IPL in FEMA violation; Special Director had to form an opinion before calling BCCI President for personal hearing

Special Director was directed to first form his opinion whether to proceed against petitioner President of BCCI, for remittances in violation of FEMA before calling petitioner for personal hearing as per rule 4 of Adjudication Rules

Facts:

1. The petitioner was President of BCCI during years 2008 to 2011. In 2009, after the second edition of IPL at South Africa, the Assistant Director, Directorate of Enforcement filed a complaint with Special Director alleging that the provisions of FEMA had been violated by the Board and its officers while conducting second edition of IPL;
2. On basis of the complaint, show-cause notices were issued to the Board and its office bearers calling upon the Board to show cause in respect of a particular conduct/transaction amounting to violation of the Act;
3. The petitioner was also called upon in each of the notices to show cause as to why penalty should not be imposed upon him in his capacity as the President of the Board in terms of section 42. Special Director issued notice to petitioner for personal hearing according to rule 4 of Adjudication Rules;
4. Petitioner filed writ petition contending that he had no role in remittances and receipts of foreign exchange in 2009 and a separate committee had been constituted to administer IPL with a separate bank account to be operated by Treasurer, BCCI.

The High Court held as under:

1. The petitioner was not in charge of and responsible to BCCI for aforesaid matters, as far as opening and operating of bank account of IPL or obtaining permission of Reserve Bank of India for making remittances or receipts of foreign exchange was concerned;
2. It would be necessary for adjudicating authority to form an opinion whether petitioner could at all be considered as covered by substantive part of section 42(1), since petitioner himself was not in charge for opening and operating bank accounts involving receipts and remittances of foreign exchange to parties outside India;
3. That communication calling petitioner for personal hearing was to be set aside since adjudicating authority had not considered aforesaid aspects before forming an opinion to proceed further with inquiry under sub-rule (4) of rule 4 of Adjudication Rules;
4. The Special Director was to be directed to first form his opinion, after recording reasons before proceeding against petitioner with regard to impugned show-cause notices in accordance with rule 4(3) of Adjudication Rules – Shashank Vyankatesh Manohar v. Union of India [2013] 37 taxmann.com 151 (Bombay)

Institution-wise aid of about 45% entitles a society for sec. 10(23C) exemptions

For computing 'substantial government aid' so as to avail section 10(23C) exemption, receipts of individual institution are to be considered, not aggregate receipts of various institutions run by a society; 45 per cent government aid is substantial for such purpose

In the instant case two issues that came for consideration of the Tribunal were as under:

a) Whether the aggregate gross receipts of various institutions run by the assessee-society were to be considered for the purpose of section 10(23C)(iiiab) or the individual receipts of each institution run by the assessee are to be considered?

b) Whether the assessee had received substantial Govt. aids to be eligible for exemption under 10(23C)(iiiab)?
On first issue, it held as under:

For purpose of applying provisions of section 10(23C), receipts of individual institution are to be considered, and not aggregate gross receipts of various institutions run by assessee.

On second issue, it held as under:

1) The percentage of grant was within the range of 41% to 82% if considered individually for each institution. If the percentage was considered for the society as a whole even then the percentage was 44.52% and 45.15% in the two years;

2) The Hon'ble Court in case of CIT v. Deshiya Vidyashala  [I.T.A. No.1133 of 2008, dated 8.2.2011] has considered 34.33% as substantial aid for the purpose of eligibility under the above said sections;

3) In the instant case the percentage of grants in aid with respect to total receipts are more than 34.33%. Thus, following the case of Deshiya Vidyashala (supra) with respect to definition of substantial interest, aid of more than 34. 33% was to be considered as substantial aid.

Therefore, the assessee’s institutions were substantially aided by the Govt. and, hence, were eligible for exemption under section 10(23C)(iiiab) - Jat Education Society v. ITO [2013] 37 taxmann.com 187 (Delhi - Trib.)

School to apply sec. 194C and not sec. 194I on transport contract if transporter incurs running cost and keeps possession of vehicle

Contract awarded by assessee-school to transporter for carrying students would be covered by sec. 194C and by not sec. 194I if bus remained in possession of transporter and all running and maintenance costs were incurred by him

In the instant case the assessee-school awarded contracts to various transporters for carrying its students from their homes to school and from school back to homes. It had deducted tax under section 194C for making payments to bus owners. The AO held that the assessee should have deducted tax under section 194I on such payments. On appeal, the CIT(A) reversed the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The object of the assessee to enter into such agreement was a simple activity of carrying its students from their homes to the school and similarly from school back to their homes;

2) The assessee had no responsibility whatsoever regarding the buses to be utilized for that purpose which was the sole responsibility of the transport contractor;

3) The transport contractor only was liable to keep and maintain the required number of buses for such activity at its own expenses with the specified standards;

4) Therefore, the said contract was purely in the nature of services rendered by the transport contractor to the assessee. The assessee was not having any responsibility whatsoever regarding the transport vehicles used in such activity;

5) The assessee itself had not utilized the buses but they were used by the transport contractor for fulfilling the obligations set out in the contract. Thus, the aforesaid payments were not covered in the definition of 'rent' which was defined in Explanation to section 194-I,;

6) Therefore, the provisions of section 194-I could not be applied in the instant case. The assessee had rightly deducted tax at source under the section 194C on the aforesaid payments – ACIT (TDS) v. Delhi Public School [2013] 37 taxmann.com 211 (Delhi - Trib.)

Transactions among Indian subsidiaries pursuant to contract with their parent co’s out of purview of TP

Assessee sold its medical imaging business to another Indian Co. namely, 'C' Ltd. in pursuance of a transaction whereby holding co. of assessee sold its imaging business to holding co. of 'C' on global basis. Both transactions were independent of each other, therefore, revenue authorities were not justified in making TP adjustment to such transaction.

In the instant case, assessee, an Indian company sold its medical imaging business to ‘C’, Indian company disclosing sale transaction as normal domestic transaction. On perusal of documents, AO concluded that such transaction was on global basis, wherein holding company of assessee sold its imaging business to C Inc. TPO proceeded to determine ALP based on worldwide revenue break up amongst countries submitted by assessee.

The Tribunal held as follows:

a) It was undisputed that the transaction involved two domestic companies who were individual and independent subsidiaries of their own and independent holding companies;

b) Transaction could only become international transaction, if either both of the associated enterprises (‘AE’) or one of the AEs was non-Resident.

c) As per the wordings of section 92B, there had to be an AE, with whom there existed international transaction, only then it could be examined as to whether international transaction with ‘such other person’ existed or not;

d) Transactions entered into by holding foreign companies and subsidiary Indian companies were independent of each other. Though the instant transaction was as a consequence of the global agreement entered into by the holding companies, yet the entire exercise of transfer of imaging segment was independently done on its own terms by the assessee and the other party, i.e, 'C' India.

e) No element of international transaction was involved in sale of imaging segment by assessee of its business to C and it was purely a domestic transaction.

f) Therefore, the impugned adjustment made by revenue authorities was to be set aside - Kodak India v. Addl.CIT [2013] 37 taxmann.com 233(Mumbai –Trib.)

Where assessee had no tax incidence but otherwise was liable to tax in the UAE, benefits of India-UAE DTAA were applicable

In the instant case the assessee, a resident of the UAE, was engaged in the business of shipping.  It claimed that Article 8 of the India-UAE treaty would be applicable to it. The AO, however, held that the assessee was not eligible for treaty benefit. He, therefore, invoked the provisions of section 44B and computed the presumptive profit on total receipt. On appeal, the CIT (A) deleted the order of the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) The revenue’s contention was that since the assessee had not paid taxes in the UAE, there could be no curtailment of tax liability, by pressing the treaty. The reason could being that DTAA applies on juridical double taxation, i.e., if income was not taxed in one State, then it would be taxed in full in the other, if it was otherwise taxable, without granting any benefit of the Treaty;

2) This argument couldn’t be sustained, because the assessee was 'otherwise liable to tax' in UAE. Simply because there was no tax incidence in the UAE, didn’t mean that the assessee ceased to be otherwise liable to tax as per Article 4 of India-UAE treaty;

3) Treaty becomes applicable once the assessee gets within the expression 'otherwise liable to tax' in Treaty. Therefore, the order of CIT (A) was to be set aside and the AO was to be directed to consider the nature of income in issue and, consequently, the availability of Article 8 of the India UAE Treaty – ADIT v. Simatech Shipping Forwarding LLC [2013] 37 taxmann.com 232 (Mumbai - Trib.)

Ex-auditor couldn’t complaint against new auditor if client found no discrepancy in audit report of new auditor

Facts:

a) 'A', auditor of the company, was replaced by ‘B’. A made a complaint against B levying various allegations against him;

b) The Council, found B prima facie guilty of professional misconduct and, accordingly, referred the matter to the Disciplinary Committee;

c) Disciplinary Committee found B guilty of professional misconduct under sections 21 and 22. The Council made a reference seeking confirmation of removal of B’s name from the register of members of the ICAI.

The High Court held as under:

1) A had no locus standi to make a complaint as the company whose audit report was stated to have been prepared by B contrary to the prescribed norms, had not made any complaint against B;

2) The Disciplinary Committee had not referred to particular portions of the report which were found not in conformity with the prescribed norms;

3) B was not shown to have been served with a notice of hearing by the Disciplinary Committee. The entire proceeding of the Disciplinary Committee was contrary to the settled principles of natural justice;

4) A undisputedly was biased against B, because of his having been replaced as auditor of the aforesaid company. Therefore, case put forth by him could not be accepted in the absence of independent corroboration. Thus, the reference made by council was to be rejected - ICAI v. Vijay Kumar [2013] 37 taxmann.com 203 (HC-P&H)

Wife proves to be a lucky mascot; husband gets HRA exemption on rent paid to wife

In the instant case the AO disallowed assessee's claim for HRA exemption on the ground that assessee and his wife were living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability. The CIT(A) confirmed the addition on the ground the tenant (i.e., assessee) landlord (i.e., his wife) were staying together which indicated that the whole arrangement was a colourable device. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The section 10(13A) provides that exemption would be allowable to an assessee for any allowance granted to him by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the him;

2) However, the exemption is not available in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent;

3) Admittedly, the AO had given a finding of fact that the assessee and his wife were living together as a family. Therefore, it could be inferred that the house owned by wife of the assessee was occupied by the assessee also;

4) The assessee had submitted the rent receipt(s) and payments had been duly verified. Therefore, the assessee had fulfilled the twin requirements of the provision, i.e., occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A) - Bajrang Prasad Ramdharani v. ACIT [2013] 37 taxmann.com 186 (Ahmedabad - Trib.)

Arrears received by lawyer who stopped his practice on being elevated as judge not taxable as business income

Arrears of professional fee received by assessee after he had discontinued his legal profession of lawyer on being elevated as a judge of High Court couldn’t be taxed as business income despite insertion of section 176(4) in the Act

In the instant case the assessee was a practising lawyer before his elevation as a judge of the Delhi High Court. He received certain amount of arrears of his professional fees for professional services rendered in the earlier years before his elevation as a Judge of the High Court. The AO held that such receipts were chargeable to tax under section 176(4). On appeal, the CIT (A) deleted the addition made by the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) As per provisions of section 176(4), in the case of cessation of a profession by a professional, the receipt of any sum after such cessation shall be deemed to be the income of the professional and would be taxed in the year of receipt as if, it had been received prior to the cessation of the profession;

2) Section 176(4) introduces a legal fiction, which should be limited only to the purpose for which it has been created. Section 176(4) merely treats the receipt as the income of the recipient. In the absence of any further fiction in the section, the character of such receipt cannot be determined and no further fiction can be introduced so as to determine the head of charge under which such receipt would fall;

3) Thus, the express language of section 176(4) does not render the receipt to be treated as profit and gains of business or profession (PGBP). Therefore, in spite of introduction of section 176(4) in the Act, the receipts in question couldn’t be treated as the assessee's income falling under the head "PGBP”, even though they were the fruits of the assessee's professional activities;

4) It was due to the absence of any legislative provision that these receipts couldn’t be treated as business income falling under the head "PGBP”. They couldn’t be included in the total income of the assessee, even though the amount was received by the assessee before the discontinuance of his profession due to his elevation as the High Court Judge. Thus, the order of CIT (A) was to be confirmed. – ITO v. Justice Rajiv Shakdher [2013] 36 taxmann.com 585 (Delhi - Trib.)

Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty

In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.

The Tribunal held in favour of assessee as under:

1) The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal;

2) Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal;

3) The remittance made by the assessee was not for availing of technical services and did not amount to royalty.  It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld – ITO, TDS v. Kendle India (P.) Ltd [2013] 37 taxmann.com 140 (Delhi - Trib.)

Yog trust is tax exempt; its main object is to impart training in Yoga, for education and curing of diseases

The predominant object of imparting Yoga training through well structured Yoga shivirs is to provide medical relief and impart education, which fall under the category of charitable objects defined under section 2(15).

The Tribunal held as under:

1) Yoga can be safely accepted as a system that fits into the definition of medical relief. As a science it is a well recognized system of medicine, which has therapeutic effects in treating serious ailments;

2) The predominant objective of the assessee-trust was to provide medical relief through Ayurveda and propagation of  Yoga for the purpose of curing various diseases;

3) Any form of educational activity involving imparting of systematic training, to develop the knowledge, skill, mind and character of  students is to be regarded as 'education', covered under section 2(15);

4) Thus, imparting of Yoga training through well structured Yoga shivirs would fall under the category of imparting education, which is one of the charitable objects defined under section 2(15);

5) The various other objectives of assessee-trust were merely ancillary to its main object, which was to provide medical  relief and impart education and would not in any way constitute objectives of  general public utility;

6) The proviso to section 2(15) applies only to trusts falling in the last limb of the definition of charitable purpose, that too if such trust carries on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to a trust providing education and medical relief. Thus, revenue was not justified in refusing the exemption claimed by assessee-trust under sections 11 and 12 - Divya Yog Mandir Trust v. JCIT [2013] 37 taxmann.com 227 (Delhi - Trib.)