Department couldn't allege suppression against assessee while issuing subsequent notices on same issues

Where all relevant facts were in knowledge of authorities when first show-cause notice was issued, while issuing second and third show-cause notices on similar facts, department couldn't allege suppression of facts by assessee.

a)Department carried out inspection on 16-9-1996 and issued notices on 14-3-1997 and 20-4-1998 alleging clandestine removal of goods.

b)Later, department issued third notice dated 27-3-2001 invoking extended period alleging suppression of facts.

c)Assessee challenged third notice as time-barred, as all facts were within knowledge of department since 16-9-1996.

d)Department argued that if any suppression of material facts of fraud was detected, then extended period of limitation of five years was available to the department,therefore, the entire proceedings were legal and within the time-limit prescribed by the Act as the third notice was issued within 5 years from 16-9-1996.

High Court held in favour of assessee as under:

1)Show-cause notices were issued with regard to part of transactions for different periods, but on basis of same inspection made on 16-9-1996. Once earlier show-cause notices were issued with regard to same inspection, then department could not claim having discovered suppression, fraud, etc., subsequently, as everything was within its knowledge since 16-9-1996. Hence, extended period of five years was not available to department.

2)The High Court took note of the judgment of Supreme Court in Nizam Sugar Factory v. Collector of Central Excise 2006 (197) ELT 465 in which it was held that where all relevant facts were not in the knowledge of the authorities when the first show-cause notice was issued, while issuing second and third show-cause notices to the assessee on similar facts,it could not be taken as suppression of facts on the part of the assessee as the facts were already within the knowledge of the authorities – Commissioner of Central Excise & Customs v. Rivaa Textiles Inds. Ltd.(2015) 54 taxmann.com 239 (Gujarat).

Unabsorbed research exp. claimed as revenue exp. can’t be carried forward if hit by Sec. 79

If assessee did not capitalize scientific research expenditure and claimed it as revenue expenditure, any unabsorbed portion of such research exp. would be in nature of business loss and not in nature of unabsorbed depreciation - Therefore, it would be subject to restriction imposed under Section 79 in case of closely held company

Issue for consideration:

a)In view of Section 79 of the Act, where a change in shareholding (i.e., 51%) has taken place in a previous year in the case of a company (being closely held company), no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year.

b)In the instant case, an issue arose whether unabsorbed scientific research expenditure would also be subject to same treatment as that of carry forward of losses in Section 79

c)Assessee’s contention was that the unabsorbed scientific research expenditure had to be treated at par with unabsorbed depreciation based on the principles laid down in the case of Mahyco Vegetable Seeds Ltd. [2010] 123 ITD 40 ( Mum.)

Tribunal held as under:

1)In the case of Mahyco Vegetable Seeds Ltd(Supra), the expenditure in question was unabsorbed capital expenditure incurred on scientific research claimed as deduction under section 35. Therefore, the unabsorbed capital expenditure on scientific research had the same effect as unabsorbed depreciation;

2)Therefore, for applying the above cited decision, it was necessary that the scientific research expenditure should have been capitalized before claiming deduction under section 35;

3)If assessee treated scientific research expenditure as revenue expenditure and claimed deduction thereof, it would give rise to business losses and couldn't be deemed as similar to unabsorbed depreciation.

4)Therefore, in such case there would be a business loss and the provisions of section 79 would be applicable- DEPUTY CIT V. TEJAS NETWORKS LTD.[2015] 55 taxmann.com 55 (Bangalore - Trib.)

No insurance claim for damages as vehicle owner didn't apply for registration on expiry of temporary registration

Where an accident had taken place, petitioner as owner of vehicle would not be entitled to claim compensation for damages in respect of vehicle when, admittedly, vehicle was being driven on date of accident without any valid registration

Facts:

a) The Petitioner-complainant purchased a vehicle and got it insured with respondent-company, The vehicle was temporarily registered for one month's period.

b) The petitioner did not apply for permanent registration. Meanwhile, an accident took place in which vehicle got damaged. Consequently, the appellant filed a consumer complaint before the District Forum.

c) The District Forum allowed the complaint and directed the respondent-company to indemnify the complainant to the extent of 75% of the insured amount. Aggrieved by the decision of the District Forum, respondent-company as well as the appellant-complainant approached State Commission.

d) Petitioner's claim for insurance was rejected by the Sate Commission as well as by National Commission on ground that at the time of accident, the vehicle was being driven without registration, which was prohibited under section 39 of the Motor Vehicles Act, 1988, and was also an offence under section 192 of the said Act

On appeal, the Supreme Court held as under:

1) Using a vehicle on public road without any registration is not only an offence punishable under section 192 but also a fundamental breach of terms and conditions of policy contract

2) Nothing had been brought on record by petitioner to show that before or after period of temporary registration had expired, petitioner, either applied for permanent registration or made any application for extension of period.

3) Thus, the petitioner would not be entitled to claim compensation for damages in respect of vehicle when, admittedly, vehicle was being driven on date of accident without any valid registration - NARINDER SINGH V. NEW INDIA ASSURANCE CO. LTD. (2015) 54 TAXMANN.COM 414 (SC)

ROC can allow e-filing of DIR-12 by one of the resigned directors who was an authorized signatory

MCA has received several representations with regard to difficulties faced by stakeholders in filing Form DIR-12. The difficulty arises due to the deactivation of Digital signature certificate (DSC) following en masse resignation of all the directors of a company before appointment of new directors in their places. As a result, Form DIR-12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) couldn’t be filed by few companies due to lack of an authorized signatory Director.

Thus, MCA has provided much needed relief to such stakeholders by authorizing the ROCs to allow any one of the resigned directors who was an authorized signatory Director to e-file Form DIR-12 along with additional fees subject to compliance of other provisions of the Companies Act, 2013.

Editor’s Comments: MCA has temporarily allowed e-filing of such form by one of the resigned directors till an alternate mechanism is put in place in MCA 21 system. It is a welcome step in the direction of promoting ease of doing business by removing the obstacles faced by the stakeholders in ordinary course of business. – [GENERAL CIRCULAR NO.3/2015 [F.NO.MCA21/272/2014 Dated, 04-03-2015]

Assessee not entitled to interest on refund of excess self-assessment tax paid by it, rules Delhi HC

Refund of excess self-assessment paid by assessee was not eligible for interest as the provisions of Section 244A would not apply thereto.

The issue that arose for consideration of the High Court is as under:

“Whether the Tribunal was rightin holding that the assessee would be entitled to interest under Section 244A in respect of excess self-assessment tax paid by it?”

The High Court held in favour of revenue as under:

1)Clause (a) of Section 244A(1) provides that where refund of any amount becomes due to the assessee, he shallbe entitled to receive simple interest thereonwhere the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199.

2)The provisions contained in Sections115WJ or 199 or 206C or Section 207 have no connection with the liability to pay self-assessment tax. Therefore, clause (a) of sub-section (1) of Section 244A would not apply to refund arising out of excess self-assessment tax paid by assessee.

3)Clause (b) of Section 244A(1) was also not applicable in the instant case asit provides that the amount paid by the assessee (from which refund was to be made) must have been deposited pursuant to demand notice issued by the assessing authority.

4)There cannot be a general rule that whenever a refund of income tax is to be paid, the Revenue must necessarily pay interest on the refunded amount.

5)If the excess amount was paid due to erroneous assessment by the Revenue, the reimbursement would be accompanied by payment of interest at the statutorily prescribed rate.Conversely, if the assessee was to be blamed for the miscalculation, the Revenue does not owe any interest even if the excess payment of tax was liable to be refunded.

6)There being no allegation that such excess deposit was pursuant to demand by the Revenue, the claim for interest on excess payment voluntarily made could not be sustained.Therefore, theorder of ITAT directing the AO to pay interest to the assessee on the refunded amount was to be set aside. - CIT vs Engineers India Ltd. - [2015] 55 taxmann.com 1

Section 6 should clarify meaning of 'Going abroad for the purpose of employment'

As per section 6(1)(c) of the Income-tax Act, 1961 ('the Act')an individual is said to be resident in India in any previous year, if he was in India for a period or periods amounting in all to 365 days or more in four years immediately preceding that year and is in India for a period or periods amounting in all to sixty days or more in that year.

However, in view of the Explanation (a) to section 6(1)(c), an Individual leaving India, for the purposes of employment during the previous year, shall be treated as resident in India only if he is in India for 182 days or more during the previous year.

In other words, restriction of short stay of 60 days or more is not applicable to an Individual, leaving India for the purposes of employment during the previous year.

II. Interpretational issue:

Unfortunately, the term leaving India for the purposes of employment is subjective and prone to multiple interpretations, as can be seen from the recent litigations on the subject matter.

In the ever-changing process of globalization, the number of individuals seeking employment abroad has increased, we also have a fast increasing class of entrepreneurs'/ artists/ sportsmen etc. who work/perform abroad while keeping their base/roots in India. Accordingly, all these aspiring Indians travel frequently outside India and are facing difficulties before the I-T authorities while deciding their residential status, which is very crucial for deciding tax implications of their global income.

III. Representative judicial views:

For the purpose of Explanation (a) the individual need not be an unemployed person who leaves India for employment outside India. The fact that person was already an employee at the time of leaving India was neither material not relevant [British Gas India P. Ltd. In re, [2006] 155 Taxman 326 (AAR – New Delhi)

Going abroad for purpose of employment (assessee, a world known professional golfer, pursued vocation of sportsman) also means going abroad to take up employment or any avocation which takes in self-employment like business or profession[ACIT vs. Jyotinder Singh Randhawa [2014] 46 taxmann.com 10 (Delhi)]

For the purpose of determining the residential status in India under Sec. 6, going abroad for purposes of 'employment' includes self-employment to determine residential status under I-T Act. It is not necessary to establish employer-employee relationship to prove travelling abroad [K. Sambasiva Rao v. ITO, [2014] 42 taxmann.com 115 (Hyd. - Trib.)]

While deciding as above, CBDT circular No. 346 Dated 30-06-1982 was referred to wherein the words "employed or engaged in other avocations outside India" are used to explain the term 'leaving India for the purposes of employment'.

Further, on the aspect of whether an individual needs to be stationed abroad on permanent/semi-permanent basis for availing of the benefit of the relevant provision (benefit of 182 day test), the ITAT, Hyd. (supra) prevented revenue from applying new tests of domicile/permanent home under section 6(1) of the Act. As noted by the Tribunal, the only relevant test for determining residential status of individuals in India is their physical presence in India for the stipulated number of days and visit and stay abroad should not be for other purposes other than business (business VISA) such as a tourist or for medical treatment or for studies, etc..

However, contrary to above, Hon'ble ITAT, Mumbai in the case of ITO vs. K. Y. Patel 33 ITD 714, held that the meaning of the term 'leaving' should not only be physical one but also with the intention of staying abroad on a permanent or semi-permanent basis. It is only a temporary or permanent posting outside India which could fall in the purview of such a phrase and any stay abroad in connection with one's employment in India could not be treated as equivalent of employment outside India.

IV. Legislative intent behind the explanation (a) to section 6(1)(c):

Firstly, the amendment by way of explanation (a) to section 6(1)(c) was made by the Finance Act, 1982with a view to avoid hardship in the case of Indian citizens who are employed or engaged in other avocations outside India. [CBDT Circular No. 346 dated 30.06.1982] The words "employed or engaged in other avocations outside India "used by CBDT in circular No. 346 (supra) clearly indicate that the test of residence envisaged in Clause (a) of Explanation to Section 6(1) was not limited only to Indian citizens going out on contract of service as salaried employees but also to Indian citizens who go out of India and are engaged in other avocations i.e.,other than as salaried employees.

V. Logical interpretation:

In view of the clarification by CBDT and majority judicial views on the interpretation of the term leaving for the purposes of employment,the reasonable and logical conclusion is employment includes self-employment. The only relevant test for determining residential status of individuals in India is their physical presence in India for the stipulated number of days andvisit and stay abroad should not be for other purposes other than employment/ business.

VI. Expectations from the budget:

To put the controversy at rest and to avoid the futile litigation, a clarificatory amendment below the explanation (a) in the following manner is welcome:

"For the removal doubts, it is hereby declared that, employment outside India shall include self employment of such nature as may be prescribed"

It should be left to CBDT to precisely define the nature and extent of self-employment which is eligible for Explanation (a) to section 6(1)(c) having regard to the nature of business/profession of various class of assessees' such as entrepreneurs'/artists/sportsmen etc. and after due consideration of various judicial principles as above.

Addition of 'speed post' as valid mode of service is clarificatory and retrospective in nature, rules Orissa High Court

Addition of term "speed post" in section 37C of the Central Excise Act, 1944 by Finance Act, 2013 is: (a) clarificatory, (b) procedural for purpose of communication of decisions, etc.; (c) curative.

a)An adjudication order dated 12-7-2011 was served on assessee by speed post.

b)Assessee argued that service through 'speed post' was not a valid mode of service before amendment by the Finance Act, 2013 by saying that when statute had provided for service of orders by "registered post" on the petitioner, sending the order by "speed post" was not in strict compliance with the law and, hence, such notice served was in a manner not prescribed by law. Therefore, the same could not be held to be adequate service on the petitioner.

High Court held in favour of revenue as under:

1)In view of Section 28 of the Indian Post Office Act, 1898, read with Rule 66-B of Indian Post Office Rules, 1933, any postal article registered at post office and a receipt issued in respect of such article is to be treated as "registered post". Both in the case of "registered post" as well as "speed post", the articles when delivered to the post offices, receipts thereof are required to be issued, and consequently, both "speed post" and "registered post" satisfy the requirement of said Section 28.The only difference between registered post and speed post if at all is the charges payable are normally higher for "speed post" as the name suggests the delivery of such articles at an early date.

2)In the Full Bench of the Hon'ble Supreme Court in the case of Shyam Sunder v. Ram Kumar (2001) 8 SCC 24, affirmed the judgment of Apex Court earlier in the case of R. Rajagopal Reddy v. Padmini Chandrasekharan (1995) 2 SCC 630 to the following effect:

"Declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. . . . A clarificatory amendment of this nature will have retrospective effect and therefore, if the principal Act was existing law when the Constitution came into force the amending Act also will be part of the existing law. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."

3)Following the above judgment of the Hon'ble Supreme Court, High Court further held that addition of term "speed post" in section 37C vide amendment by the Finance Act, 2013 is : (a) merely clarificatory, (b) procedural for purpose of communication of decisions, etc.; (c) curative, as various High Courts had already held that service through 'speed post' was a valid mode; hence, same was retrospective in its operation - Jay Balaji Jyoti Steels Ltd. v. Customs, Excise & Service Tax Appellate Tribunal, Kolkata (2015) 54 taxmann.com 176 (Orissa).

MCA notifies Ind AS

MCA has notified Companies (Indian Accounting Standards) Rules, 2015 which shall come into effect from 1 April 2015. The said rules require adoption for Indian Accounting Standards (Ind AS) :-

1.From FY 15-16: Any company can voluntary adopt Indian Accounting Standards from Financial year 15-16 with comparatives to be given for the period ending on 31 March 2015 or thereafter.

2.From FY 16-17:Following companies to mandatorily adopt Ind AS from FY 16-17 onwards with comparatives for period ending 31 March 2016 or thereafter:-

•Companies with net worth of Rs 500 crores or more and whose equity or debt securities are either listed or in the process of listing in any Indian stock exchange.

•Companies other than above and whose net worth is Rs 500 crores or more.

•Holding, subsidiary, joint venture and associate of above companies.

3.From FY 17-18: Following companies to mandatorily adopt Ind AS from FY 17-18 onwards with comparatives for period ending 31 March 2017 or thereafter:-

•Companies with net worth less than Rs 500 crores and whose equity or debt securities are either listed or in the process of listing in any Indian stock exchange.

•Companies other than above and whose net worth is Rs 250 crores or more but less than Rs 500 crores.

•Holding, subsidiary, joint venture and associate of above companies.

Provided that nothing stated above, except companies adopting Ind AS voluntarily, shall apply to companies whose securities are listed or are in the process of being listed on SME exchange as referred to in Chapter XB or on the Institutional Trading Platform without initial public offering in accordance with the provisions of Chapter XC of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Note 1:- ‘Net worth’ shall have the meaning assigned to it in clause (57) of section 2 of the Companies Act, 2013. The net worth shall be calculated in accordance with the stand-alone financial statements of the company as on 31st March, 2014 or the first audited financial statements for accounting period which ends after that date.

For companies which are not in existence on 31st March, 2014 or an existing company falling under any of thresholds specified above for the first time after 31st March, 2014, the net worth shall be calculated on the basis of the first audited financial statements ending after that date in respect of which it meets the thresholds specified above. Such companies should adopt Ind AS for immediately next year. For e.g. The companies meeting threshold for the first time as on 31st March, 2018 shall apply Ind AS for the financial year 2018-19 onwards and so on.

Note 2:- MCA has notified 39 Ind AS. The Ind AS should be adopted for standalone financial statements as well as consolidated financial statements.

Note 3:- Overseas subsidiary, associate, joint venture and other similar entities of an Indian company may prepare its standalone financial statements in accordance with the requirements of the specific jurisdiction. Provided that such Indian company shall prepare its consolidated financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the criteria as specified above.

Note 4:- Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the criteria as specified above.

Note 5:- Once the option for applying Ind AS is applied then company should keep on applying Ind AS consistently.

Note 6:- The insurance companies, banking companies and non-banking finance companies shall not be required to apply Indian Accounting Standards (Ind AS) for preparation of their financial statements either voluntarily or mandatorily.

Note 7:- For the companies on which Ind AS is not applicable as per the rules mentioned above, such companies can continue to apply Accounting Standards as notified by Companies (Accounting Standards) Rules, 2006.

Sum paid to NR professional for preparation of scheme for raising finance and tie up for loans was 'FTS'

Facts:

a)The assessee-company intended to set up a gas based power project to generate and sell electricity. Itentered into an agreement with Swiss company to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie up the required loan.

b)Pursuant to the aforesaid exercises carried out by the Swiss company, the assessee was successful in availing loan/financial assistance from India and outside India. In this backdrop, "success fee" was paid to the Swiss company.

c)Assessee approached AO for issuance of 'NOC' to remit the said sum with the contention that since Swiss company had rendered no technical services, thus, Section 9(1)(vii) was not attracted.

d)The non-success in revision petition compelled the assessee to approach the High Court. The High Court held that success fee" would come within the scope of technical service under Section 9(1)(vii)(b). The aggrieved assessee filed the instant appeal.

The Supreme Court held in favour of revenue as under:

1)Swiss company was very actively associated not only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as consultancy services. Swiss company acted as a consultant andit had the skill, acumen and knowledge in the specialized field, i.e., preparation of a scheme for required finances and to tie-up required loans.

2)Nature of service rendered by the Swiss company would come within the ambit and sweep of the term 'consultancy service' and, therefore, tax at source should have been deducted as the amount paid as “Success Fess” would be taxable as 'fee for technical service'.

3)Once the tax was payable/paid, the grant of 'NOC' was not legally permissible.The order passed by the High Court was absolutely impregnable. - GVK Industries Ltd. v. ITO - [2015] 54 taxmann.com 347 (SC)

ITAT denies to condone delay on basis of vague affidavit of CA; raises questions on his work ethics

Assessee could not plead for condoning delay in filing appeal on basis of vague affidavit of his CA. Such conduce of CA raises serious questions on his professional competence and work ethics.

Facts:

a)Assessee filed application before ITAT for condonding delay of 347 days in filing of appeal. It contended that appeal was not filed within stipulated time due to negligence of CA and, thus,it should not suffer due to the mistakes committed by his CA.

b)The assessee referred to the affidavit of concerned CA wherein it was mentioned that: “I kept the order with me for filing the appeal before ITAT. In the meanwhile, I went to NAGAUR for bank audit. When I returned back from bank audit, the filing of appeal before ITAT skipped from my mind and papers were filed in my record.”

c)The revenue on the other side opposed the condonationplea of assesseeon following basis:

Assessments resulted in huge additions and imposed heavy demand of tax and interest on assessee. This was a seriousmatter, which in normal circumstances would require frequent meetingsand consultations between assessee and the counsel to analyze the issues. Therefore, the theory of the assesse was vague as such matters could not be left go on forgot attitude of the CA.

It was surprising that neither anyoffice assistant from the office of C.A. nor assessee reminded CAabout non-filing of such important and high demand appeals.

The ITAT dismissed condonationplea on following grounds:

1)It was unbelievable that an assessee, who was assessed at a high income resulting in a huge tax and interest demand, had not visited the CA office almost for a period of about one year to know about the filing of the appeals.

2)There was no deposition in the affidavit that prior to TRO notice, no other notice by way of telephone or writing wasreceived either by assessee or the C.A. Thus, the depositions in affidavitremain vague, unsubstantiated and do not amount to explaining the sufficient cause.

3)The affidavit and cavalier conduct of CA raises serious questions on his professional competence and work ethics in giving such an affidavit which hides more than it explains. - K.G.N.M.M.W. EDUCATIONAL RESEARCH & ANALYSIS SOCIETY V. ITO [2015] 54 taxmann.com 329 (Jaipur - Trib.)