No exemption for ‘LTC’ spent on overseas journey even if part of journey is performed in India

LTC is exempt from tax only when employee has utilized LTC for travel within India. Nothing in Rule 2B provides assessee with a liberty to claim exemption where part of his package is spent on his overseas travel and part of his journey has been performed within India

In the instant case, the assessee had claimed exemption of LTC received from his employer under section 10(5) of the IT Act. The AO disallowed the LTC exemption claimed by assessee after noticing that leave travel package covered Singapore and Malaysia also, on the footing that section 10(5) doesn’t allow exemption for overseas travel. Further, the CIT(A) upheld the order of AO. Aggrieved assessee filed the instant appeal to Tribunal.

The Tribunal held in favour of revenue as under:

1) The provisions of the Act are in relation to LTC for proceeding on leave to any place in India;

2) LTC is exempt from tax only when employee has utilized LTC for travel within India;

3) Nothing in Rule 2B provides assessee with at liberty to claim exemption where part of his package is spent on his overseas travel and part of his journey has been performed within India. Thus, assessee’s exemption claim under section 10(5) was rejected - OM PARKASH GUPTA V. ITO [2013] 33 taxmann.com 169 (Chandigarh - Trib.)

Merilyn shipping’s case – Gujarat HC rejects interpretation made by ITAT’s special bench

Section 40(a)(ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year. The language used in such provision doesn’t convey that such amount must continue to remain payable till the end of the accounting year.

In the instant case, the AO disallowed the entire expenditure incurred by assessee under section 40(a)(ia) on the ground that the assessee had, admittedly, not deducted the tax at source. CIT(A) dismissed assessee's appeal against such disallowance. On further appeal, the Tribunal deleted the entire disallowance, relying on the decision of the Special Bench of the Tribunal (Visakhapatnam) in the case of  M/s. Merilyn Shipping & Transports v. ACIT [2012] 20 taxmann.com 244 (Viskhapatnam). Revenue filed the instant appeal against the order of Tribunal.

The HC held in favour of revenue as under:

1) The term used in section 40(a)(ia) is interest, commission, brokerage, etc., payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used doesn’t convey that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading into words which the Legislature has not used;

2) The Courts in India have been applying the principle of deliberate or conscious omission. Such principle is applied mainly when an existing provision is amended and a change is brought about;

3) The Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, there was serious doubt whether such principle could be applied by comparing the draft presented in the Parliament and ultimate legislation which might be passed. Secondly, the statutory provision was amply clear.

4) Section 40(a) (ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year, of course, as long as the other requirements of the said provision exist. Thus, revenue's appeal was allowed – CIT v. Sikandarkhan N Tunvar [2013] 33 taxmann.com 133 (Gujarat)

Distribution of channels and their pricing regulated by TRAI; making JV for such purpose isn’t anti-competitive

Where distribution of channels and their pricing by broadcasters/aggregators was totally regulated by TRAI Regulations and market share of joint venture (JV) formed by opposite parties (‘OPs’), i.e., channel owners, was only 10 per cent, conduct of OPs was not anti-competitive

In the instant case, informant-subscriber had filed information under Section 19 (1)(a) of the Competition Act, 2002 (“the Act”) against opposite parties (‘OPs’), i.e., Zee and Star channels, alleging that proposed JV of OPs in sale and distribution of channels would strengthen their position by adversely affecting competition in relevant market. According to informant, players in market would suffer due to undue advantage available to JV and consumer’s interest would suffer as consumers would be deprived of prices available in market and also would not be able to get competitive rates for channels subscribed to by them.

The Commission held as under:

1) Due to TRAI Regulations distribution of channels and their pricing by broadcasters/aggregators are totally regulated and, therefore, allegations that market power of JV would affect ability of Multi System Operators in bargaining were not substantiated ;

2) OPs could not be said to have violated section 3(3) of the Act in forming a JV. Since market share of JV formed by OPs was 10 per cent only and JV had not affected operations of other broadcasters or aggregators in any way, JV formed by OPs was not a dominant player in relevant market of services of aggregating and distribution of TV channels in case of Multi-system operators, Direct to Home Operators and Internet Protocol Television Operators in India and, therefore, there was no abuse of dominant position. Thus, opposite parties had not contravened provisions of sections 3(3) and 4 of the Act and proceedings in instant case were to be closed - Yogesh Ganeshlaji Somani v. Zee Turner Ltd. [2013] 33 taxmann.com 2 (CCI)

Support services provided by local authorities to business entity are liable to ST

Support services by way of off-street parking or other facilities provided by local authorities to any business entity would be liable to service tax

The local authorities operating off-street parking facilities were not subjected to VAT/service tax in Ireland whereas commercial operators engaged in that activity were liable to VAT/service tax. The Commission of European Communities brought a suit for declaration that said exemption to local authorities was violative of Council Directives.

European Court of Justice held as under:

1) Services provided by Government or local authorities were excluded from charge of service tax to extent specified in negative list under section 66D(a);

2) Such negative list entry, being an exception to charge, was to be strictly construed;

3) Exclusions from negative list provided in clauses (i) to (iv) of section 66D(a) have to be liberally construed, as they were intended to restore general principle of charge of service tax on all services;

4) Therefore, support services by way of off-street parking or other facilities provided by local authorities to any business entity would be liable to service tax - Commission of the European Communities v. Ireland [2013] 30 taxmann.com 234 (ECJ)

CA lost his membership for having two wives; ‘Bigamy’ comes within the meaning of moral turpitude

Moral turpitude means anything contrary to honesty, modesty or good morals. It means vileness and depravity. As the appellant married another woman, while the first marriage was subsisting, and acted contrary to the law and against expectation of his "estranged wife", the offence of bigamy had been committed within the meaning of "moral turpitude"

In the instant case, matrimonial dispute arose between the appellant, a qualified Chartered Accountant, and his wife, which had resulted in granting of divorce decree by the first Additional Family Court, Chennai. The said divorce decree was confirmed by Madras High Court. On a complaint by his estranged wife, under Section 21 of the Chartered Accountants Act, 1949, appellant's name was removed from the Register by the ICAI on the grounds of bigamy charges.   The appellant contended that the allegation of bigamous marriage would not come within the meaning of moral turpitude. Therefore, the disqualification attached to Section 8 of the Act would have no application to the facts of his case. Thus, appellant filed the instant writ to quash the order passed by the ICAI.

The HC dismissed appellant’s writ with following observations:

1. The appellant and his estranged wife were Hindus, governed under the provisions of the Hindu Marriage Act, 1955. Section 17 of the Act states that marriage between two Hindus is void if two conditions are satisfied, viz., (a) the marriage is solemnized after the commencement of the said Act, and (b) at the date of such marriage, either party has a husband or wife living and the provisions of Sections 494 and 495 shall apply accordingly. Thus, it is evident that if a Hindu marries with a person having a spouse living or he or she has a spouse alive and, marries any person, he would be liable for bigamy charges.
2. The expression "moral turpitude" isn’t defined anywhere. But it means anything done contrary to justice, honesty, modesty or good morals. It implies depravity and wickedness of character or disposition of the person charged with the particular conduct. If the individual charged with a certain conduct he owes a duty, either to another individual or to the society in general, to act in a specific manner. If he acts contrary to it and does so knowingly, his conduct might be held to be due to vileness and depravity.
3. In fact, the conviction of a person in a crime involving moral turpitude and impeaches upon his credibility as he would be deemed to have indulged in shameful, wicked and base activities. The offence of bigamy comes within the meaning of "moral turpitude". The appellant had married another woman, while the first wife was alive, he had acted contrary to the law and to expectation of his "estranged wife";
4. The appellant had attracted disqualification by operation of law, viz., Section 8 of the Chartered Accountants Act, 1949, due to his committing an offence involving moral turpitude. For the foregoing reasons, the writ appeal was dismissed - P. Mohanasundaram v. President, ICAI [2013] 33 taxmann.com 80 (Madras)

Transportation of passengers via ropeway isn’t covered under tour operator’s service

Leasing of a ropeway installed by Municipal Board and operating it to entertain tourists by carrying them from road to hills and back doesn't amount to Tour Operator's services

In the instant case the assessee had leased a ropeway installed by Municipal Board and was engaged in operating it to entertain tourists by carrying them from road to hills and back. The Department sought to levy service tax on the assessee under Tour Operator's services.

The Tribunal held in favour of assessee as under:

1) By a licence deed, the assessee was allowed to operate the ropeway. In terms of section 65(115) to call a person as "Tour Operator" he should be either a planner of tour or an organizer or arranger thereof. So, scheduling tour brings the service provider to the category of tour operator. Meaning of the term "tour" is given by section 65(113) of the Act. "Tour" means journey from one place to another, irrespective of distance from such place;

2) The tourists are not governed by any planning, scheduling, organising or arranging for their journey and are not dependent on the licensee-assessee for such planning, scheduling, organizing or arranging for their tours but only avail the facility of ropeway provided by assessee-licensee during working hours on payment of fees prescribed in licence deed. They are not beneficiaries of any planning, scheduling or arranging of tours, since tour to be taxable has to follow activities enumerated under section 65(115);

3) Accordingly, the assessee had not acted as "tour operator" within the meaning of Section 65(115) for which the taxing entry 65(105)(n) thereof was not attracted. Consequently, the assessee was not liable to service tax - SHAIL SHIKHAR ASSOCIATES V. COMMISSIONER OF CENTRAL EXCISE [2013] 32 taxmann.com 269 (New Delhi - CESTAT) (TM)

HC upholds transfer of order under sec. 127 for co-ordinated investigation; recommends US like ‘restatement of law’

Order of transfer of cases under section 127(2) is administrative and not quasi-judicial merely because assessee is required to be heard before the order is passed. The word 'coordinated investigation' is not vague. It has a definite meaning. The transfer order can’t be set aside merely on the ground that the transfer has been done on vague terms.

In the instant case, following issues arosed before Chattisgarh HC:

A. Whether the power of transfer under Section 127(2) of the Income Tax Act, 1961 is not a judicial power?

B. Order of transfer under sec. 127(2) can’t be passed when there is denial of reasonable opportunity to the assessees?

C. Whether the word 'co-ordinated investigation' is vague and the transfer order can be set aside merely on the ground that the transfer has been done on vague terms?

Deliberating on these issues, the HC held as under:

1) Section 127(2) of the Act provides that transfer can be done only if opportunity is afforded to an assessee and after recording reasons. But merely for this reason it cannot be said to be quasi-judicial in nature;

2) The transfer order does not decide the rights of the parties in the assessment;

3) The ultimate order deciding the right is the order of the assessment which decides the basis and the tax to be paid. This order is a judicial order. The transfer order is merely for administrative reason and it cannot be said that nature of power is judicial;

4) It was not disputed that the search took place in the premises of Mahamaya group of companies, as well as residential and official premises of its directors and its employees, at different places, where incriminating documents were seized;

5) The documents were inter-connected and affected the assessment of the parties. It was necessary to see their overall effect on the assessments. It could only be done after analyzing and investigating into all the documents found at different places and not separately, for which a co-ordinated investigation was necessary. Thus, the words 'coordinated investigation' were not vague;

6) The notice had indicated the reason for transfer as 'centralisation' for 'co-ordinated investigation'. It was for this reason that order for transfer were made. There was no denial of reasonable opportunity to the assesses.

In addition to the aforesaid findings, the HC also recommended adoption of US-like 'restatement of law'

The submissions raised by the party should have been considered before arriving at the decision. But more often than not, there was an insistence on dealing with every case that was cited. Perhaps, such insistence, even if the decisions were inapplicable or irrelevant, was misplaced. It might not be proper to record in the judgement that a counsel had cited irrelevant, or inapplicable, or overruled, or already distinguished case. It would be of real help to our jurisprudence if we also adopted an approach similar to the US, about 'Restatement of Indian law' – CIT V. UNION OF INDIA [2013] 32 taxmann.com 320 (CHHATTISGARH)

Pune ITAT allowed claim of jeweller for business loss incurred due to confiscation of its silver stock

In the instant case, during search conducted in the business premises of assessee, a jeweller, certain stock of silver was confiscated by customs officials. Assessee claimed deduction on account of loss occurred due to confiscation of silver in relevant assessment year. Said claim was disallowed by the AO as well as the CIT(A).

The Tribunal held in favour of assessee as under:

The business loss on account of confiscation could be claimed and allowed in the year in which the assessee prima facie loses the hope for recovery of the goods. Thus, the assessee’s claim of loss was crystallized in the year under consideration when assessee received the order of CEGAT. Therefore, the loss incurred due to confiscation of silver stock was to be allowed as assessee was in the business of silver trade and loss had been suffered during the course of its business - RAJMAL LAKHICHAND v. ACIT [2013] 32 taxmann.com 248 (Pune - Trib.)

CBDT mandates e-filing of audit report and return with 5 lacs income; no more ITR 1 if Sec. 10 benefit exceeds 5k

Audit report to be filed electronically; threshold limit for e-filing of return reduced to Rs. 5 lakhs; return can’t be filed in ITR-1 if assessee earns exempt income which exceeds 5,000.
Income-tax (3rd Amendment) Rules, 2013 redefines the conditions and eligibility to choose from a variety of Income-tax return forms. In addition, certain important amendments are also being brought in, which are as follows:

1) Return in ITR 1 can’t be filed if assessee incurs losses under the head ‘Income from other sources’.

2) Return in ITR 1 can’t be filed if assessee claims tax relief or has any income which is exempt under Chapter III i.e. section 10, 10A, 10AA, etc.

3) Return in ITR 4S can’t be filed if assessee claims tax relief or has any income which is exempt under Chapter III i.e. section 10, 10A, 10AA, etc.

4) Mandatory e-filing of audit reports.

5) Mandatory e-filing of return if income exceeds Rs. 5,00,000 or if assessee claims tax relief.

Prosecution in ST matters can’t be continued if assessee has been acquitted in adjudication proceedings on merit

If assessee has been exonerated on merits in adjudication proceedings from charge of misrepresentation and suppression, criminal prosecution on same set of facts and circumstances cannot be allowed to be continued

The Department initiated adjudication proceedings and criminal prosecution against the assessee alleging wilful misrepresentation and under-valuation. In adjudication proceedings, Tribunal held in favour of assessee on merits. The Assessee filed a writ petition challenging continuance of prosecution proceedings. Department made an application that assessee's writ petition was premature on ground that it had challenged order of Tribunal.

The High Court quashed the criminal proceeding against the assessee with the following observations:

1) Application filed by Department seeking rejection of writ petition on ground of being pre-mature was a gross abuse of the processes of law;

2) Although there is no automatic closure or quashing of the criminal complaint, in the event, there is a favourable verdict in the departmental or the adjudicatory proceedings in favour of an accused but in case the adjudicatory proceedings culminate into a favourable order in favour of the accused on merits and the criminal complaint is in sum and substance based on the same facts then, obviously, it would be a gross abuse of the processes of law to continue with the criminal complaint;

3) Mere contemplation by Department to assail the order of Tribunal before the Apex Court or before any other appellate forum where they have a right to do so, couldn’t result in deferring the decision in the present petition;

4) Since the assessee had been exonerated in the departmental adjudicatory proceedings regarding both the allegations of mis-declaration and under-valuation, there was no point in continuing with the criminal trial as it was resulting in abuse of the process of law - Dinesh Aggarwal v. DRI [2013] 32 taxmann.com 337 (Delhi)