Deemed STCG under sec. 50 qualifies for sec. 54EC relief as deeming fiction only provides mode of computation

Capital gain computed under section 50 qualifies for exemption if investment is made out of sale proceeds towards prescribed bonds under section 54EC.

In the instant case the issue that arose for consideration of High Court was as under:

Whether the exemption permitted by the statute under Section 54EC shall be available in the case of capital gains arising out of transfer of depreciable asset under section 50?

The High Court held in favour of assessee as under:

1)  The Madras High Court in the case of M. Raghavan v. Asstt. CIT [2004] 134 Taxman 790 has held as under:

The object of introducing section 50 was to disentitle the owners of such depreciable assets from claiming the benefit of indexing. The said provision was never meant to confer such multiple benefits to assessees selling depreciable assets;

2)  Section 50 creates a deeming fiction only for mode of computation of capital gains under sections 48 and 49 and not for other provisions;

3)  Section 54EC does not make any distinction between depreciable assets and non-depreciable assets and, therefore, deduction available under section 54EC shall be available in case of capital gains arising out of transfer of depreciable asset, if investment is made out of sale proceeds towards prescribed bonds under section 54EC;

4) Thus, the appeal of revenue was to be dismissed. – CIT v. Polestar Industries [2014] 41 taxmann.com 237 (Gujarat)

Waterfront royalty recovered by State Govt. was not an 'intellectual property service'

Facts:

a) The assessee, i.e., State Government had collected Waterfront Royalty charges, which were charged by Government of Gujarat from Fort users/private parties for use of such Waterfront;

b) The Department sought levy of service tax on such charges under Intellectual Property Services.

The Tribunal held in favour of assessee as under:

1)  The definition of Intellectual Property Rights is about right available with an individual or person;

2) The charges collected by the assessee-Government for usage of Waterfront as Waterfront Royalty Charges could not, prima facie, be covered under definition of Intellectual Property Rights  -  State Charge Gog Port of Magdalla v. Commissioner of Central Excise & Service Tax [2014] 41 taxmann.com 376 (Ahmedabad - CESTAT)

Contractual liability to pay custom duty on importer’s behalf won’t be hit by sec. 43B, it’s not statutory liability

The High Court held as under:

1)  Section 43B applies only in cases of statutory liability. By virtue of the said section a statutory liability is not deductable in the year in which it accrues, if the same remains unpaid. A deduction with respect to a statutory liability is allowed only on payment of the same;

2)  The liability to pay the amount of additional customs duty on behalf of the importers as and when they were called upon to discharge the same was clearly a contractual liability and not a statutory liability;

3)  Therefore, in the instant case, the question as to whether the said liability would be considered as deductible under Section43B would not arise;

4)  Even assuming that section 43B would apply to such contractual liability, the furnishing of a bank guarantee to importers would not be considered as actual payment under section 43B so as qualify for deduction under that section - Oswal Agro Mills Ltd. v. CIT [2014] 42 taxmann.com 100 (Delhi)

Going abroad for purpose of ‘employment’ includes self-employment to determine residential status under I-T Act

Facts:

a)  The assessee had earned consultancy income for rendering technical services for setting-up a hospital in Saudi Arabia. He had not offered the same as his income of the year as he claimed that during the year he was not a resident within the meaning of section 6(1);

b)  The A.O. found that assessee was not regularly employed abroad, but worked as a consultant for a foreign company. He opined that the term ‘for the purposes of employment’ used in the section 6 was to be interpreted in the context of employer–employee relationship and should be given a restrictive meaning;

c)  He, therefore, held that assessee was resident as per section 6(1) and the sum received by him had to be brought to tax as the income of assessee for the year;

d)  On appeal, the CIT(A) held that assessee had not left India for any period of time in connection with employment abroad as he was continuously resident in India. Therefore, he could not be considered as having left India and being stationed outside India for the purpose of employment. Accordingly, he had to be considered as resident only.

On appeal, the ITAT held in favour of assessee as under:

1)  As far as the argument of the learned CIT(A) that assessee did not leave India and was stationed outside the country was not material, as nowhere the section specified that assessee should leave India permanently so as to reside outside the country. Thus, the argument of the CIT(A) had no meaning. Therefore, that contention had to be rejected;

2)  The Hon’ble Supreme Court in the case of CBDT v. Aditya Birla [1988] 36 TAXMANN 009 (SC) considered that employment does not mean salaried employment but also includes self-employment/professional work. Therefore, the assessee’s earning from foreign enterprise and visit abroad for rendering consultation could be considered for the purpose of examining whether assessee was resident or not?;

3)  Thus, going abroad for the purpose of employment only meant that the visit and stay abroad had not be for other purposes such as a tourist or for medical treatment or for studies or the like;

4)  Going abroad for the purpose of employment, therefore, meant going abroad to take-up employment or any avocation. Unless assessee travelled on business visa or for the purpose of business/consultation, the entire period of travel abroad could not be considered as ‘going abroad for the purpose of employment’;

5)  The AO was to verify whether the visits were for the purpose of employment or for the purpose of tour or for any other reason. Only to the visits for the purpose of employment could be considered, while determining status of assessee as per the provisions of law;

6)  The assessee was requested to furnish necessary details of visas obtained and also place onrecord the English version of the stampings done on the passport, so as to support his contention that the travel was for the purpose of employment. For these reasons, the issue was to be restored to the file of the AO for fresh examination

Sec. 40(a)(i) disallowances based on residential status doesn’t violate non-discrimination clauses of treaties

The Tribunal held as under:

1)  As section 40(a)(i) creates differentiation based on residential status, it does not violate non-discrimination clauses of treaties which forbid discrimination based on nationalities;

2)  A differentiation in treatment due to residential status cannot be covered by the scope of Article 24(1)/ Art. 25(1)/Art. 26(1) as such a differentiation is not due to nationality factor – Dy. CIT v. Gupta Overseas [2014] 42 taxmann.com 42 (Agra - Trib.)

CCI approves of combination of two banks as resultant business would have insignificant impact on competition

Proposed combination was to be approved when presence of acquirer in mortgage and banking business in India after proposed combination was insignificant and same did not have any appreciable adverse effect on competition.

Facts:

a)  A notice was given under section 6 of the Competition Act, 2002 (‘the Act’) to the Commission for the proposed combination relating to the acquisition by Ratnakar bank of the 'Relevant Business' of RBS, which included credit card business, mortgage portfolio business and banking business, pursuant to the Master Sale & Purchase Agreement;

b)  Mortgage portfolio included housing loans and loans against property and banking business' includes providing small and medium sized enterprises with high end products and services.

The Competition Commission of India held as under:

1)  Both Ratnakar Bank and RBS have a relatively small number of branches operating in India. They provide banking and financial services in India;

2)  After the proposed combination comes into effect, RBS would exit the credit card business, mortgage portfolio and business banking segment;

3)  The Ratnakar Bank has no presence in the credit card business. Its presence in the mortgage and banking business in India would be insignificant after the proposed combination;

4)  Thus, the proposed combination was not likely to have an appreciable adverse effect on competition in India and, therefore, it was to be approved under sub-section (1) of section31 of the Act -  Ratnakar Bank Ltd., In re [2014] 41 taxmann.com 331 (CCI)

Hiring of vehicle on hourly basis shifts TDS obligations from sec. 194C to sec. 194-I front yard

Where assessee entered into an agreement with a contractor for hiring of vehicles and made use of vehicles and paid hire charges on number of hours of use, section 194-I and not section 194C would be attracted.

Facts:

1)  The assessee entered into an agreement with contractor for hiring of vehicles to be used for loading, unloading and transportation of goods. It applied provisions of section 194C and deducted tax at 2 %;

2)  However, the Assessing Officer (‘AO’) held that the assessee was to deduct tax at source under section 194-I;

3)  On appeal, the CIT(A) confirmed the order of AO which was further affirmed by the Tribunal. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) The agreement entered into by assessee was composite agreement for hiring of vehicles to be used for loading, unloading and transportation of goods;

2) The owner of the vehicles was to retain ownership and possession of the vehicles. The vehicles were to be driven and operated by the persons who were to be paid by the owner;

3) The agreement did not require the owner of the vehicles to do any work at all. It was the assessee who made use of the vehicles. He paid hire charges on the number of hours of use and, thus, clearly the assessee was not justified in contending that section 194C was applicable;

4) What the assessee was permitted to do with the vehicles alone was mentioned in the contract. All those works were done by the assessee and no work within the meaning of section 194C was actually done by the owner;

5) Section 194-I specifically contemplates liability of person paying rent to deduct income tax at the rate of ten per cent for the use of any machinery or plant or equipment. Thus, in the instant case section 194-I was attracted instead of section 194C - Three Star Granites (P.) Ltd. v. ACIT [2014] 41 taxmann.com 91 (Kerala)

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)