Small service provider's exemption was available to each co-owner on letting out of jointly owned properties

If a property, jointly owned by two or more persons, is rented out by such persons separately to a single person, all such co-owners would be eligible for small service provider's exemption of Rs. 10 lakh separately.

Facts:

a)  The assessees, being co-owners of a building, rented out such building to a tenant and rent was received by all such co-owners separately through different cheques;

b)  Since rent received separately by each co-owner did not exceed Rs. 10 lakhs, they claimed threshold exemption under Notification No. 6/2005-ST, as amended;

c)  The Department argued that amount was to be assessed collectively and sought to club all receipts alleging that separation was made with a view to gain tax benefit.

The Tribunal held in favour of assessee as under:

1) Rental agreement between parties clearly provided that all co-owners were individually renting out such building to a single person. Cheques were also separately received by them;

2) Small service provider’s threshold exemption speaks of aggregate value of taxable services and if, individually, all co-owners were considered as separate service providers, their aggregate value did not exceed exemption limit;

3) Hence, prima facie, case was in favour of the assessee and pre-deposit requirement was waived off accordingly-  Dilip Parikh v. Commissioner of Service-tax [2014] 41 taxmann.com 311 (Ahmedabad - CESTAT)

SC relies on ratio of Mitsubishi’s case that filing of return doesn’t attract bar on advance ruling; sets aside two orders

1)  The assessee, Sin Ocean Shipping ASA Norway, filed the instant SLP, seeking to set-aside the orders passed by AAR [GTB invest ASA, In re [2012] 18 taxmann.com 262 (AAR- New Delhi)] and High Court [NETAPP B.V. v. AAR [2012] 24 taxmann.com 174 (Delhi)];

2)  In case of GTB (Supra), applicant's application for advance ruling was rejected by the authority. In case of NETAPP (supra), the High Court dismissed assessee's writ. The writ was filed by petitioner to challenge the order of AAR which rejected its request for advance ruling;

3)  In both these cases it was held that that applicant was debarred from seeking advance ruling if return was filed prior to date of filing of application before the authority;

4)  The Supreme Court admitted the instant SLP on the basis of case of Mitsubishi Corporation, Japan, In re [2013] 40 taxmann.com 335 (AAR- New Delhi);

5)  In case of Mitsubishi, the authority admitted the application of applicant, seeking advance ruling and it held that mere filing of return prior to filing of application of advance ruling does not attract bar on filing of application under Section 245R(2);

6)  Accordingly, orders of High Court and Authority, [i.e., order of GTB and NETAPP B.V] were set aside. Case of GTB was restored to authority, to give afresh ruling in accordance with law - Sin Oceanic Shipping ASA Norway v. Authority for Advance Rulings[2014] 41 taxmann.com 444 (SC)

HC treats revised return of income as application for condonation of delay; allows legitimate tax refund

Revised return of income to be considered as application for condonation which consequently results in refund of legitimate taxes

The High Court held as under:

1)  The application of petitioner for condonation of delay under section 119(2)(b) was denied by adopting a very hyper technical view that it was made beyond 6 years from the date of the end of the assessment year 2004-05;

2)  In the instant case the revised return of income filed on 8 September, 2011 would be considered as application for condonation of delay and tax refund would be granted - Devdas Rama Mangalore v. CIT [2014] 41 taxmann.com 508 (Bombay)

De-facto ownership of asset to be considered for computing holding period of capital assets, rules HC

Facts:

a)  The assessee, a Chartered Accountant, sold the property on 29.05.2008 for certain consideration. He worked out long-term capital gain and claimed exemption under section 54EC and section 54F;

b)  The assessing authority was of the view that the sale deed executed in favour of the assessee was on 27.02.2008 and he sold the property on 29.05.2008, i.e., within four months from the date of purchase and, therefore, the capital gains arising therefrom could not be construed as long-term capital gain;

c)  Accordingly, he disallowed the exemption claimed under Sections 54EC and 54F. On appeal the CIT(A) upheld the order of AO. Further, the Tribunal set aside said order. Aggrieved revenue filed the instant appeal

The High Court held in favour of assessee as under:

1)  For the purpose of computing 36 months holding period of a capital asset under section 2(42A), there is no requirement in section that holding period should only include the period for which assessee was the owner of the asset with a registered deed of conveyance conferring title on him;

2)  The words "held by the assessee" in section 2(42A) does not mean vesting of legal title in the property to the assessee;

3)  As Bangalore Development Authority allotted plot to assessee in 1988, due to legal disputes between it and the original owners of site, it cancelled the booking and allotted another plot in 2007 and that was also cancelled for same reason and fresh plot was allotted in 2008 and same was registered in assessee's name;

4) The consideration paid in 1988 was to be treated as consideration for the sale deed and capital gains resulting from plot sold in 2008, was long-term capital gains and eligible for benefits under sections 54F and 54EC – CIT v. A. Suresh Rao [2014] 41 taxmann.com 475 (Karnataka)

PANs are issued without de-facto verification, these can’t solely divulge real identity of individuals

Facts:

a)  On basis of some information from the Investigation Wing that assessee was identified as one of beneficiaries who had received bogus entries; notice under section 148 was issued to the assessee and it was required to furnish information in respect of persons who had been allotted shares;

b)  The assessee filed confirmation from the respective persons who had subscribed to the share capital;

c)  The Assessing Officer (‘AO’) held that the assessee had failed to discharge the onus in proving the identity of subscribers, genuineness of the transactions and the creditworthiness and, accordingly, made an addition in the hands of the assessee;

d)  The CIT (A) deleted the addition. Further, the Tribunal confirmed the said order. Aggrieved revenue filed the instant appeal.

The High Court held in favour of revenue as under:

1)  PAN is allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity;

2)  PAN is allotted as a facility to revenue to keep track of transactions and, thus, the PAN cannot be treated as sufficiently disclosing identity of the individual;

3)  The mere filing of share application was not enough as the said application was not an unimpeachable document and did not on its own prove the genuineness or authenticity of the transaction;

4)  Mere production of PAN or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it is actually carrying on business and further recognition of the said company in the eyes of public;

5) Assessee had not been able to discharge the initial onus and had not been able to establish its identity and creditworthiness of the share applicants and the genuineness of the transaction. Thus, the assessee had not discharged the onus satisfactorily and the additions made by the AO were justified – CIT v. N Tarika Properties Investment (P.) Ltd [2013] 40 taxmann.com 525 (Delhi)

No collection of CST at higher rate if rate of tax on Intra-State sales of same goods was reduced unconditionally

Where rate of tax on intra-state sale of Hydraulic Excavators was reduced by way of an unconditional exemption to 2 per cent, Inter-State sale of such goods without C-Form could not be charged to a higher rate, viz., 4 per cent and would be liable to tax at 2 per cent

The assessee was engaged in sales of Hydraulic Excavators and was paying tax at rate of 2 per cent on such sales as per Notification, dated 30-3-2000. The Department found that the assessee had made Inter-State sales of such goods and rate of tax on such Inter-State sales without C-Form was at 4 per cent, as per Notification dated 27-8-1992 and, accordingly, raised demand.

The High Court held assessee liable to tax at 2 per cent with the following observations:-

1.    Notification dated 27-8-1992 issued under section 8(5) of the Central Sales Tax Act, 1956 provided for rate of tax at 4 per cent on Inter-State sales without C-Form. However, Notification dated 30-3-2000 issued under section 15 of the Rajasthan Sales Tax Act, 1994, which was general and unconditional in nature, provided for exemption from tax and provided for rate of tax on said goods at 2 per cent without any condition as to furnishing of C-Form.

2.    Once rate of tax for Hydraulic Excavators was provided under Notification dated 30-3-2000 at 2 per cent, there was no occasion for assessee to obtain 'C-Form' so as to pay tax under section 8 of the Central Sales Tax Act, 1956, which was at 4 per cent.

3.    Hence, fact that sale was an Inter-State transaction and assessee had not furnished 'C-Form' was of no consequence.

4.    Since rate of tax was reduced to 2 per cent by way of exemption, notification dated 27-8-1992 had no application to case. Accordingly, the demand was set aside - Assistant Commissioner v. Telco Construction & Equipment Co. Ltd. [2014] 41 taxmann.com 130 (Rajasthan)

Sec. 13 not violated if firm owned by trustee won tender floated by trust or when trustee got business advances

Where firm of managing trustee won construction bids on competitive basis and sum was advanced to said firm, neither section 13(2)(c), nor section 13(1)(d) was violated.

The Tribunal held as in favour of assessee as under:

1)  The Assessing Officer (‘AO’) declined to grant benefit of section 11, as in the present case construction of building had been carried out by the firm of a managing trustee and, thus, derived direct benefit from the assessee-trust;

2)  A perusal of section 13(2)(c) would show that the income or property of the trust or any part of it had be deemed to have been used or applied for the benefit of the person referred to in sub-section (3), if any amount was paid by way of salary, allowance or otherwise to any person referred to in sub-section (3) out of the resources of the trust for services rendered and the amount so paid was in excess of what might be reasonably be paid for such services;

3)  In the instant case, the AO had outrightly held that the assessee was not entitled to the benefit of section 11 without ascertaining the reasonableness of the amount paid for the services rendered;

4)  The construction contract had been awarded to the firm on the basis of open bid. Since the firm quoted lowest rates, the contract was awarded to the firm. Since the contract was awarded on competitive basis and the profit earned was reasonable, the provisions of section 13(2)(c) were not violated;

5) The CIT (A) had given a well reasoned finding that the sum advanced by the assessee to the firm was business advance. The amounts were advanced for the on-going construction work in the normal course of business activity. The order of CIT(A) was to be confirmed and the appeal of the revenue was to be dismissed – Dy. DIT(Exemptions) v. Sri Vekkaliamman Educational & Charitable Trust [2013] 40 taxmann.com 478 (Chennai - Trib.)

Central Excise Rule providing for interest rate in excess of rate specified in Excise Act is ultra vires: HC

Rule cannot provide for rate of interest in excess of that provided in section/Act itself; Rule 8(3) of the Central Excise Rules providing for interest at rate exceeding that provided in erstwhile section 11AB of Central Excise Act was held ultra vires

Facts:

a)  On delay in payment of duty, the assessee discharged interest at rate of 2 per cent per month;

b)  Department argued that interest, as per rule 8(3), was to be paid at the rate of 2 per cent per month or Rs. 1,000 per day, whichever was higher and accordingly raised demand for differential interest;

c)  The assessee argued that rule 8(3) was ultra vires erstwhile section 11AB (now, section 11AA), as said rule provided for interest at rate exceeding rate provided in said section 11AB.

The High Court held in favour of assessee as under:

1)  In view of judgment of the Rajasthan High Court in Lucid Colloids Ltd. v. Union of India 2006 (200) ELT 377, the expression "or rupees one thousand per day, whichever was higher" in rule 8(3) ibid were invalid, being ultra vires the erstwhile section 11AB;

2)  Therefore, interest chargeable on delayed payment had to be only at rate of 2 per cent per month or 24 per cent per annum, as notified for purpose of erstwhile section 11AB;

3)  Thus demand for differential interest was to be set aside. - K.C. & Sons Appliances (P.) Ltd. v. Union of India  [2014] 41 taxmann.com 177 (Gujarat)

Big blow to ill-gotten wealth invested in real estate; SC affirms seizure of asset acquired from illegitimate means

The Supreme Court held as under:

1)    To understand the exact nature of the forfeiture contemplated under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA) it is necessary to examine the nature of the property which is sought to be forfeited and also the persons from whom such forfeiture is sought to be made. The Act is made applicable to five classes of persons specified under section 2;

2)    Of the five categories of persons to whom the Act has been made applicable, only one category specified under section 2(2)(a) happens to be of persons who are found guilty of an offence under one of the enactments mentioned therein and convicted;

3)    The other four categories of persons to whom the Act is applicable are persons unconnected with any crime or conviction under any law. Section 6 of the Act authorises the competent authority to initiate proceedings of forfeiture only if it has reasons to believe that all or some of the properties of the persons to whom the Act is applicable are illegally acquired properties?;

4)    It is well known fact that people carrying on activities such as smuggling to make money do it in a clandestine manner. Direct proof is difficult to get if not impossible. The nature of the activity and the harm it does to the community provide a sufficiently rational basis for the Legislature to make such an assumption;

5)    Conviction is only a factor by which persons can be identified to whom Act can be made applicable. Connection with the conviction is too remote and, therefore, in our opinion, would not be hit by the prohibition contained under Article 20 of the Constitution of India;

6)    If a subject acquires property by means which are not legally approved, sovereign State would be perfectly justified to deprive such persons of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them do not enjoy such wealth;

7)    Such a deprivation, in our opinion, would certainly be consistent with the requirements of Article 300A and 14 of the Constitution which prevent the State from arbitrarily depriving a subject of his property.

Cenvat credit available for fuel used by one unit to generate power for consumption by two manufacturing units

Fuel used for generation of electricity, a part of which is also supplied to another unit of same  manufacturer, is eligible for credit as input; assessee is not required to have two separate power facilities for two different units.

Facts:

a)  The Assessee was availing of Cenvat credit of duty paid on Furnace Oil used as fuel in DG sets for generation of electricity. A part of electricity so generated was supplied to another unit engaged in manufacture of Polymer Chips, which was main input of the assessee;

b)  The Department denied proportionate credit on Furnace Oil used in generation of electricity consumed by the other unit.

The High Court held in favour of assessee as under:

1)  Tax law should be interpreted in conformity with normal commercial practice. Therefore, the manner of 'use' , should be accepted as to economical, efficient and convenient manner of 'use' because a contrary interpretation would lead to frustrating purpose of law in granting credit;

2)  Generation of electricity in one unit for use in all neighbouring units of a manufacturer is more efficient and economical than setting-up generating facility at each and every factory;

3)  So long as factory and manufacturer are one, credit cannot be denied merely because of separate registration and/or different line of production as there is no such statutory regulation or rule;

4)  It is logical that if two units are being run at one place, producing two different items and electricity is supplied to both of them by a common generator; credit benefit shall be available in respect of both the manufacturing units, unless statutorily provided otherwise; and

5) It was neither expedient nor desirable unless provided otherwise statutorily to have separate electricity generating sets for different manufacturing units. Accordingly, credit was to be allowed. - Commissioner of Customs & Central Excise, Noida, U.P v. Jindal Polyester [2014] 41 taxmann.com 173 (Allahabad)