ITAT finds objective of development and propagation of Islam as ‘charitable’; registration allowed

Facts:

a)The assessee-Waqf (Shia Dawoodi Bohra Jamaat Waqf) was created vide indenture dated 9-7-1920 and was duly constituted waqf under Waqf Act, 1995.

b)It applied for registration under section 12AA. The DIT(E) denied registration on ground that assessee was not brought into existence either as trust or society.

c)The Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The object of assessee-Waqf was as under:

a)To advance, promote, propagate and preach the religion of Islam amongst the Dawood Bohras,

b)To develop, expand, renovate and maintain masjids, madresa, jamatkhanas, etc.

2)Waqf was created by Customs and tenants of Dawoodi Bohra community well before the enactment of the Income Tax Act, 1961. As the Waqf was existing prior to Income-tax Act, 1961, the object beneficial to a section of the public was an object of "general public utility".

3)To serve as a charitable purpose, it was not necessary that the object must be to serve the whole mankind or all persons living in a country or province. Even if a section of the public is benefited, it cannot be said that it is not a trust for charitable purpose in the interest of public.

4)For granting registration it would be sufficient if the object was beneficial to a section of the public, who were Muslims. Thus, there was no merit in the order of the DIT(E) for denial of registration under section 12AA. - SHIA DAWOODI BOHRA JAMAAT WAQF V. DIT(E) [2014] 45 taxmann.com 340 (Kolkata - Trib.)

TARC key recommendations –Abolition of post of Revenue Secretary, merger of CBDT-CBEC and no retro amendments

Key Recommendation of TARC is as under:

1)Merger of CBDT and CBEC: Taxpayer service delivery will be located under one umbrella for large taxpayers, i.e., the CBDT and CBEC will jointly function for large taxpayers through Principal DG (LBS). For other taxpayers, i.e., medium and small, the operations of the CBDT and CBEC will continue in separate chains;

2)Pre-filled tax returns: Pre-filled tax returns should be provided to all individuals. The taxpayer will have the option to accept the tax return as it is or modify it. In either event, the filing process would be completed with the submission of the tax return electronically.

3)Abolition of post of revenue Secretary: The post of revenue secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards. This would empower the tax departments to carry out their assigned responsibilities efficiently

4)Dispute management: Following recommendations made for dispute management: a)Retrospective amendment should be avoided as a principle.

b)The current practice of raising demands irrespective of merits should be discontinued.

c)The jurisdiction of AAR should be made available for domestic cases also. More benches of AAR should be established at specified locations.

5)Widening the use of PAN: The present PAN should be developed as a Common Business Identification Number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO.

6)One Registration for excise and service-tax: Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted between central excise and service tax under the CENVAT credit rules.

7)Filing of return:

a)I-T returns should also include wealth tax return so that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru.

b)The disclosures in the return should include a brief mention of the issues on which there has been an on-going litigation between the tax administration This is to protect taxpayers from allegation of non-disclosure, suppression, escapement of income, etc., which often results in the initiation of penal provisions.

8)Constitution of centralized processing units of CBEC: The CBEC should set up centralized processing units in line with the CPC, Bengaluru, and CPC-TDS at Ghaziabad for processing central excise and service tax returns.

9)Single return for service tax and excise: There should be a common return for excise and service tax.

10) TDS:

a)The insistence on manual filing of TDS certificates before AO for verification of refunds claim should be done away with.

b)The CPC-TDS should allow correction in the name of the deductees to avoid multiple submissions of TDS forms.

c)Once TDS is deducted from a payment, TDS should get credited to the taxpayer’s account. This should be like an account with running balance, to be utilized by the taxpayer at his option to set off his tax liabilities.

11)Refund

a)Refunds sanctioned should be paid along with the applicable interest automatically as is done in the case of income tax and not on demand by the taxpayers.

b)As in the case of direct taxes and customs duty drawback, the refund and interest payment should be directly credited to the bank account of the taxpayer.

c)The rate of interest on refunds should be the same as the interest charged by the tax department. This would ensure equity between the two interests and would not disadvantage the taxpayer unduly.

12)Foreign Tax credit (‘FTC’): The CBDT should come out with clear FTC guidelines, which should also cover the timing differences between different tax jurisdictions.

Interest earned from investment of grant isn’t taxable if it is repaid to grantor or reduces future grants

Interest earned on investment of grant could not be said to have accrued to assessee if the Govt. had given instruction that such interest had either to be refunded back to it or had to be adjusted against future grants.

Facts:

a)The assessee-company was a Special Purpose Vehicle (‘SPV’), created for implementing the projects funded under the Industrial Infrastructure Up-gradation Scheme (IIUS) by the DIPP, Ministry of Commerce.

b)It had received grant from the Govt. and kept said amount in short-term deposits in bank. It earned interest income on such deposits. During assessment, the Assessing Officer (‘AO’) treated the impugned interest as income from other sources. On appeal, the CIT(A) upheld the order of the AO.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)The Central Government, through DIPP, had issued a letter to all the SPVs implementing the IIUS projects, giving certain instructions. The Government had given a clear instruction that interest on short-term deposits either had to be refunded back to the Government or had to be adjusted against the future grants to be released for implementing the project.

2)The interest earned on fixed deposits would be reduced from the grants. Therefore, the interest on short-term deposits would partake the character of grants, unless it was refunded back to the Government.

3)In either case, interest earned on short-term deposits could not be said to have accrued as income to the assessee. The instruction issued by the Government also made it mandatory that the SPV would not utilize the interest earned on the grant for any purpose.

4)The interest earned on short-term deposits could not be treated as income of the assessee, when the assessee had no domain over such income. If the interest income was adjusted against future grant, it would partake the character of the grant itself and it could not be treated as income of the assessee.

5)The AO was required to decide the instant issue after verifying whether the interest earned on short-term deposits had been refunded to the Government or had been adjusted against any future grant.- HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. V. ADIT (International Taxation) [2014] 45 taxmann.com 339 (Hyderabad - Trib.)

No capital gains when revaluation reserve is credited to partner’s capital account; not taxable under sec. 45(4)

Where revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio did not entail any transfer as defined under section 2(47), gains on revaluation could not be brought under tax net.

Facts:

a)The assessee was a partner in Cable TV advertising business. The partnership firm had revalued network rights and corresponding credit in respect thereof was given to the partners including the assessee.

b)After revaluation of network rights, revaluation reserve was credited to partners' capital account and the assets account was debited in the books of the partnership firm. The Assessing Officer (‘AO’) held that the revalued sum was to be charged to tax as the assessee had earned short-term capital gain.

c)On appeal, the CIT(A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal

. The Tribunal held as under:

1)Crediting the amount of revaluation reserve to partner's capital account does not amount to transfer of partnership firm's assets to the individual partner. As per settled principle of law of partnership, during continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits;

2)After revaluation also, there would neither be division of assets nor any realization of assets. Networking rights were property of partnership firm until date of its conversion into a company as per Part IX of Companies Act. Provisions of Section 45(4) would not be applicable to firm or to partners as there was no official dissolution of firm and distribution of assets of firm among partners.

3)Revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio would not entail any transfer as defined under section 2(47), hence, gains on revaluation could not be brought under tax net

4)Thus, there was no merit in the action of the lower authorities in bringing gains on revaluation under the tax net. – RAVINSHANKAR R. SINGH V. ITO [2014] 45 taxmann.com 359 (Mumbai- Trib.)

Sum paid to unrelated party via banking route after deduction of tax at source couldn’t be treated as bogus

The sums paid to unrelated parties could not be treated as bogus if they were paid through banking channel after deduction of tax thereon.

Facts:

a)The Assessing Officer disallowed consultancy charges paid by assessee by treating them as bogus expenditure.

b)He made the disallowance on ground that consultancy was not provided by parties, as no reply was received from them in respect of letters issued to them.

c)On Appeal, the CIT (A) deleted such additions. Further, the Tribunal held in favour of assessee. The Aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The Tribunal, after taking into account substantiating material produced before it, rightly concluded that it was difficult to believe that any assessee would claim such bogus expenditure, when it was eligible for 100% deduction under section 80IA;

2)In addition, even otherwise, the services rendered by Consultants were not found to be doubtful. The doubt was only with regard to the quantum of services rendered by them;

3)However, when payment was made to unrelated parties through the baking channel after deduction of tax, the appellate authorities had rightly addressed the instant issue;

4)Thus, the sums paid to unrelated parties could not be treated as bogus if it they were paid through banking channel after deducted of tax thereon. – CIT V. MUNDRA PORT AND SEZ LTD [2014] 45 taxmann.com 361 (Gujarat)

Sums collected by society for area development was for specific social purposes which couldn’t be held taxable

Where, assessee, a co-operative sugar factory, deducted certain Sum from bills payable to members and non-members towards supply of sugarcane on account of 'Area Development Fund', in view of fact that said sum was impressed with an obligation to spend it for specified social purposes approved in AGM, it could not be brought to tax in assessee's hands as income.

Facts:

a)The assessee, a co-operative sugar factory, was engaged in the business of manufacturing and sale of sugar.

b)It deducted certain sum from the bills payable to the members and non-members towards the supply of sugarcane and the said deduction was shown under the head 'Area Development Fund' (ADF).

c)The Assessing Officer (‘AO’) held that the sum collected by the assessee towards the ADF was to be assessed as income in the hands of the assessee. On appeal, the CIF (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The ADF was used for giving incentive to primary schools, wrestlers, road developments, medical assistance and assistance for group marriages, etc. Initially the assessee was collecting funds on his own discretion and spending it on the different projects undertaken in the area of operation but, subsequently, the collection and use of fund were regulated by the Govt.

2)The assessee had maintained separate accounts in respect of ADF and it was seen that the assessee had been utilizing it on different projects as per the approval given in the annual general meeting (AGM).

3)It was not the case of the revenue that any money was diverted by assessee towards any other purpose other than approved in the AGM of the members. Merely because the sum collected was not kept separately in the bank account, the character of the amount would not change.

4)The assessee was required to submit the auditor's report to the Director of sugar, Govt. of Maharashtra, each year showing the opening balance of the ADF, amount collected and utilized during the year.

5)Therefore, the collection made by assessee towards the ADF was impressed with an obligation to spend it for the specified purposes approved in AGM and the members paying contribution to ADF were aware for what purposes the assessee was collecting the said fund and where the fund would be utilized. The assessee's role was like a trustee of the 'ADF'. The AO was, thus, directed to exclude the amount of 'ADF' from the income of assessee. - LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD. V. DY. CIT [2014] 45 taxmann.com 366 (Pune - Trib.)

Family pension received from UK based bank would fall under residuary Article 23 of India-UK DTAA - taxable in UK only

Where the assessee received family pension from the employer of the deceased wife, i.e., from RBS, UK on which tax was deducted in the source country (i.e., UK), said income could not be taxed for a second time in India.

Facts:

The issue before the Tribunal was:

Whether family pension received by assessee from the employer of his deceased wife (i.e., RBS, UK) on which tax was deducted in source country (i.e., UK) could be taxed again in India?

The Tribunal held as under:

1)Article 20 of India-UK DTAA (‘treaty’) was related to pensions, which means that the payment received by the employee in consideration of past employment. It had no relevance to the family pension, which is generally received by the spouse or family members or legal dependent of the deceased employee from the employer of deceased family member.

2)The Article 23(3) of treaty is related to the items of income which are not included in the foregoing articles of the treaty. Such income arising in the other contracting State may be taxed in that other State. Thus, 'family pension' which was not within the ambit of foregoing articles of India-UK Treaty and arose in the other contracting State, could be taxed in other state.

3)The expression ‘may be taxed’ mentioned in Article 23(3) of treaty authorizes only the State of source to tax such income. Accordingly, the family pension received by the assessee from the employer of his deceased wife was rightly taxed at source in UK and no amount of family pension was, thus, taxable in India.

4)In the instant case, the source country had deducted tax on family pension and, consequently, assessee had received amount after deduction of tax. Thus, the same income could not be taxed second time in the other contracting State, i.e., in India. – ACIT V. KARAN THAPAR [2014] 46 taxmann.com 46 (Delhi - Trib.)

Conveyance allowance received by LIC employee to develop insurance business is exempt from tax

Conveyance allowed paid by LIC to its Development Officer for performance of his duties and development of insurance business is exempt under section 10(14).

Facts:

a)The assessee, a Development Officer of LIC, had received certain amount towards conveyance allowance from the LIC.

b)Though the same was part of the salary certificate but the contention of the assessee was that the said amount had been incurred in development of LIC’s business to receive the premium on account of various policies and the said amount was entirely exempt under section 10(14).

c)The AO rejected assessee's contention and made addition of impugned sum as income of the assessee. On appeal, the CIT(A) held in favour of assessee. Further, the Tribunal upheld the order of CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The conveyance allowance was paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, necessarily and exclusively for meeting of such expenditure, the allowance was being exempt.

2)The LIC was sanctioning conveyance allowance to the Development Officers considering the expenditure incurred by them for procuring the business and it was fixed by a general formula having reference to the parameters of the business. Thus, the impugned allowances were reimbursement of the actual expenditure incurred by the Development Officers on account of conveyance in relation to the performance of their duties.

3)The said expenditure had a close nexus to the performance of the duties and development of the insurance business, inter alia, by way of meeting several persons, to enroll new life insurance agents, to meet the customers for encouraging them to take insurance policies etc. Thus, in such circumstances, expenditures had to be incurred towards conveyance. Therefore, the Tribunal was justified in upholding the exemption granted by the CIT(A). – CIT V. MADAN GOPAL BANSAL [2014] 45 taxmann.com 301 (Rajasthan)

Holy Cow! No revocation of registration of trust working for welfare of cows if it made profit from sale of milk

Where assessee-trust was established for purpose of cow breeding and protection of cows and oxen, incidental income earned by it from sale of milk could not be regarded as carrying on activity of trade or commerce within meaning of proviso to section 2(15).

Facts:

a)The assessee-trust was established for cow breeding, protection of cows and oxen. It got registration under section 12AA.

b)The DIT(E) found that income of assessee from sale of milk was far in excess of prescribed limit under proviso to section 2(15).

c)He, thus, opined that assessee was doing regular activities which were in the nature of business by way of sale of milk and was directly hit by the proviso to section 2(15). He, accordingly, cancelled the registration of trust. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The dominant purpose of the trust was to provide asylum for old, sick, weak, disabled and stray animals and birds, more particularly cows and other cattle and to bring about improvement in breeding of cattle for the beneficial promotion, upkeep, maintenance and propagation of cows.

2)It could not be denied that milk needs to be procured from cows, otherwise it will be detrimental if the milk is not procured from time-to-time. The milk so procured was distributed free of charge to children, hospitals, schools, etc., and, thereafter, the remaining milk was distributed to public at large at a very nominal rate. This activity could not be deemed as business, trade or commerce.

3)The assessee-trust was engaged in multifarious activities of diverse nature but the primary and the dominant activity was “panjrapole”. This predominant object had been held as charitable purpose by the Gujarat High Court in case of CIT v. Swastik Textile Trading Co. (P.) Ltd. [1978] 113 ITR 852 (Guj.)

4)The assessee-trust would not loose its character of charitable purpose merely because some profits arose from the activity of the sale of milk. Such activity could not be carried on in such a manner that it would not result in any profit.

5)There was no material available on record, which could suggest that the assessee-trust was conducting its affairs solely on commercial lines with a motive to earn profit only. The proviso to section 2(15) was not applicable to the instant case and the assessee deserved continuance of registration under section 12AA. Accordingly, the order of the DIT(E) was to be set aside.- SHREE NASHIK PANCHVATI PANJARPOLE V. DIT (E) [2014] 45 taxmann.com 220 (Mumbai - Trib.)

Temporary transfer of copyright in films doesn’t amount to sales; levy of ST on it is constitutionally valid: HC

Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not "sale or deemed sale of goods" and, therefore, levy of service tax on Temporary transfer of copyright in film under section 65(105)(zzzzt) is constitutionally valid.

Facts:

a)The assessee challenged the vires of Section 65(105)(zzzzt) of the Finance Act, 1994 on ground that ‘temporary transfer of copyright’ amounted to 'sale' or 'deemed sale' of goods.

b)The assessee argued that temporary transfer of copyright was a "transfer of right to use goods" which was to be deemed as sale in terms of Article 366(29A), read with Entry 54 of List II of the Constitution and, therefore, it was not a service.

c)The revenue argued that clause (29A) of Article 366 of the Constitution was inserted to give extended meaning to the definition of sale and that Parliament had not divested its power to levy service tax.

d)The issue before the High Court was: Whether section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright was ultra vires the Constitution?

The High Court held in favour of revenue as under:

1)Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) were not "sale of goods" to fall under Entry 54 List II or Entry 92A List I;

2)By resorting to Entry 97 of List I Residuary Entry to levy service tax, Parliament was within its legislative competence to levy service-tax on residual items and Section 65(105)(zzzzt) was not ultra vires the Constitution;

3)Temporary transactions of copyrights or permission to use or enjoyment of copyright could not be brought either under Entry 54 of List II or Entry 92A of List I;

4)In case producer of films grants a few prints of film to distributor for exhibition purposes and distributor is not free to use prints for other purposes, viz., satellite, TV, etc., then, there is temporary transfer of copyright in films, which is a service; it does not amount to sale or deemed sale under 'transfer of right to use goods';

5)Temporary transfer of copyright in film amounted to rendering of service, thus, levy of service tax on it under section 65(105)(zzzzt) was constitutionally valid – AGS ENTERTAINMENT (P.) LTD. V. UNION OF INDIA [2014] 46 taxmann.com 92 (Madras)