CBDT plans to celebrate 'Good Governance day' on every Wednesday by holding it as 'public meeting day'

As a part of PM’s 'Good Governance Day' promise to provide an "open and accountable administration" it has been decided by CBDT that all field offices of the Income-Tax department will observe 'Public Meeting Day' from 10.00 AM to 1.00 PM on every Wednesday with effect from January 7, 2015 to address the grievances of the public.

Further, the CBDT has decided that a suitable feedback mechanism shall also be put in place to record the number of grievances attended to and solved on every 'public meeting day', and to identify the deficiencies to avoid delays in redressal of grievances.

Even on sale of land held jointly with son Sec. 54B relief to be allowed to father on purchase of land in son's name

Where son of assessee was also joint owner of land, which was sold and subsequently new land was purchased only in name of son because of assessee's old age and other technical reason, assessee was entitled to deduction under section 54B

Facts:

a) During assessment proceedings the Assessing Officer (‘AO’) noticed that proceedings under section 153C were initiated against assessee when documents regarding sale of land was unearthed during search. Ultimately capital gain was computed and the assessee had claimed deduction under section 54B of the Act.

b) The AO denied the deduction on the ground that new land was purchased by the assessee in the name of his son. The CIT(A) upheld the action of AO. The assessee contended that he was an old person and had only one son, who was going to be the legal heir, there was no purpose for purchasing the new land in the name of the assessee himself and that is why land was purchased in the name of his son.

c) The aggrieved assessee filed the instant appeal before ITAT.

The ITAT held in favour of assessee as under:

1) The land which was sold by the assessee was in the joint name of the assessee along with his son, which means the son was also part owner of the land, therefore the issue would stand covered by the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Gurnam Singh [2008] 170 Taxman 160 (Punj. & Har.) wherein it was held as under :

"The Tribunal had recorded a pure finding of fact that the land in question was purchased out of the sale proceeds of the agricultural land which was used only for agricultural purposes and merely because the assessee's son was shown in the sale deed as co-owner, it did not make any difference. It was not the case of the Revenue that the land in question was exclusively used by his son. Therefore, the assessee was entitled to deduction under section 54B."

2) If the land was purchased in the name of the son of the assessee because of old age and other technical reasons, the assessee would still be entitled to deduction under section 54B. Accordingly, the order of the CIT(A) was to be set-aside and AO was to be directed to allow deduction under section 54B. - Bant Singh v. ITO [2014] 52 taxmann.com 364 (Chandigarh - Trib.)

Defect of framing assessment on non-existent entity couldn't be cured by resorting to sec. 292B

Facts:

a) The assessee-company had been amalgamated with another company under Sections 391(2) and 394 of the Companies Act. Consequently, the assessment order was made on the assessee.

b) Aggrieved by the assessment order, the assessee appealed to the CIT(A). It argued that the assessment order was invalid, because on the date on which order was passed, it had already ceased to exist (having been amalgamated). The CIT(A) held in favour of assessee. 

c) The revenue, being aggrieved by the order of CIT(A) appealed to the ITAT, which upheld the order of CIT(A). Finally the aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1) In case of Spice Entertainment Ltd. v. CIT [IT Appeal No. 475 of 2011] the Delhi High court held that:

“it [becomes] incumbent upon the Income Tax Authorities to substitute the successor in place of the said 'dead person'. Such a defect cannot be treated as procedural defect... once it is found that assessment is framed in the name of non-existing entity it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act."

2) In Spice Entertainment Ltd. (supra), this Court expressly classified "the framing of assessment against a non-existing entity/person" as a jurisdictional defect. This had been a consistent position. In case of CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), the Madras High Court held that:

“there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid."

3) It was clear that all contentions sought to be urged by the revenue were in respect of familiar grounds, which had been ruled upon, against it. Thus, assessment could not be made on amalgamating company even by resorting to Section 292B. – CIT v. Dimension Apparels (P.) Ltd [2014] 52 taxmann.com 356 (Delhi).

Every suit for recovery of money from Sick Co. doesn't require prior permission of BIFR, rules HC

Facts:

a) The petitioner-company filed an application under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) but same was dismissed by impugned order holding that a simple suit for recovery of moneys was not barred by section 22 of SICA.

b) The Trial court in the impugned order also recorded that in spite of repeated directions to the petitioner/defendant, no document was filed to show that the debt of the respondent/plaintiff was included in the scheme of rehabilitation of the petitioner-company

On writ, the High Court of Delhi held as under:

Since every suit for recovery of money does not require permission under section 22 of SICA and despite repeated directions of Court petitioner-company failed to show that debt of the respondent was included in scheme of rehabilitation, application filed by petitioner under section 22 of SICA was to be dismissed. - Kusum Products Ltd. v. Hitkari Industries Ltd. [2014] 52 taxmann.com 230 (Delhi)

Requirement of amending articles pursuant to Section 43A in case of hybrid Companies is only optional on part of shareholders

Requirement of amending Articles of Association pursuant to Companies (Amendment) Act, 2000 insofar as hybrid companies, i.e., deemed public companies are concerned, is only optional on part of shareholders

Issue:

Whether requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, in case of hybrid companies are optional on part of shareholders?

The Supreme Court held as under:

1) A private company which becomes a public company by virtue of operation of any one of four sub-sections of section 43A of Companies Act, 1956 has choice either to retain or delete those stipulations as specified in its Articles of Association relating to matters specified under section 3(1)(iii)

2) After amendment to Companies Act by Act No. 53 of 2000 concept of hybrid (section 43A) companies is not altogether abolished, at least insofar as companies falling under section 43A(1C) are concerned which were in existence on 13-12-2000 would continue to be hybrid companies 

3) Effect of amendment to section 3(1)(iii) on private companies in existence on 13-12-2000 is that if they choose to make provisions in their Articles of Association to give effect to mandate of section 3(1)(iii)(d), they become private companies with effect from such date when they make such provision by virtue of section 43(2A) and if they do not make such an amendment, they would still continue to be public companies governed by section 43A(1C) (hybrid companies) and can continue to have provisions in their Articles of Association referable to section 3(1)(iii)(a), (b) & (c) 

4) Thus, requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, insofar as hybrid companies are concerned, is only optional on part of shareholders---Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2014] 52 taxmann.com 349 (SC)

SC: Mobile charger is an accessory of mobile phone and not its integral part; leviable to VAT at 12.5%

Where assessee was selling mobile phone with battery charger in same packing, it did not charge any separate amount for battery charger from customers and was charging only for handset; battery charger was an accessory to cell phone and was not a part of it, thus, liable to VAT at general rate of 12.5 %.

Facts:

a) The assessee ('Nokia India (P.) Ltd.'), was a registered dealer under the Punjab VAT Act. It had sold mobile phones alongwith battery chargers. It had paid tax at 4% (i.e., the rate at which tax on sale of mobile phone was paid) on the sale of value of charger.

b) It stated that the product was being sold as mobile phone under a solo pack and was covered under Entry No. 60 of Schedule 'B' of the Punjab VAT Act. No separate amount for battery charger was being claimed from the customers and only amount charged was for handsets. Whenever it sold chargers separately then VAT at 12.5% was charged, which was applicable to goods in residuary Schedule 'F' of the VAT Act.

c) The assessing authority held that the battery charger was an accessory to the mobile phone and was not a part of it. It was liable to be taxed at general rate, i.e., at 12.5% and not at concessional rate applicable to the mobile phones (i.e., at 4%).

The Supreme Court held in favour of revenue as under:

1) The authorities had rightly held that the battery charger was not a part of the mobile phone. If the charger was a part of mobile phone, then it could not have been operated without using the battery charger. But in reality, it was not required at the time of operation.

2) The battery in the mobile phone could be charged directly from the other means also like laptop without employing the battery charger, implying thereby, that it was nothing but an accessory to the mobile phone.

3) The Tribunal noticed that as per the information available on the website of the assessee, it had invariably put the mobile battery charger in the category of an accessory, which meant that in the common parlance also the mobile battery charger would have to be understood as an accessory.

4) Thus, the authorities had rightly held that the mobile phone charger was an accessory to mobile phone and was not a part of mobile phone. The battery charger could not be held to be a composite part of the cell phone but was an independent product which could be sold separately without selling the cell phone. The High Court failed to appreciate the aforesaid fact and wrongly held that the battery charger was a part of the cell phone.

5) Thus, battery charger was liable to be taxed at general rate, i.e., at 12.5% and not at concessional rate applicable to the mobile phones (i.e., at 4%). - State of Punjab v. Nokia India (P.) Ltd. (2014) 52 taxmann.com 410 (SC)

Perpetual transfer of satellite rights of a film for 99 years is a sale; excluded from definition of ‘royalty’

Transfer of satellite right to assessee under an agreement for a period of 99 years is a sale and, therefore, excluded from definition of 'royalty' under clause (5) of Explanation 2 to section 9(1)(vi).

Facts:

a) The assessee was dealings in film satellite rights by taking them on assignment basis and reassigning to channels.

b) He did not deduct tax at source on purchase of copyright of film as he was of the view that such purchase was neither covered under section 194J nor under section 194C. However, the Assessing Officer held that the payments debited as purchase warranted TDS under section 194J and worked out disallowance under section 40(a)(ia).

c) The CIT(A) allowed the appeal of assessee by holding that the consideration paid did not attract section 194J.

d) On appeal, the Tribunal held that the payments made would fall within the definition of 'royalty' and as the assessee had failed to deduct tax under Section 194J rigour of section 40(a)(i) stood attracted. The aggrieved assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) Perusal of the facts and circumstances of the instant case and case of Mrs. K. Bhagyalakshmi v Dy.CIT [2013] 40 taxmann.com 350 (Madras) would show that the substantial question of law raised were the one and same in both the cases.

2) The earlier division bench of this court in case of Mrs. K. Bhagyalakshmi (supra) after considering the perpetual transfer of rights for a period of 99 years [in terms of Section 26 of Copy Right Act and also the definition under clause (5) to Explanation 2 to section 9(1)] held that it was a sale and, therefore, excludible from definition of royalty.

3) Following the decision rendered in the case of Mrs. K. Bagyalakshmi (supra) it was to be held that transfer of satellite right to assessee under an agreement for a period of 99 years would be a sale and excludible from definition of 'royalty'. Therefore, the Tribunal had erred in concluding that the payment made by the assessee was royalty and not sale. - S.P.Alaguvel v. DY. CIT [2014] 52 taxmann.com 231 (Madras)

HC nods to capital reduction scheme approved by majority of shareholders as it wasn't prejudicial to creditor’s rights

Where reduction of share capital was approved by majority of shareholders and did not involve any cash outflow to prejudice rights of creditors, same was to be confirmed

Facts:

a) The petitioner filed petition under section 101(1) of the Companies Act, 1956 for confirming the reduction of share capital account.

b) It was submitted that after the proposed reduction of the equity share capital by adjusting with debit balance and profit and loss account, financial statements of the company would exhibit realistic picture of the company's financial position.

c) The company also had no secured or unsecured creditors and, hence, there was no question of interest of the company's creditors to be adversely affected.

d) Further, the shareholders had unanimously passed the special resolution approving of the reduction of capital in extraordinary general body meeting. The petitioner also sought liberty of the Court for dispensing with the words 'and reduced' as contemplated in section 102(3) of the Companies Act, 1956.

The High Court of Madras held as under:

1) Since reduction of share capital was purely a commercial decision which was approved by majority of shareholders and reduction did not involve any cash out flow to prejudice rights of creditors with procedure laid down under section 100 of the Companies Act, 1956 having been fully complied with, reduction of share capital as resolved by company in its special resolution was to be confirmed and also the prayer for dispensing with the words 'and reduced' as contemplated in section 102(3) of the Companies Act, 1956 was to be allowed..-----Comtec Components Ltd., In re [2014] 52 taxmann.com 173 (Madras)

Bombay High Court: Service tax on services of advocate/arbitral tribunal is constitutional

Levy of service tax on services provided by advocates and arbitral tribunal is constitutionally valid and not violative of Article 19(1)(g); further, exemption to services provided to individuals and small businessmen having turnover upto Rs. 10 lakhs is based on intelligible differentia and not violative of Article 14.

Facts:

The petitioner, a practicing advocate, filed writ petition for declaration that section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act, 2011 providing for service tax on services by advocates is null and void and ultra vires the Constitution of India.

The High Court held in favour of revenue as under:

1) There is no basis or foundation in the complaint by petitioner inasmuch as imposition of such levy does not burden the litigant or the consumer of justice. There is no substance in the complaint that the profession of advocates and legal profession itself has been treated on par with commercial or trading activities or dealings in goods and other services. Merely because of the role of the advocate, it does not mean that his position as an officer of the Court and part and parcel of administration of justice is in any way undermined, leave alone interfered with.

2) The Advocates and legal practitioners are known to pay professional taxes and taxes on their income. They are also brought within the purview of service tax because their activities in legal field are expanding in the age of globalization, liberalization and privatization. They are not only catering to individuals but business entities too. If it is found that the advocates are catering to affluent and rich class of litigants and recipients of legal services, then, the tax on the services rendered to them is definitely within the permissive sphere of legislation. That cannot be faulted.

3) Hence, activities carried out by advocates for consideration by way of fees, etc., amounts to 'service' and can be charged to service tax. Similarly, arbitration is also carried out for hefty fees and levy of service tax on services by arbitral tribunal is not invalid.

4) Levy of service tax is not violative of Article 19(1)(g) of Constitution, as it is a reasonable restriction and similar to income-tax and professional tax being paid by advocates. Since services provided to individuals and small businessmen having turnover upto Rs. 10 lakhs stands exempted, it does not deny justice to poor and needy. Further, such exemption to individuals and small businessmen does not transgress doctrine of equality under Article 14 of Constitution of India, as such exemption is based on intelligible differentia/classification.

5) Moreover, since service tax on non-exempt services provided by advocates/arbitral tribunal is payable by service recipients under reverse charge on and from 1-7-2012, such advocates/arbitral tribunal can no longer complain of levy of service tax. Even for period prior thereto when there was no reverse charge, levy of service tax could not be regarded as invalid and arguments that 'reverse charge be treated as retrospective' was to be set aside. - P.C. Joshi v. Union of India [2014] 52 taxmann.com 311 (Bombay)

“Stake money” or “prize money” paid by race clubs to horse owners won’t attract TDS under Sec. 194B

The issue that arose before the High Court was:

Whether the assessee was liable to deduct tax at source under Section 194B on making payment of ‘stake money’ to the owners of the horses?

The High Court held as under:

1) A cursory look of the Finance Act, 2001 introduced with effect from 01.04.2002 and particularly section 194B would indicate that it was introduced to tax deduction at source on winning from ‘card games and other games of any sort’. Explanation to Section 224)(ix) was simultaneously introduced along with the words inserted in section 194B where under the card games and other games of any sort was introduced with the ambit of tax deduction along with lotteries and cross-word puzzles.

2) Game show involving prize money being telecast through electronic media and said prize money had not found its place in the definition of clause “income” under the income-tax Act (I-T Act’). The Legislature had introduced Explanation (i) and (ii) to Section 2(24)(ix) so as include such prize money also under definition of “income”, since in those events people would compete with each other to win prizes. This position would become clear from budget speech of the Finance Minister herein below: “Winnings from lotteries, crossword puzzles etc., are currently taxed at 40%. As the marginal personal income-tax rates have now stabilized at 30%. Television game shows are very popular these days. I wish the winners well. At the same time, I propose that income-tax at the rate of 30% will be deducted at source from the winnings of these and all similar game shows”

3) Thus, amendment brought by the Finance Act, 2001 to Section 2(24) and section 194B would have no bearing on the income earned from ‘owning and maintaining horses’. The term ‘any other similar game’ found in Explanation (ii) to Section 2(24)(ix) is inclusive definition and has to be read ejusdem generis and as such, activity of owning and maintaining horses cannot by any stretch of imagination fall in the definition of ‘card game or other game of any sort’ found in section 194B.

4) Therefore, the “stake money” or “prize money” paid by race clubs to horse owners would not attract the provisions of Section 194B of the IT Act. - Bangalore Turf Club Ltd. v. Union of India [2014] 52 taxmann.com 290 (Karnataka)