ITAT sounds note of caution for frivolous appeal by revenue; it damages public faith

Filing of appeal with complete knowledge of its fate by the Revenue only reflects the mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

Facts:

1)    CIT(A) on its first remand order dated 06.06.2012 had accepted the application filed by assessee seeking permission to file additional evidence which was objected to by Assessing Officer (AO).

2)    On 22.06.2012 CIT(A) issued second remand report directing AO to verify the claim of assessee as same was unverified.

3)    In the second remand report, AO admitted the assessee’s claim and based on such remand report CIT(A) deleted the addition made under Section 68.

4)    Still, revenue filed appeal before tribunal referring to the fact that the relief was granted by CIT(A) on the basis of first remand report dated 06.06.2012 thereby consciously ignoring making reference to the second remand report dated 22.06.2012 before the tribunal.

Tribunal held in favour of assessee as under:

a)    Filing of an appeal by an Assessing Officer ('AO') is a right which is vested in him by the statue. However, same should be exercised by applying proper due diligence in order to avoid any inappropriate litigations.

b)    Since the claim had been given up in the second remand report by the AO himself in second remand report, he could not claim to be aggrieved by the findings arrived at relying upon his own remand report. The CIT(A) accepted the assessee's claim based on the strength of the second remand report. Reference to this material document, i.e., second remand report in the grounds raised by revenue was curiously missing. This omission appeared to be deliberate and led us to conclude that the revenue had consciously indulged in meritless litigation.

c)    Once the AO in second remand report had already communicated that the enquiries made after issuing notices under Section 133(6) to the parties/persons who had confirmed the assessee's version and the AO concluded that the loans taken stood verified. No further legitimate grievance could be said to have remained for examination by the AO.

d)    This deliberate, mischievous and selective reference to facts by such responsible persons grievously damages the public faith and belief in the honest fair play of the tax administration.

e)    Filing of appeal with complete knowledge of its fate by the Revenue only reflects on revenue’s attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

f)    Departmental officers had willfully and deliberately failed to exercise their powers using their minds as was required of them as per law and has abused government machinery to initiate a litigation which entailed financial costs and tarnished the image of the Department and also strained the government resources. - ACIT v. R.P.G. Credit & Capital Ltd. [2015] 60 taxmann.com 160 (Delhi - Trib.)

Levy of VAT on Indian liquor sold by hotels in Tamil Nadu is constitutionally valid

Levy of VAT on Indian-made liquor sold by hotels/clubs is constitutionally valid, irrespective of the fact that VAT has been imposed without giving benefit of set-off of tax-suffered turnover at the time of purchase. It is so since liquor is non-vatable goods and provisions imposing non-vatable tax on goods has not been challenged.

Background of the case:

(1)   Hotels and clubs were paying Tamil Nadu VAT on foreign liquor sold by them to their customers. However, no tax was payable on sale of Indian-made-liquor by them to their customers.

(2)   A tax had been levied in 2012 on sale of Indian-made-liquor by hotels and clubs to their customers.

(3)   This tax had to be paid upon total turnover arising on sale of such liquor without any set-off of tax-suffered turnover at the time of purchase.

(4)   Hotels and clubs purchase Indian-made-liquor from Tamil Nadu State Marketing Corporation Limited (“TASMAC”, a State’s instrumentality) after payment of tax. TASMAC has the benefit of paying tax on turnover after setting off tax-suffered turnover at the time of purchase. However, hotels and clubs have no such benefit.

(5)   It was argued by the hotels and clubs that there could not be taxation of entire turnover. It placed fetters on the right of the petitioners to carry on their own business. Therefore, there was violation of Article 19(1)(g).

The High Court held that:

(1)   The rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in clauses (2) to (6) of Article 19. The fundamental rights guaranteed in Article 19(1)(a) to (g) are,therefore, to be read along with the said qualifications.

(2)   Potable liquor as a beverage is an intoxicating and depressant drink which is dangerous and injurious to health and is, therefore, an article which is res extra commercium, being inherently harmful. A citizen has, therefore, no fundamental right to do trade or business in liquor. Hence, the trade or business in liquor can be completely prohibited.

(3)   The State can create a monopoly either in itself or in the agency created by it for the manufacture, possession, sale and distribution of the liquor as a beverage and also sell the licences to the citizens for the said purpose by charging fees. This can be done under Article 19(6) or even otherwise.

(4)   The petitioners made considerable profit by the escalation of sale price. The petitioners were making considerable value additions to their sales in favour of their customers.When the petitioners were selling liquor at a higher price than the TASMAC, they could not seek parity.

(5)   Liquor is specified as non-vatable item. Provisions as to tax certain goods treating them as non-vatable have not been challenged [Section 3(5) and Second Schedule].

(6)   The petitioners, who are clubs and hotels, cannot be compared with the retail outlets of TASMAC. The customers of the TASMAC and the petitioners form two distinct and different categories based upon their respective socio-economic status. The petitioners are not prevented from doing their business. Thus, there is no violation of Article 19(1)(g) - Hotel & Bar (FL.3) Association of Tamil Nadu (HOBAT)v.Secretary to Government, Commissioner Taxes Department [2015] 60 taxmann.com 75 (Madras).

Landing and parking charges for Aircrafts are not for ‘use of land’; attract Sec. 194C TDS

Landing and parking charges payable by Airlines in respect of aircrafts are not for the ‘use of land’ per se but the charges are in respect of number of facilities provided by the Airport Authority of India. Thus, landing and parking charges payable by Airlines would attract TDS under Section 194C and not under Section 194-I.

     Facts:

a)  The issue disputed in the instant case was as to whether landing and parking charges paid by Airlines would attract TDS under Section 194-I or under Section 194C of the income-tax Act (‘the Act’)?

b)  The High Court of Delhi in case of CIT v. Japan Airlines Co. Ltd. [2009] 180 Taxman 188 (Delhi) has held that landing and parking charges would attract TDS under Section 194-I of the Act.

c)  However, the Madras High Court in case of CIT v. Singapore Airlines Ltd. [2012] 24 taxmann.com 200 (Madras) has taken a contrary view that landing and parking charges would attract TDS under Section 194C. The two judgments are in conflict with each other.It has to be determined as to which judgment should be allowed to hold the field?

The Supreme Court held as under:

1)    In the instant case, the Airlines are allowed to land and take-off their Aircrafts at Indira Gandhi International Airport (‘IGIA’) for which landing fee is charged. Likewise, they are allowed to park their Aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with the Airport Authority of India (‘AAI’). The moot question is as to whether landing and take-off facilities on the one hand and parking facility on the other hand, would mean ‘use of land’.

2)    In the opinion of the Delhi High Court (Supra) “when the wheels of an aircraft coming into an airport touch the surface of the airfield, use of the land of the airport immediately begins”. Similarly, for parking the aircraft in that airport, there is use of the land. This is the basic, rather, the only reason given by the Delhi High Court in support of its conclusion that landing and parking charges would attract TDS under Section 194-I.

3)    The Madras High Court (Supra) examined the issue keeping wider perspective in mind thereby encompassing the utilization of the airport providing the facility of landing and take-off of the airplanes and also parking facility. After taken into consideration these aspects, the Madras High Court came to the conclusion that the facility was not of ‘use of land’ per se but the charges for landing and taking-off these airlines were in respect of number of facilities provided by the AAI which were to be necessarily provided in compliance with the various international protocol. The charges, therefore, were not for land usage or area allotted simpliciter. These were the charges for various services provided.

4)    We are convinced that the charges fixed by the AAI for landing and taking-off services as well as for parking of aircrafts were not for the ‘use of land’. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges were for services and facilities offered in connection with the aircraft operation at the airport. These services included providing of air traffic services, safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport.

5)    Thus, paymentsfor landing and parking charges wereliable for TDS under Section 194C and not under Section 194-I of the Act.The view taken by the Madras High Court (Supra) was correct view and the judgment of the Delhi High Court (Supra)was to be over-ruled. -Japan Airlines Co. Ltd. v. CIT [2015] 60 taxmann.com 71 (SC)

Proviso to Sec. 68 requiring closely held co. to explain source of share capital is retrospective

Proviso to Section 68 casting onus on closely held company to explain source of share capital is applicable with retrospective effect

Issue:

Whether the amendment to section 68 by way of insertion of proviso is retrospective or prospective?

Held:

1) Proviso to Section 68 inserted by Finance Act, 2012 w.e.f. April 1, 2013 read as under:

“Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory….”

2) Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective.

3) Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively.

4) A careful perusal of the first para of the Memorandum brings out that the onus of satisfactorily explaining issue of share capital with premium etc. by a closely held company is on the company. In the next para, it has been clarified that : `Certain judicial pronouncements havecreated doubts about the onus of proof and the requirements of thissection, particularly, in cases where the sum which is credited as sharecapital, share premium, etc…’. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company.

5) Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the AO and it was only with the aim of setting to naught certain contrary judgments which `created doubts’ about the onus of proof by holding no addition could be made in the hands of company even if shareholders are bogus.

6) As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. -SUBHLAKSHMIVANIJYA (P.) LTD. V. CIT - [2015] 60 taxmann.com 60 (Kolkata - Trib.)

Highlights of Key changes in new ITR Forms 3, 4, 5, 6 and 7

The new ITR Forms 1, 2 and 4S were notified for the Assessment Year 2015-16 vide Notification No. 41/2015, Dated 15-04-2015. However, in view of representations received from various stakeholders, the CBDT came out with simplified version of ITR forms 1, 2, 2A and 4S.

Now the CBDT has notified the remaining ITR forms, viz, ITR Forms 3, 4, 5, 6 and 7 vide Notification No. 61/2015. Key changes in ITR forms is highlighted below.

1)   Expenditure on CSR activities: Section 37(1) was amended by the Finance (No. 2) Act, 2014 to provide that any expenditure incurred by an assessee on the activities relating to corporate social responsibility (CSR) shall not be allowed as deduction as same could not be considered to be incurred for the purposes of the business or profession. Accordingly, ITR 6 has been revised to provide for reporting of expenditure on CSR activities if the same is debited to profit and loss account.

2)   Foreign portfolio investors/Foreign Institutional investors: Foreign Institutional Investor (FII) and Foreign Portfolio Investor (FPI) are required to furnish their SEBI registration number in the new ITR 5 and 6.

3)   Bank accounts held by assessee: In old return forms taxpayers are required to give details of only one bank account. Now in new return forms taxpayer are required to report details of all bank accounts except dormant accounts.

4)   Change in partners/members: A new column has been inserted in ITR-5 to require the assessee to furnish the details of change in the partners/members of the firm/AOP/BOI, as the case may be, during the previous year.

5)   Aadhaar Number and passport number: Aadhaar number and passport number are required to be given in new ITR 3 and 4 (if assessee has obtained the same). 

CBDT releases Java Utility for e-filing Form 6 to declare black money

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘Black Money Act’) has been enforced from July 1, 2015.

The Black Money Act provides for 30% tax on the value of undisclosed foreign income or assets and a penalty of three times of tax so computed. It further provides for prosecution of up to 10 years in case of willful attempt to evade tax on foreign income or assets held outside India.

However, the Black Money Act allows one-time compliance window for the taxpayers to voluntarily disclose the undisclosed foreign income or assets. The declaration can made by September 30, 2015. Any person availing of benefit of compliance window is required to pay tax at the rate of 30% of value of undisclosed foreign income or asset and a penalty of 100% of tax. Such taxes and penalty are required to be paid by the declarant on or before December 31, 2015.

The Government has notified Form 6 to make declaration of undisclosed foreign income or asset under the compliance window. The taxpayer has an option to file the declaration either manually to CIT, Delhi or to e-file it using the digital signature.

Therefore, for the purposes of e-filing of Form 6, the Board has released the Java utility for the same. The taxpayer can now fill Form 6 by downloading the Java utility from e-filing website.

After filling the relevant information in Form 6 Java Utility, the taxpayer need to generate the .xml file and submit it under e-file option available after login at https://incometaxindiaefiling.gov.in. Declarant need to attach relevant scanned documents (i.e., scanned copy of valuation report or FMV computation) in PDF or ZIP format along with XML file. The size of PDF/ZIP documents could not exceed 50MB.

Age of 70 years isn’t an automatic mid-stream disqualification for Managing Director

Companies Act : Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure

Issue :

On 1st April 2014, the Companies Act, 2013 (“the 2013 Act”) was brought into force. It introduced a new clause in Section 196(3)(a) of the 2013 Act that apparently sets a lower and upper age limit of 21 years and 70 years Respectively, on the appointments and ‘continued employment’ of Managing Directors, Whole Time Directors and Managers.

The issue in the instant case was whether there would be a mid-stream disqualification for Managing Director on attaining age of 70 years? , i.e., Whether section 196(3)(a) interrupts an appointment of any Managing Director made prior to the coming into force of the 2013 Act, if such Managing Director crosses the age of 70 years during the term of his appointment?

The High Court held as under :

1) Under Companies Act, 1956, there was no ‘discontinuance’ of Managing Directorship at the age of 70; the section applied only to his appointment and reappointment. Sections 269(2) and 267 of the 1956 Act are now sought to be merged in Section 196(3), and also further modified (to eliminate the previous regime of Central Government’s approval). It shows that the age of 70 years was never an automatic mid-stream disqualification even under the 1956 Act. It only required a certain precautionary measure at the commencement of the term, i.e., at the time of appointment (or reappointment), i.e., a special resolution.

2) There is nothing to suggest that the rationale behind this has in any way changed in the 2013 Act. It cannot be constructed that with the advent of the 2013 Act, every Managing Director at age 70 must, as it were, step down the bus.

3) The only conclusion that one can draw is that the word ‘continue’ is correctly used in its strict sense in relation to clauses (b), (c) and (d) of Section 196(3), i.e., as a cessation eo instante on the occurrence of any of the events those sub-clauses contemplate, but in the context of Section 196(3)(a), it means, and can only mean ‘appointment’ and ‘reappointment’.

4) Section 196(3) does not operate as an aberration in the appointment of any Director made prior to the coming into force of the 2013 Act, even in a case where the Managing Director crosses the age of 70 years during the term of his appointment; it also does not interrupt the appointment of a Managing Director appointed after 1st April 2014 where at the date of such appointment or re-appointment the Managing Director was below the age of 70 years but crossed that age during his tenure.

5) There is no mid-tenure cessation of Managing Directorship as a result of Section 196(3)(a). All that Section 196(3)(a) does is to sound a note of caution in the public interest and to demand from the company a special resolution when a person who has already crossed the age of 70 at the date is proposed to be appointed or reappointed. - SRIDHAR SUNDARARAJAN V. ULTRAMARINE & PIGMENTS LTD. (2015) TAXMAN.COM 249 (BOMBAY)

Amended Delhi VAT Act – An insight into

Delhi Value Added Tax Act, 2005 has been amended by Delhi Value Added Tax (2nd Amendment) Act, 2015. Now, Government of Delhi got powers to increase VAT upto 30% on petrol, liquor, aerated drinks etc.Following are the changes in DVAT Act effective from July 15, 2015:

Rates of Tax

Certain petroleum products, liquor, tabacco, gutkha, aerated drinks and some other items are mentioned in fourth Schedule of DVAT Act. Items mentioned in fourth Schedule are taxable at flat rate of 20%. Now VAT rate on such items can be increased to 30% as an upper cap of 30% has been prescribed for such items.

Post Sale Discounts

Earlier discounts or incentives offered by seller after issuance of invoice (through credit notes) was adjusted in output tax liability. As per the amended provision now such post sale discounts cannot be adjusted in output tax liability. Similarly, the purchaser need not reduce its input tax credit arising on account of such post sale discount. Further, seller-dealer is also debarred from issuing credit note to purchaser for such post-sale discounts.

Cancellation of Registration

Now dealers need not surrender their registration certificate while applying for cancellation of registration. Similarly, dealers whose registration are otherwise cancelled need not surrender their registration certificate. Further amendment also does away with requirement of levying penalty on dealers who failed to surrender their registration certificate. Provision which constitutes non-surrendering of registration certificate as an offence has also been omitted.

Refund

Earlier commissioner could demand security within 15 days from the date on which return was filed or refund claim was made. Now this time-limit has been enhanced to 45 days.

Penalties

Now penalties for certain defaults has been reduced, which is prescribed hereunder:

(1) Section 86(5) – for failure to file information under Section 21(1) for amendment in registration

Old Penalty – Rs. 500 per day subject to maximum penalty of Rs. 10,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 10,000

(2) Section 86(6) – Failure to apply cancellation of registration due to closure of business under Section 22(2)

Old Penalty – Rs. 1,000 per day subject to maximum penalty of Rs. 25,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 25,000

(3) Section 86(6) – for failure to surrender certificate of registration under Section 22(7)

Old Penalty - Rs. 1,000 per day subject to maximum penalty of Rs. 25,000

New Penalty – No penalty as this provision is now omitted

(4) Section 86(9) – for failure to file of returns and documents, etc.

Old Penalty – Rs. 500 per day subject to maximum of Rs. 50,000

New Penalty – Rs. 200 per day subject to maximum penalty of Rs. 50,000

(5) Section 86(16) – for failure to issue tax invoice under Section 50

Old Penalty – No Penalty

New Penalty – Higher of Rs. 5000 or 20% of tax deficiency

Service provider can't ask revenue to recover taxes from service-recipient even if recipient agrees to pay Service Tax

Undoubtedly, service tax burden can be transferred by contractual arrangement to other party; but, on that account, assessee cannot ask revenue (except under reverse charge) to recover tax dues from a third party or to wait for discharge of liability by assessee till it has recovered amount from its customers (i.e., service recipients).

Facts :

1) The assessee, Delhi Transport Corporation (DTC), entered into contracts with agencies (contractors/advertisers) providing space to such parties for display of advertisements on bus-queue shelters and time-keeping booths.

2) The agreement provided that it shall be the responsibility of the contractor/advertiser to pay advertisement tax or any other taxes directly to the concerned authority in addition to the quoted license fee.

3) Assessee didn’t pay service tax to the department as it, by way of contract, casted responsibility on the contractor/advertiser to pay the same. However, service tax was also not paid by the contractor/advertiser.

4) The Department raised demand of service tax on assessee under 'Sale of Advertising Space or Time Services'.

The High Court held in favour of revenue as under :

a) Though assessee's services were taxable, but the service tax burden could have been transferred by way of a contract.

b) The ruling of Supreme Court in the case of Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 35 STT 664/21 taxmann.com 20 cannot detract from the fact that in terms of the statutory provisions it is the assessee which is to discharge the liability towards the revenue on account of service tax. Undoubtedly, the service tax burden can be transferred by contractual arrangement to the other party. But, on account of such contractual arrangement, the assessee cannot ask the revenue to recover the tax dues from a third party or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors.

c) Hence, demand was confirmed with interestas contractor/advertiser didn’t pay the service tax to the Department, though they were contractually liable to pay the same - (2015) 59 taxmann.com 51 (Delhi).

RBI issues FAQs on Forex facilities and 'Liberalised Remittance Scheme' for residents

Are you planning to travel abroad and you are not sure how much foreign exchange can you buy when travelling on private visits to country outside India? You are not sure as how much foreign currency can be carried in cash for travelling abroad? You want to know how much Indian currency can be brought in while coming into India?  

Now RBI has released FAQs in respect of Forex facilities including Liberalized Remittance Scheme for general guidance and to answer these type of queries. Certain FAQs are highlighted as under:

Q.   How much foreign exchange can one buy when traveling abroad on private visits to a country outside India?

For private visits abroad, other than to Nepal and Bhutan, any resident can obtain foreign exchange upto an aggregate amount of USD 2,50,000, from an Authorised Dealer or Full-Fledged Money Changers (FFMCs), in any one financial year, irrespective of the number of visits undertaken during the year.

This limit has been subsumed under the Liberalised Remittance Scheme w.e.f. May 26, 2015. If an individual has already remitted any amount under the Liberalised Remittance Scheme in a financial year, then the applicable limit for travelling purpose for such individual would be reduced from USD 250,000 by the amount so remitted.

Q.   How much foreign currency can be carried in cash for travel abroad?

Country of travel                                                           Limit of Forex

              i.        Travelers proceeding to Iraq and Libya           Upto USD 5000

             ii.        Travelers proceeding to Islamic republic         Upto USD 25000

            iii.        For Haj/Umrah pilgrimage                             USD 250, 000 or specified limit.

           iv.        Others                                                     Upto USD 3000 and balance in bank draft

Q. How much Indian currency can be brought in while coming into India?

Returning from                    Limit of Forex

              i.        Nepal/Bhutan                Upto USD 25,000 in Denomination not exceeding of Rs. 100

             ii.        Others                         Upto USD 25,000

            iii.        Pakistan/ Bangladesh     Upto USD 10,000 per person

  Q.   What is the Liberalised Remittance Scheme (LRS) of USD 2,50,000 ?

 Under the LRS, all resident individuals, including minors, are allowed to freely remit upto USD  2,50,000 in financial year for any permissible current or capital account transaction or a  combination of both.

 Further, resident individuals can avail of foreign exchange facility for the purposes mentioned in  Para 1 of Schedule III of FEM (CAT) Amendment Rules 2015, within the limit of USD 2,50,000  only. If an individual has remitted any amount under LRS in a financial year, then the applicable l  limit for such individual would be reduced from USD 250,000 by the amount so remitted. In case  of remitter being a minor, the LRS declaration form must be countersigned by the minor’s natural  guardian.