Amount credited to PPF account immune from attachment for recovery of income-tax dues

The High Court held as under:

1)  Rule 10 of the Second Schedule to the Income-Tax Act provides that all such property as is by the Code of Civil Procedure, 1908, exempt from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule.

2)  Proviso to section60(1) of Code of Civil Procedure contains list of properties which shall not be liable to attachment or sale which, inter alia, covers all deposits and other sums derived from any fund to which the Public Provident Fund Act, 1968, applies,  in so far as they are declared by the said Act as not to be liable to attachment;

3)  Therefore, any amount lying in the PPF account of a subscriber is immune from attachment and sale for recovery of the income tax dues. As long as an amount remains invested in a PPF account of an individual, the same would be immune from attachment from recovery of the tax dues. - Dineshchandra Bhailalbhai Gandhi v. Tax Recovery Officer [2014] 42 taxmann.com 300 (Gujarat)

Scope of sec. 50 limited to compute capital gain; tax rate to be fixed as per holding period of depreciable assets

The Tribunal held as under:

1)  It had been argued by the learned AR that the provisions of section 50, deeming the capital gain as short-term capital gain was only for the purposes of sections 48 and 49 which relates to computation of capital gain;

2)  The view canvassed by the learned AR was supported by the judgment of the Mumbai bench of Tribunal in case of  Manali Investments v.Asstt. CIT [2011] 45 SOT 128/10 taxmann.com 293 in which it had been held that the provisions of section 50 were to be extended only to the stage of computation of capital gain and, therefore, capital gain resulting from transfer of depreciable asset which was held for more than three years would retain the character of long-term capital gain for the purpose of all other provisions of the Act;

3)  For the purpose of computation of capital gain, the flat had to be treated as short-term capital assets, but for the purpose of applicability of tax rate it had to be treated as long-term capital assets if held for more than three years;

4) Thus, the AO was to be directed to compute the capital gain from the sale of flat and apply the appropriate tax rate after necessary verification in the light of observations made in this order - Smita Conductors Ltd. v. Dy. CIT [2014] 41 taxmann.com 514 (Mumbai - Trib.)

Deemed transfer of property in development agreements if right to sell a few flats was transferred to builders

Where assessee had entered into development agreement under which developer had constructed a building on property of assessee and, in turn, developer had right to sell some of the flats, grant of development right to that extent was to be treated as transfer.

Facts:

a) The assessee entered into a development agreement with the developer under which the developer agreed to construct a building on property of assessee. The major part of the building was to be transferred to the assessee. However, the developer was entitled to sell the remaining flats.

b) The Assessing Officer (‘AO’) held that capital gain arose on account of grant of development rights by the assessee. The alternate contention of assessee was that he was entitled to sec. 54 relief in respect of three floors of building.

c) The AO party allowed assessee’s claim of exemption under section 54 in respect of one residential floor. On appeal, the CIT (A) upheld the order of the AO as regards the transfer of property, however, he partly allowed the exemption claimed by the assessee under section 54.

The Tribunal held as under:

1)  The developer had the right to sell the said flats on account of the additional FSI. To that extent the rights, title and interest in the said plot of land had been transferred. Hence, it was a clear case of transfer envisaged both under the income-tax  Act and Transfer of Property Act;

2)  The High Court of Delhi in the case of CIT v. Gita Duggal [2013] 30 taxmann.com 230  held the fact that residential house consisted of several independent units couldn’t be permitted to act as an impediment to allow the deduction under section 54;

3)  In the case of CIT v. D. Anand Basappa [2009] 180 Taxman 4 (Kar.), the High Court has held that 'a residential house' as mentioned in section 54(1), had to be understood in a sense that the building had to be of a residential nature and the word 'a' had not be understood to indicate a singular number;

4) Therefore, the assessee was entitled to exemption under section 54 as regards the investments/cost of construction claimed by the assessee in respect of all the flats. – Dy. CIT v. Jai Trikanand Rao [2014] 41 taxmann.com 453 (Mumbai - Trib.)

Highlights of Interim Budget 2014-15: excise duty reduced on cars and mobiles, FM focuses on passing of GST and DTC

Key Features of Interim Budget 2014-2015

1)  GST and DTC: All political parties must resolve to pass the GST Laws and the DTC in 2014-15;

2)  Research funding organization: Proposal to set-up research Funding Orgnaisation that will fund Research. Contribution to that organisation will be eligible for tax benefits;

3) Change in rate of taxes:

a)  Excise duty on small Cars, Motorcycle, Scooters and Commercial Vehicles reduced from 12% to 8%.

b)  Excise duty on SUVs reduced from 30% to 24%.

c)  Excise duty on large and mid-segment cars reduced from 27/20% to 24/20%.

d)  Excise duty on chassis and trailors reduced.

e)  The excise duties on all mobile handsets have been restructured. The rates will be 6% with CENVAT credit or 1 percent without CENVAT credit.

f)  To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.

g)  A concessional custom duty of 5 percent on capital goods imported by the ‘Bank Note Paper Mill India Private Limited’ is provided for to encourage domestic production of security paper for printing of currency notes.

4) Service tax exemptions:

a)  The loading and un-loading, packing, storage and warehousing of rice have been exempted from service tax;

b)  The services provided by cord blood banks are exempted from service tax.

No advance ruling for proposed transactions to be undertaken with entities to be established in future

In order to cover proposed transaction under section245N, the partnership firm and subsidiary-company have to exist in reality with which that transaction is to be undertaken.

 Facts:

1)  The applicant-company, registered in UAE, is engaged in the business of developing and investing in the infrastructure and real estate sector. It intends to invest in a 100% subsidiary company in India under the prevailing FDI regulations;

2)  This Indian subsidiary company of the applicant intends to set-up a consortium by way of partnership firm with another Indian company, namely, MEPPL;

3)  This consortium proposes to acquire the undertaking of MEP Infra Private Limited which is engaged in the business of operating and maintaining of roads and bridges in Mumbai.

The applicant seeks ruling, interalia, on the following question:

Whether, the transfer of Undertaking of MEP Infra Toll Road Private Limited to the partnership firm would affect the allowability of deduction under section80IA(4)(i) to the partnership firm?

The Authority held as under:

1)  In order to apply the provisions of section 245N, there has to be either a transaction undertaken or proposed transaction to be undertaken by the non-resident applicant. This is not the case in the present application;

2)  The question relates to proposed setting-up of the subsidiary and the partnership firm with the Indian company and as to whether the subsidiary or the partnership firm would be eligible to 100 per cent deduction under section80IA?;

3)  The 100 per cent subsidiary company has to exist in reality and the partnership firm has to be set-up in order to make transaction or proposed transaction of the applicant with the Indian company or subsidiary;

4)  Thus, the question posed does not fall under the purview of this Authority. Consequently, the application is to be rejected -  Trade Circle Enterprises LLC, In re [2014] 42 taxmann.com 287 (AAR - New Delhi)

Amount of investment and not extent of construction is relevant to compute relief under sec. 54F

Section 54F relief was available if sale consideration was invested in purchase of residential building as per provisions; in such a case extent of construction of residential building was irrelevant.

The High Court held in favour of assessee as under:

1)  What the law (i.e., section 54F) contemplates is, after selling the property, if the assessee invests the sale consideration in purchase of a residential property, he is entitled to exemption under section 54F;

2)  What should be the extent of construction of residential building, what facilities should be provided in such constructions to be eligible for the exemption, have not been set out in the Act;

3)  The Authorities have ensure, whether what is purchased is a residential construction or not?;

4)  If the material on record showed that prior to the sale, the vendor lived there and had sold the site along with the residential construction, merely because the property was not suitable to the assessee and construction materials were kept there, would not be a valid grounds to deny exemption under section 54F;

5) Thus, assessee was entitled to avail of relief under section 54F – CIT v. Dr. R. Balaji [2014] 41 taxmann.com 411 (Karnataka)

Retainer fee to doctor would attract sec. 192 TDS instead of sec. 194J TDS if terms of contract prove him to be an employee

Cumulative effect of agreement with retainer-doctor is relevant to decide whether TDS is to be effected either under section 192 or under section 194J.

The Tribunal held as under:

1)  Retainer-doctor was an employee and not an independent professional as terms of contract provided that:

a)  Retainer-doctor was debarred from taking any other assignment with any other company engaged in business similar to assessee-company (i.e., corporate hospital);

b)  He was required to follow rules, regulations and policies of assessee-company and to report to the head of the department in which he was working;

c)  He was to be paid fixed consolidated monthly fee with no fee-sharing with hospital.

2)  The retainership agreement was also for a limited period. Mere fact that the retainer-doctor had to raise monthly bills for getting payment of consolidated retainership fee would not make him an independent professional doctor, when in substance the cumulative effect of agreement indicated employer-employee relationship;

3) Thus, his fixed monthly retainer fee was in nature of salary which would be liable for tax deduction under section 192 and it was not a professional fee liable for tax deduction under section 194J - Escorts Heart Institute & Research Centre Ltd. v. Dy. CIT [2014] 42 taxmann.com 200 (Jaipur - Trib.) (TM)

Investment of sales consideration provides sec. 54F relief even if construction isn't completed within 3 years

Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not completed in all respects within stipulated period, benefit of section 54F, could not be denied.

The Tribunal held in favour of assessee as under:

1)  It was clear from the order of the CIT (A) that the assessee had commenced construction of the building within a period of three years from the date of transfer of property. The construction, however, could not be completed by the assessee within three years;

2)  The Karnataka High Court in case of CIT v. Sambandam Udaykumar [2012] 19 taxmann.com 17 had taken a view that under the provisions of section 54F, the condition precedent was that the capital gain realized from sale of capital asset should have been parted by the assessee and invested in construction of a residential house;

3)  Benefit of section 54F couldn’t be denied to assessee if the money was invested in constructing the residential house, even if the construction was not completed in all respects and house was not in a condition to be occupied within the stipulated period;

4)  There is no particular stage of completion of construction that is contemplated by the provision. Therefore, the benefit of deduction under section 54F was to be allowed to the assessee – ITO v. Smt. B.S. Shanthakumari [2014] 41 taxmann.com 325 (Bangalore - Trib.)

Deemed STCG under sec. 50 qualifies for sec. 54EC relief as deeming fiction only provides mode of computation

Capital gain computed under section 50 qualifies for exemption if investment is made out of sale proceeds towards prescribed bonds under section 54EC.

In the instant case the issue that arose for consideration of High Court was as under:

Whether the exemption permitted by the statute under Section 54EC shall be available in the case of capital gains arising out of transfer of depreciable asset under section 50?

The High Court held in favour of assessee as under:

1)  The Madras High Court in the case of M. Raghavan v. Asstt. CIT [2004] 134 Taxman 790 has held as under:

The object of introducing section 50 was to disentitle the owners of such depreciable assets from claiming the benefit of indexing. The said provision was never meant to confer such multiple benefits to assessees selling depreciable assets;

2)  Section 50 creates a deeming fiction only for mode of computation of capital gains under sections 48 and 49 and not for other provisions;

3)  Section 54EC does not make any distinction between depreciable assets and non-depreciable assets and, therefore, deduction available under section 54EC shall be available in case of capital gains arising out of transfer of depreciable asset, if investment is made out of sale proceeds towards prescribed bonds under section 54EC;

4) Thus, the appeal of revenue was to be dismissed. – CIT v. Polestar Industries [2014] 41 taxmann.com 237 (Gujarat)

Waterfront royalty recovered by State Govt. was not an 'intellectual property service'

Facts:

a) The assessee, i.e., State Government had collected Waterfront Royalty charges, which were charged by Government of Gujarat from Fort users/private parties for use of such Waterfront;

b) The Department sought levy of service tax on such charges under Intellectual Property Services.

The Tribunal held in favour of assessee as under:

1)  The definition of Intellectual Property Rights is about right available with an individual or person;

2) The charges collected by the assessee-Government for usage of Waterfront as Waterfront Royalty Charges could not, prima facie, be covered under definition of Intellectual Property Rights  -  State Charge Gog Port of Magdalla v. Commissioner of Central Excise & Service Tax [2014] 41 taxmann.com 376 (Ahmedabad - CESTAT)