SC draws distinction between exempted goods and exempted units for allowing input tax credit

CST & VAT: Rajasthan VAT-Assessee could claim input tax credit of raw material used in manufacturing of Asbestos Cement Sheets when assessee was specifically exempted from paying VAT due to exemption notification.

Facts:

a)  Assessee was manufacturing Asbestos Cement Pressure Pipes and Asbestos Cement Sheets (A.C. Sheets). It had availed input tax credit (ITC) on purchase of raw material used in manufacturing of A.C. Sheets.

b)  Revenue disallowed such ITC on the ground that no tax was required to be paid by assessee due to exemption notification. However, the assessee was of the view that it was only exempted to pay duty by virtue of notification and goods manufactured by it were not exempted goods. Therefore, it was correct in claiming ITC.

c)  The High Court held in favour of assessee.Aggrieved-department filed the instant appeal.

The Apex Court held in favour of assessee as under:

1)   It was perceivable that the High Court had proceeded on foundation that there was distinction between the exempted units and exempted sales. If said distinction would be overlooked, it might lead to serious error in construction and application of taxing provisions.

2)  There is no doubt that distinction has to be drawn between exempted goods, which means complete exemption for the specified goods, and when the goods are taxable goods, but a transaction or a person is granted exemption. 

3)  When goods are exempt, there would be no taxable transactions or exemption to a taxable person. In other cases, goods might be taxable, but exemption could be given in respect of a taxable event, i.e., exemption to specified transactions from liability of tax or exemption to a taxable person, though the goods are taxable. Exemption with reference to taxable events or taxable persons would not exempt the goods as such, for a subsequent transaction or when the goods are sold or purchased by a non-specified person, the subsequent transaction or the taxable person would be liable to pay tax.

4)  Therefore, the appellant though exempted from payment of tax, subsequent transactions of sale of asbestos cement sheets would be taxable. As a logical corollary it follows that the VAT would have to be paid on the taxable goods in a subsequent transaction by the purchasing dealer.

5)  The denial of credit to assessee would lead assessee to a disadvantageous position as if subsequent sale is made by non-exempted dealer then it would suffer tax on entire sale consideration. It would make its products uncompetitive in spite of exemption notification. Thus, assessee had correctly claimed ITC. - Commercial Taxes Officer v. A Infrastructure Ltd. [2015] 63 taxmann.com 307 (SC) 

Mumbai ITAT denies to treat news distributor of 'Reuters' as its PE in India

Facts:

a)  The assessee was a tax resident of UK and it had worldwide business of providing news and financial information distributed through Reuters Global Network. In India, the assessee entered into distribution agreement with RIPL for distribution of news and information service. The assessee had also deputed one, 'S', as Bureau Chief of Bombay and he was in India during the relevant financial year.

b)  In the course of assessment, the Assessing Officer held that RIPL was to be treated as PE of assessee in India under Article 5(5) and also as service PE under India -UK DTAA.

c)  Thereafter, the AO taxed the entire 'distribution fee' on gross basis at the rate of 20 per cent under section 44D, read with section 115A. The DRP set aside objections raised by assessee.

The ITAT held in favour of assessee as under:

1)  The character of an Agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The qualified character of the agency is authorization to act on behalf of somebody else so much as to conclude the contracts. Here in this case, there was no such terms which could be borne out from the distribution agreement that RIPL was only acting on behalf of 'Reuters' or was in kind of dependent agent. It was completely an independent entity and the relationship between the assessee and RIPL was on principal-to-principal basis

2)  Even under Para 5 of Article 5 of India-UK DTAA, the foremost condition is that the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise. Herein activities of RIPL could not be said to be devoted wholly or almost wholly on behalf of the assessee as it was entering into contracts with the subscribers in India on independent basis and on principal-to-principal for earning and generating its revenues. It was not the case here that it was completely or wholly doing activity for 'Reuters' and earning income wholly from 'Reuters' only. Thus, the conditions laid down in Article 5(5) also does not fulfill.

3) Now coming to the second limb of the controversy as to whether there is a service PE within the scope and ambit of Article 5(2)(k)? There was no furnishing of services by the Bureau Chief to the RIPL which lead to earning of a distribution fee to the assessee. As per terms of agreement, the assessee was merely delivering Reuters services to the distributors. The Bureau Chief was only acting as a Chief reporter and Text Correspondent in India in the field of collection and dissemination of news.Thus, it cannot be held that the News Bureau Chief constitute a service PE in India. Accordingly, distribution fee received by assessee was not taxable as it did not have PE in India. - REUTERS LTD. v. DY. CIT(INTERNATIONAL TAXATION) [2015] 63 taxmann.com 115 (Mumbai - Trib.)

Sec. 54(4) contemplates investment in house before due date of filing of belated return

When capital gains is utilized for purchase or construction of new asset before due date for furnishing return of belated return, assessee is entitled to claim deduction in respect of amount so utilized under section 54F.

The disputed issue is as under:

Whether Section 54 exemption would be available if capital gain is invested before due date of filing of belated return even if he no amount is deposited in capital gain account scheme before due date of filing of return under Section 139(1)

Held

The Tribunal relied upon the judgment of co-ordinate bench of the ITAT, Bangalore in the case of Nipun Mehrotra [2008] 110 ITD 520 (BANG.) and held that if the sale consideration/capital gains is utilized for the purchase or construction of the new asset before the date of filing the return under Section 139(4), the assessee is entitled to exemption under Section 54F.  - ITO v. R. Srinivas [2015] 63 taxmann.com 101 (Bangalore - Trib.)

Govt. plans to phase out corporate tax exemptions and deductions

In order to simplify and bring more transparency in tax laws, the Finance Minister in his Budget Speech, 2015 had indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions.

Now Government had proposed to implement its decision in following manner:-

-  Profit linked, investment linked and area based deductions will be phased out for both corporate and non-corporate tax payers.

-  The provisions having a sunset date will not be modified to advance the sunset date. Similarly the sunset dates provided in the Act will not be extended.

-  In case of tax incentives with no terminal date, a sunset date of 31.3.2017 will be provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act.

- There will be no weighted deduction with effect from 01. 04.2017.

 Click here to view detailed phasing out plan

Booking rights of fictional property not to be deemed as transferable capital assets issue

Whether booking of a property which was neither in existence nor its building plan or specifications were approved from the Municipal Corporation would be treated as transferable capital assets?

The tribunal held as under:-

1)   Rights in property could be considered as transferable capital asset. However, for that purpose, there should be a property in existence or there should be a property which is likely and apparently coming into existence, e.g., if the construction of the flat is started and the flat is likely to come in existence. However, when there is no property in existence nor any definite process for its creation has started, no one get a transferable right or interest into such a fictional property which itself cannot be said to be even a “property”.

2)   In the instant case payment was made to the builder when neither the property was in existence nor its building plan or specifications were approved from the Municipal Corporation and neither any construction activity nor commencement of the project had started. Therefore, any gain arising on transfer of booking rights in such fictional property should be taxed under the head ‘income from other sources’ and not as capital gains - S. NARENDRAKUMAR & CO. V. DCIT [2015] 63 taxmann.com 184 (Mumbai - Trib.)

8 things you would like to know about Swachh Bharat Cess

1. What is Swachh Bharat Cess?

The Hon’ble Finance Minister in his Budget speech 2015-16 had proposed levy of Swachh Bharat Cess. Such Cess was proposed for financing and promoting initiatives towards Swachh Bharat.

Swachh Bharat is not only a programme of hygiene and cleanliness but, at a deeper level, a programme for preventive health care, and building awareness.

Now "Swachh Bharat Cess” is effective from November 15, 2015, at the rate of 0.5% on all taxable services. Thus, rate of service tax will increase from 14% to 14.5%. Now we will have to shell out a bit more service-tax so that our country can become cleaner.

2. Whether Swachh Bharat Cess will be levied on services which are in negative list or are wholly exempt from service-tax?

Swachh Bharat Cess will be levied on all services expect those services which are in the Negative list or are wholly exempt from service-tax.

3. What should be the value of taxable services for computation of Swachh Bharat Cess?

The taxable value for the levy of Swachh Bharat Cess would be the same on which service-tax is levied.

As per Notification No. 23/2015 Swachh Bharat Cess of 0.5% would be levied on the abated value of taxable services.

Click here to read full article

Foreign tax credit should be given on tax liability computed under MAT provisions

The issue that was disputed in the instant case was as under:

“Whether relief under section 90 of Income-tax Act(‘the Act’) in respect of tax paid in a foreign country would be available while computing tax liability under as per provisions of MAT ?.”

The Tribunal held in favour of assessee as under:

1)   The Mumbai Tribunal in case of ACIT v. L&T Ltd. (in ITA No.4499/Mum/2008/ dated 22-04-2009) had held that once taxable income was determined either under the normal provisions of the Act or as per Sec 115JB, subsequent portion relating to rebate and set-off would be governed by the normal provision of the Act.

2)   There is no provision in the Act, debarring granting of credit for tax paid abroad in case income is computed under section 115JB. Thus, assessee could not be denied set off of tax relief under section 90 against the tax liability determined under section 115JB. - Dy.CIT v. Subex Technology Ltd. [2015] 63 taxmann.com 124 (Bangalore - Trib.). 

No VAT on free supply of medicines; HC declares Sec. 15(5) of Bihar VAT Act as unconstitutional

CST & VAT: Bihar VAT - Patna High Court declares section 15(5) of Bihar Vat Act (which provides for levy of tax on basis of MRP) as unconstitutional.

Facts

a)   Assessee was engaged in business of manufacture and sale of medicines. It paid sales tax after claiming exemption in respect of medicines supplied free of cost to its dealers. The revenue, however, was of the view that such quantity of medicines supplied free of cost would be subject to tax in view of provisions of Section 15(5)(b) of Bihar VAT Act, 2005 (‘the Act’).

b)   Under the Scheme of the Act every dealer registered under the Act would be liable to pay tax on the sale and purchase made by him. Section 15(5) is in nature of exception to the general scheme of taxation and provides an option to certain class of registered dealers to pay in lieu of the tax payable by them, tax at the rate specified in Section 14, on the maximum retail price of such goods.

c)   The assessee objected to such levy on the ground such transaction would not amount to sale as there being no valuable consideration for supply of such extra quantity of medicines. Aggrieved-assessee filed the instant writ to challenge the validity of provisions of Section 15(5) of the Act and the Notification No. S.O. 47 dated 05.04.2006.

The High Court held in favour of assessee as under:

1) The Supreme Court in case of State of Rajasthan v. Rajasthan Chemist Association [2007] 2007 taxmann.com 1766 (SC) held that notification to the extent it intends to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability of tax arises and is determined ex hypothesis is unsustainable on that basis.

2)  In view of aforesaid, the State legislature not being competent to provide for levy of tax on the first point of sale on the basis of MRP or any other notional value, there could be no question of the legislature providing for the same even by way of exercise of option by the dealer concerned.

3)   Thus, in light of aforesaid discussion sub-section (5) of Section 15 of the Act was to be declared as ultra vires. - Mapra Laboratories (P.) Ltd. v. Commercial Tax Officer - [2015] 63 taxmann.com 91 (Patna)

High Court rejects Sec. 292C presumption for treating seized docs as true/correct; disallows exp.

Section 292C provides that where any document is found in possession or control of any person in the course of search, then it may be presumed that the contents of such documents are true and correct. However, in the instant case, the documents (in respect of alleged expenditure) found during the course of the search did not indicate the name of payee and payer. Therefore, even if the presumption of Section 292C is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made so as to claim the expenditure.

Facts:

a)  During the course of search, the search party came across with documents pertaining to alleged expenditure incurred by assessee.

b)  The assessee wants to claim deduction under Section 37(1) on basis of such seized documents. Assessee was of the view it was not required to prove that it had actually incurred alleged expenditure as any document found during search presumed to be true and correct as per Section 292C.

c)  Assessing Officer (AO) disallowed such expenditure on ground that complete evidence in support of payment was not provided.

d)  The third member bench of Tibunal affirmed the order of AO. Aggrieved by the order of Tribunal, assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under-

1)  Section 292C provides that where any document is found in possession or control of any person in the course of search, then it may be presumed that the contents of such documents are true and correct.

2)  The words 'may presume' as provided in Section 292C are in the nature of discretionary presumption. Therefore, invocation of such presumption is at discretion of the revenue authorities.

3)  An expenditure could be claimed under section 37(1) only when it has in fact been incurred and that too wholly and exclusively for the purposes of business.

4)  In the instant case, the documents found during the course of the search were inchoate. Document did not indicate the name of payee and payer. Therefore, even if the presumption is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made so as to claim the expenditure. Hence, AO was right in disallowing the expenditure- Harish Textile Engrs. Ltd. v. DCIT [2015] 63 taxmann.com 66 (Bombay)

Bankruptcy Law panel recommends unified insolvency code for Cos, LLPs, firms and individuals

The Finance Ministry has put up the Insolvency and Bankruptcy Bill, 2015 (‘the draft bill’) on its website for public comments till November 19 2015, after which the bill will be placed before Parliament in the winter session for approval. The draft bill contains provisions to speed up the process of revival of financially distressed companies and limited liability entities. The draft legislation is based on the report of a high-level panel headed by former law secretary T.K. Viswanathan.

The Draft Bill aims to consolidate the existing laws relating to insolvency of companies, limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals which are presently scattered in a number of legislations, into a single legislation.

Major recommendations of Bankruptcy panel:

1.Fast track insolvency resolution: The draft Bill provides for a fast track insolvency resolution process for certain categories of entities wherein the insolvency resolution process has to be completed within a period of 90 days from the trigger date

2.Formation of Insolvency Regulator: It proposes creation of an insolvency regulator and setting a time limit of 180 days (which can be 90 days in special cases) to deal with insolvency resolution cases.

3. Insolvency Professionals: The draft Bill proposes to regulate insolvency professionals and insolvency professional agencies. Under Regulator’s oversight, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role over errant members leading to the development of a competitive industry for insolvency professionals

4.  Insolvency Information Utilities: The draft Bill proposes for information utilities which would collect, collate, authenticate and disseminate financial information from listed companies and financial and operational creditors of companies. An individual insolvency database is also proposed to be set up with the goal of providing information on insolvency status of individuals

5.   Bankruptcy and Insolvency Processes for Companies and Limited Liability Entities: The draft Bill prescribes a swift process and timeline of 180 days for dealing with applications for insolvency resolution. This can be extended for 90 days by the Adjudicating Authority only in exceptional cases. If 75 % of the creditors approve the plan, the insolvency resolution process can kick off. If not, the adjudicating authority can order liquidation of the company.

6.   Bankruptcy and Insolvency Processes for Individuals and Unlimited Liability Partnerships: The draft Bill also proposes an insolvency regime for individuals and unlimited liability partnerships. As a precursor to a bankruptcy process, there can be two processes that are followed. In the fresh-start process, individuals with annual gross income of less than Rs.60,000 and aggregate asset value of less than Rs.20,000 shall be eligible to make a fresh start through a specified process. In the insolvency resolution process, creditors and the debtor will engage in negotiations to arrive at an agreeable repayment plan, supervised by a resolution professional.