HC rules out applicability of sec. 43B to employees’ contribution to PF; no deduction if paid after due date of PF Act

Due date under section 43B, i.e., due date of filing income-tax return, is not applicable under section 36(1)(va) to employees' contributions to PF/ESI, etc.

The High Court held as under:

1) Sum received by the assessee from any of his employees as contribution to PF/ESI, shall not be entitled to deduction if such sum is not credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as per Explanation to section 36(1)(va) of the Act;

2) Merely because Second Proviso to Section 43B of the Act in which there is a reference to due date as defined in Explanation below clause (va) of sub-section (1) of section 36, it can’t be held that even section 36(1)(va) has been amended and/or even Explanation below clause (va) of sub-section (1) of section 36 has also been deleted;

3) If employee’s contribution received by the assessee is not credited to the employees' account in the relevant fund, on or before the due date specified under PF Act, ESI Act or any other law, the assessee shall not be entitled to deduction of such amount even if contributions have been deposited on or before due date under section 43B, i.e., due date for filing of income-tax return – CIT v. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 (Gujarat)

Interest on belated payments of EMI on home loan doesn't qualify for sec. 24 deductions

Interest on interest paid due to default in payment of home loan instalments is not deductible under section 24.

The High Court held in favour of revenue as under:

1) Income of the assessee under the head "income from house property" is to be computed for the purpose of income tax after making certain deductions as are envisaged in Section 24;

2) Section 24(b) stipulates that amount of interest payable on capital borrowed, inter alia, for construction of the property yielding income, is an admissible deduction;

3) It thus is evident that only interest payable on such borrowed capital is to be deducted while computing income chargeable to income tax under the head "income from house property";

4) Therefore, interest paid on interest levied by the bank, because of non-payment of instalments of borrowed capital to the bank, does not qualify for an admissible deduction - Master Naman Kumar v. CIT [2014] 41 taxmann.com  10 (Punjab & Haryana)

No denial of sec. 54F relief even if construction of new house commences before sale of original asset, rules HC

The High Court held as under:

1) Section 54F(1) if read carefully states that the assessee, being an individual or Hindu Undivided Family, who had earned capital gains from transfer of any long-term capital asset, not being a residential house, could claim benefit under the said section provided any one of the following three conditions were satisfied:

(i) The assessee had, within a period of one year before the sale, purchased a residential house;

(ii) Within two years after the date of transfer of the original capital asset purchased a residential house, and

(iii) Within a period of three years after the date of sale of the original asset, constructed a residential house.

2) For the satisfaction of the third condition, it was not stipulated or indicated in the Section that the construction must begin after the date of sale of the original/old asset;

3) There was no condition or reason for ambiguity and confusion which required moderation or reading the words of the said sub-section in a different manner – CIT v. Bharti Mishra [2014] 41 taxmann.com 50 (Delhi)

Sec. 54 relief not available on transfer of tenancy rights

Where assessee was not owner of property but held mere tenancy rights in respect of property, exemption under section 54 was not allowable

Facts:

a) The assessee had surrendered the tenancy rights in the property which resulted in capital gains liable to tax in her hands. While computing the taxable long-term capital gains on surrender of tenancy rights the assessee had claimed deduction under section 54.

b) Before the Assessing Officer (‘AO’), the assessee claimed that she was deemed owner of the property in terms of section 27(iiib), read with section 269UA(b). The AO, however, rejected the claim of the assessee under section 54 and allowed deduction under section 54F.

c) On appeal, the CIT (A) confirmed the action of the AO and held that as the tenancy right was a capital asset other than residential house, the AO has rightly granted the deduction under section 54F.

The Tribunal held as under:

1) It was clear from the facts of the case that the ground floor was taken on rent and the rights vested in assessee which were the tenancy rights;

2) Thus, the CIT(A) rightly gave the finding that the assessee was not the owner of the property but held mere tenancy rights in respect of the property;

3) The deemed ownership is relevant only in connection with computation of income from house property and not in relation to exemption under section 54;

4) The assessee was not entitled to exemption under section 54, thus, there was no error or illegality in the impugned order of CIT(A) - Meher R. Surti v. ITO [2013] 40 taxmann.com 138 (Mumbai - Trib.)

An object to organize 'Maharaja Agrasen Jayanti' especially for Agarwal community isn't charitable in nature

Shree Maharaja Agrasen Jyanti organized mainly for Agarwal community, objects of assessee were meant for benefit of a particular community and, therefore, it was not eligible for registration.

The Tribunal held in favour of revenue as under:

1) The documents filed on record suggest that most of the objects of assessee were meant for the benefit of Agarwal community only;

2) There were certain other objects like establishment of hospital, dharamashala, library, etc., but the assessee since its inception has not carried out any such activities meant for the general public;

3) Since nothing has been provided by the assessee for relief of the poor, education or medical relief, the last provision in the definition of 'charitable purpose' would be considered, i.e., 'advancement of any other object of general public utility';

4) In the preceding year of making registration application, the assessee has mainly organized Shree Maharaja Agrasen Jayanti meant for Agarwal community only. It could not be treated having any charitable purpose for advancement of any other objects of general public utility;

5) Thus substantially the objects of the assessee are meant for the benefit of particular community only and rest of the objects have not been carried out by it since its inception;

6) Merely because dharamashala was created in religious place at Mathura, it could not be said that the dharamashala was meant for charitable or religious purpose. There should be something more to suggest its nexus with the religious or charitable purpose. Therefore, assessee was not eligible for registration under section 12AA - Shri Agrawal Sabha v. CIT [2013] 40 taxmann.com 170 (Agra - Trib.)

Mango pulp based slice is merely a drink and not a 'food article'; liable to Delhi Sales Tax at 8%

Mango pulp based drink 'Slice' is merely a drink/thirst quencher and not a 'food article' as per common parlance test; hence, it is liable to Delhi sales-tax only at 8 per cent

Facts:

a) The Assessee, a trader in fruit/mango pulp based drink, known as "Slice", paid sales-tax thereon at 8 per cent;

b)  The Department argued that said mango pulp 'Slice' was 'preserved food article' under Entry 47 of First Schedule and taxable at 12 per cent;

c) The Tribunal relied on definition of 'food article' under Prevention of Food Adulteration Act and held that said product was a 'food article'.

On appeal, the High court held as under:

1) There is no specific entry which deals with beverages or fruit based drinks or juices. Therefore, applicable test which had to be adopted to judge whether an entry in a taxing statute comprehends one or other article, was common parlance test;

2) Consequently, Tribunal's approach in seeking recourse to definition under Prevention of Food Adulteration Act, was misplaced as there was no reference under Delhi Sales Tax Act imposing such definition;

3) Predominant content of mango pulp drink is water (70 per cent) and mango pulp content is merely 17 per cent. Since product does not claim to be a fruit juice, revenue cannot urge that it has even a minimum modicum of nutritive properties to be considered as 'food';

4) Accordingly, mango pulp based drink is, at best, an instant energy giver and a thirst quencher and not a "food article" by an application of common parlance test. Hence, it was liable to sales-tax only at only 8 per cent. -  Varun Beverages Ltd. v. Commissioner of Value Added Tax [2013] 40 taxmann.com 59 (Delhi)

Mere CA's certificate doesn't prove absence of unjust enrichment unless it was supported by evidence

Costs Analysis Certificate by itself would not be sufficient to claim that incidence of duty had not been passed on to its customers; said certificate must be supported by materials/evidence and, if not all, a few invoices/records.

Facts:

a) Pending claim for grant of certificates for claiming concessional rate of duty on inputs under end-use exemptions for use in manufacture of final products, the assessee received inputs on payment of duty and
paid such duty to suppliers;

b) Later, on receipt of certificates it applied for refund of duty paid on inputs. Said refund claim was rejected on ground of unjust enrichment;

c) The Assessee had produced Cost Analysis certificates obtained from qualified cost accountants showing that burden of duty paid on input was not transferred.
The High court held as under:

1) Under section 12B, every person who has paid duty of excise on any goods shall, unless contrary is proved by him, be deemed to have passed full incidence of such duty to buyer of such goods;

2) Costs Analysis Certificate by itself would not be sufficient to claim that incidence of duty had not been passed on to its customers;

3) While the assessee had claimed that said certificates were issued on basis of verification of records, but, despite various opportunities, it did not produce any evidence in support of said certificate(s) of Cost/Chartered Accountants;

4) Though it was difficult to produce all records/invoices in respect of thousands of customers, but the assessee could have produced at least few such invoices/records to show whether incidence of excise duty was passed on to customer;

5) Merely because, assessee sold final products at loss would not mean that incidence of duty had not been passed on to customers, more particularly, when invoices were issued to customers admittedly had indicated excise duty forming part of price at which vehicles were sold - Toyota Kirloskar Motor Ltd. v. Commissioner of Central Excise [2013] 40 taxmann.com 56 (Karnataka)

Granting less than 24 hours to reply to show-cause notice is a flaw in decision making process; assessment quashed

Allowing assesses less than 24 hours to respond to show cause notice when there is no fear of the assessment getting time barred in the near future is a flaw in the decision making process.

The High Court held as under:

1) Non-exercise of writ jurisdiction in case of availability of an alternative remedy is a self imposed restriction based upon convenience and discretion rather then a rule of law;

2) In appropriate cases where there is a serious flaw in the decision making process or prejudice is caused to a party on account of breach of natural justice, HC is  enjoined upon to exercise its  writ jurisdiction;

3) Once the Assessing Officer has called upon the petitioner to show cause why its claim for deduction under Section 80IA of the Act couldn’t be disallowed, then a reasonable opportunity of filing its reply to be made available to the noticee of the show cause notice, i.e., petitioner;

4) In this case, less than 24 hours period was granted to the petitioner to respond to the notice, particularly when there was no fear of the assessment getting time barred in the near future;

5) In such circumstances, it was incumbent upon the notice issuing authority to grant reasonable opportunity to the petitioner to respond to the notice.  In fact, granting of an opportunity to respond to the show cause notice in less than 24 hours is a flaw in the decision making process and therefore amenable to judicial review;

6) The non consideration of the petitioner’s response to the notice by making it impossible to the petitioner to file its reply for the consideration of the Assessing Officer does cause prejudice to the petitioner leading to palpable injustice. Thus, the impugned assessment order was quashed and set aside - Vodafone India Ltd. v. Union of India [2013] 40 taxmann.com 545 (Bombay)

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.)

Sec. 35ABB doesn’t deem sums paid on telecom licenses as capital exp., it is operative when exp. is of capital nature

The High Court held as under:

1) Section 35ABB does not stipulate or mandate that any expenditure for a right to operate telecommunication services or payment made for the said license as per the section is deemed to be a capital expenditure;

2) Section 35ABB is not a deeming provision but comes into operation and is effective when the expenditure itself is of a capital nature and is incurred for acquiring a right to operate telecommunication services or is made to obtain a license for the said services;

3) It can be incurred before commencement of business or thereafter, but should be incurred during the previous year. Thus, section 35ABB by itself does not help in determining and deciding the question whether license fee paid under the New Telecom Policy, 1999 (NTP) or under the 1994 agreement, was/is capital or revenue in nature;

4) Variable payments made under the NTP on revenue-sharing basis were revenue expenditure deductible under section 37(1). The expenditure incurred towards license fee was partly revenue and partly capital in nature;

5) License fee payable up to 31st July, 1999 to be treated as capital expenditure and license fee on revenue sharing basis after 1st August, 1999 to be treated as revenue expenditure. Capital expenditure qualifies for deduction as per section 35ABB of the Act – CIT v. Bharti Hexacom Ltd. [2013] 40 taxmann.com 40 (Delhi)