT (A) and the Tribunal upheld the order of the AO.

The High Court held in favour of assessee as under:

1) Every taxpayer is entitled to arrange his affairs so that his taxes would be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. If the taxpayer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other will not, he would at liberty to choose the latter one and would do so effectively in the absence of any specific tax avoidance provision;

2) If BFSL had sold the property by executing a registered sale deed and received the sale consideration, then it ought to have paid capital gains on the said consideration. All the authorities were carried away by this aspect of the matter and because the Department was deprived of the tax, they had come to the conclusion that it was a colourable device and tax planning to avoid payment of taxes;

3) The assessee by resorting to such tax planning had taken advantage of the benefit of the loopholes in the law, which had endured to his benefit. After seeing how this loophole had been exploited within four corners of the law, it was open to the Parliament to amend the law plugging the loopholes;

4) However, by any judicial interpretation one couldn’t read into the section, which was not intended to by the Parliament at the time of enacting this provision. If the shareholder chose to transfer the land to the purchaser of the shares, it would be a legal transaction, in law, and merely because it was able to avoid payment of tax, it couldn’t be said to be a colourable device or a share transaction;

5) The finding of the assessing authority that it was a transfer of immovable property was contrary to law and material on record.

Unfortunately, three authorities committed the very same mistake which was illegal, contrary to settled legal position and, therefore, required to be set aside - Bhoruka Engineering Inds. Ltd. v. Dy.CIT [2013] 36 taxmann.com 82 (Karnataka)

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.)

AO is supposed to be mentor of assessee; should provide correct advice to assessee if wrong claim is made in return

Where due to ignorance wrong section had been mentioned by assessee in return, AO was required to advise assessee about correct claim and assess tax legitimately
In the instant case the assessee had invested sale consideration from sale of shop in construction of residential house and claimed exemption of capital gains. The AO didn’t consider the claim of the assessee on ground that the assessee had mentioned the wrong sections while claiming the exemption. On appeal, the CIT (A) upheld the order of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) Claim of the assessee was fortified by the assessment order itself, wherein it had been mentioned that exemption was claimed by assessee by mentioning a wrong section. Further, the CIT (A) had acknowledged this fact;

2) Even if a wrong section was mentioned by the assessee in the return, it was the duty of the AO to assist the taxpayer in a reasonable way and provide the relief if due to the assessee. This attitude rather would help the revenue in assessing the income correctly;

3) A correct advice by the department would inspire the confidence of public at large. Even identical guidelines or instructions have been issued from time-to-time by the CBDT to its Officers;

4) If due to ignorance a wrong section had been mentioned by the assessee, AO ought to have advised the assessee about the correct claim and assessed the tax legitimately. This was the clear intention of the Legislature;

5) Thus, matter was remanded to the AO to examine the claim of the assessee afresh under provisions of section 54F after providing due opportunity of being heard to the assessee - Paramjeet Singh Chhabra v. ITO [2013] 35 taxmann.com 612 (Indore - Trib.)

No penalty on payer for non-quoting of PAN in TDS certificates as it was payee’s duty to intimate his PAN

No penalty on deductor of TDS for non-mention of payee’s PAN in Form 16A if payee didn’t intimate his PAN to deductor

The High Court held as under:

Deductor couldn’t be penalized for non-mentioning of PAN in TDS certificates issued to payee in Form 16A if payee hadn’t furnished his PAN to deductor as required by section 139A(5A). Penalty couldn’t be imposed on assessee under sec. 272B(1) for non-mentioning of PANs of payees in Form 16A issued to them as there was nothing on record to show that contractors (payees) to whom certain sums were paid by assessee after deducting TDS had intimated their PANs to assessee. Default by payees in furnishing their PANs to assessee would be a "sufficient cause" for non-imposition of penalty under section 272B(1) – CIT v. Gail (India) Ltd. [2013] 36 taxmann.com 336 (Allahabad)