Conveyance allowance received by LIC employee to develop insurance business is exempt from tax

Conveyance allowed paid by LIC to its Development Officer for performance of his duties and development of insurance business is exempt under section 10(14).

Facts:

a)The assessee, a Development Officer of LIC, had received certain amount towards conveyance allowance from the LIC.

b)Though the same was part of the salary certificate but the contention of the assessee was that the said amount had been incurred in development of LIC’s business to receive the premium on account of various policies and the said amount was entirely exempt under section 10(14).

c)The AO rejected assessee's contention and made addition of impugned sum as income of the assessee. On appeal, the CIT(A) held in favour of assessee. Further, the Tribunal upheld the order of CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The conveyance allowance was paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, necessarily and exclusively for meeting of such expenditure, the allowance was being exempt.

2)The LIC was sanctioning conveyance allowance to the Development Officers considering the expenditure incurred by them for procuring the business and it was fixed by a general formula having reference to the parameters of the business. Thus, the impugned allowances were reimbursement of the actual expenditure incurred by the Development Officers on account of conveyance in relation to the performance of their duties.

3)The said expenditure had a close nexus to the performance of the duties and development of the insurance business, inter alia, by way of meeting several persons, to enroll new life insurance agents, to meet the customers for encouraging them to take insurance policies etc. Thus, in such circumstances, expenditures had to be incurred towards conveyance. Therefore, the Tribunal was justified in upholding the exemption granted by the CIT(A). – CIT V. MADAN GOPAL BANSAL [2014] 45 taxmann.com 301 (Rajasthan)

Holy Cow! No revocation of registration of trust working for welfare of cows if it made profit from sale of milk

Where assessee-trust was established for purpose of cow breeding and protection of cows and oxen, incidental income earned by it from sale of milk could not be regarded as carrying on activity of trade or commerce within meaning of proviso to section 2(15).

Facts:

a)The assessee-trust was established for cow breeding, protection of cows and oxen. It got registration under section 12AA.

b)The DIT(E) found that income of assessee from sale of milk was far in excess of prescribed limit under proviso to section 2(15).

c)He, thus, opined that assessee was doing regular activities which were in the nature of business by way of sale of milk and was directly hit by the proviso to section 2(15). He, accordingly, cancelled the registration of trust. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The dominant purpose of the trust was to provide asylum for old, sick, weak, disabled and stray animals and birds, more particularly cows and other cattle and to bring about improvement in breeding of cattle for the beneficial promotion, upkeep, maintenance and propagation of cows.

2)It could not be denied that milk needs to be procured from cows, otherwise it will be detrimental if the milk is not procured from time-to-time. The milk so procured was distributed free of charge to children, hospitals, schools, etc., and, thereafter, the remaining milk was distributed to public at large at a very nominal rate. This activity could not be deemed as business, trade or commerce.

3)The assessee-trust was engaged in multifarious activities of diverse nature but the primary and the dominant activity was “panjrapole”. This predominant object had been held as charitable purpose by the Gujarat High Court in case of CIT v. Swastik Textile Trading Co. (P.) Ltd. [1978] 113 ITR 852 (Guj.)

4)The assessee-trust would not loose its character of charitable purpose merely because some profits arose from the activity of the sale of milk. Such activity could not be carried on in such a manner that it would not result in any profit.

5)There was no material available on record, which could suggest that the assessee-trust was conducting its affairs solely on commercial lines with a motive to earn profit only. The proviso to section 2(15) was not applicable to the instant case and the assessee deserved continuance of registration under section 12AA. Accordingly, the order of the DIT(E) was to be set aside.- SHREE NASHIK PANCHVATI PANJARPOLE V. DIT (E) [2014] 45 taxmann.com 220 (Mumbai - Trib.)

Temporary transfer of copyright in films doesn’t amount to sales; levy of ST on it is constitutionally valid: HC

Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not "sale or deemed sale of goods" and, therefore, levy of service tax on Temporary transfer of copyright in film under section 65(105)(zzzzt) is constitutionally valid.

Facts:

a)The assessee challenged the vires of Section 65(105)(zzzzt) of the Finance Act, 1994 on ground that ‘temporary transfer of copyright’ amounted to 'sale' or 'deemed sale' of goods.

b)The assessee argued that temporary transfer of copyright was a "transfer of right to use goods" which was to be deemed as sale in terms of Article 366(29A), read with Entry 54 of List II of the Constitution and, therefore, it was not a service.

c)The revenue argued that clause (29A) of Article 366 of the Constitution was inserted to give extended meaning to the definition of sale and that Parliament had not divested its power to levy service tax.

d)The issue before the High Court was: Whether section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright was ultra vires the Constitution?

The High Court held in favour of revenue as under:

1)Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) were not "sale of goods" to fall under Entry 54 List II or Entry 92A List I;

2)By resorting to Entry 97 of List I Residuary Entry to levy service tax, Parliament was within its legislative competence to levy service-tax on residual items and Section 65(105)(zzzzt) was not ultra vires the Constitution;

3)Temporary transactions of copyrights or permission to use or enjoyment of copyright could not be brought either under Entry 54 of List II or Entry 92A of List I;

4)In case producer of films grants a few prints of film to distributor for exhibition purposes and distributor is not free to use prints for other purposes, viz., satellite, TV, etc., then, there is temporary transfer of copyright in films, which is a service; it does not amount to sale or deemed sale under 'transfer of right to use goods';

5)Temporary transfer of copyright in film amounted to rendering of service, thus, levy of service tax on it under section 65(105)(zzzzt) was constitutionally valid – AGS ENTERTAINMENT (P.) LTD. V. UNION OF INDIA [2014] 46 taxmann.com 92 (Madras)

50% of additional depreciation allowable in 1st year and balance in next year on usage of asset for less than 180 days

In terms of section 32(1)(iia), there is no restriction on assessee to carry forward additional depreciation. Thus, where only 50 per cent of additional depreciation was allowable in year of purchase of machinery, as it was put to use for less than 180 days during said year, balance additional depreciation could be claimed in subsequent assessment year.

Facts:

a)The assessee claimed additional depreciation in respect of new machinery and plant acquired after 30-9-2005. The Assessing Officer (‘AO’) allowed 10 per cent of the additional depreciation for the assessment year 2006-07. The assessee claimed the remaining 10 per cent of the depreciation during the year under consideration.

b)The Assessing Officer rejected the claim of the assessee on the ground that there was no provision for carry forward of any additional depreciation. The DRP confirmed order of Assessing Officer.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Section 32(1)(iia) provides that in case a new machinery or plant is acquired and installed by an assessee, who is engaged in the business of manufacture or production of an article or thing, then a sum equal to 20 per cent of the actual cost of the machinery and plant shall be allowed as a deduction.

2)The assessee had already claimed 10 per cent of additional depreciation in the earlier assessment year since the machinery was used for less than 180 days and the balance 10 per cent was claimed in the year under consideration.

3)Section 32(1)(iia) does not prescribe the year in which the additional depreciation has to be allowed. It simply provides that the assessee is eligible for additional depreciation at 20 % of the cost of the machinery, provided the machinery is acquired and installed after 31-3-2005.

4)As per proviso to section 32(1)(iia) if the machinery is put to use for the purpose of business for less than 180 days, the assessee is entitled to 50 per cent of the prescribed rate of additional depreciation. The Act is silent on the allowance of the balance additional depreciation in the subsequent year;

5)This issue was considered by the Delhi Bench of this Tribunal in the case of Dy. CIT v.Cosmo Films Ltd. [2012] 24 taxmann.com 189 (Trib.), wherein it was decided that when there was no restriction in the Act to deny the benefit of balance 50 per cent, the assessee was entitled to balance additional depreciation in the subsequent assessment year.

6)Thus, in view of the decision in case of Cosmo Films (supra), balance 50 per cent of the depreciation had to be allowed in the subsequent year. Therefore, the orders of the lower authorities on this issue were to be set aside. – APOLLO TYRES LTD. V. ACIT [2014] 45 taxmann.com 337 (Cochin - Trib.)

Delay in filing of appeal due to resignation of key employee dealing with case was condonable

Where assessee directed its CA to file appeal before Tribunal but its manager resigned at crucial stage and CA delayed filing of appeal, delay could not be said to be entirely on account of assessee and, hence, was to be condoned

Facts:

a)The AO made assessment on assessee under section 143(3) and made additions to its income. On appeal, the CIT(A) confirmed the additions.

b)Further, the Tribunal rejected appeal of assessee against the order of the CIT(A) on the ground that there was delay of forty five days in filing the appeal. The aggrieved-assessee filed the instant writ.

The High Court held in favour of assessee as under:

1)The assessee could not be held entirely responsible for the delay. It had engaged a firm of Chartered Accountants to represent it. It had prosecuted the appeals for the other three years duly and diligently and, in fact, successfully. 2)It instructed the CA to file the said appeal prior to the last date

for filing the same. Even if there was any delay, it was not on account and certainly not on account of the assessee. The assessee's manager had resigned at a crucial stage was another factor in its favour.

3)The assessee had been put to incur considerable expenses and effort merely to obtain a hearing on merits. The assessee could, by no stretch of imagination, be said to have waived off its rights. This was clear from the fact that the assessee had duly and diligently prosecuted the appeals in respect of the three other assessment years.

4)But for the unfortunate circumstances, this appeal would also have been heard on merits in the normal course. The assessee was not entirely at fault for the delay and negligence in prosecuting the fourth appeal. Thus, there was no justification in denying the assessee an opportunity of having its appeal considered on merits. Even assuming that there was some negligence on its part, the same had caused the revenue no prejudice whatsoever. - BAJAJ BHAVAN OWNERS PREMISES CO-OP. SOCIETY LTD. V. ITAT [2014] 45 taxmann.com 231 (Bombay)

Liability to pay interest under IT Act remained intact even if assets of assessee were attached under other Act

Even a notified person whose properties were attached under Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 would be liable to pay interest under sections 234A, 234B and 234C.

Facts

a)The assessee was notified under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. The assets and properties of the assessee were attached by operation of the statute.

b)Interest for default in making payment of advance tax was levied on the assessee. The assessee submitted that its assets and properties were statutorily attached and permission to deal with the same, sought from the Special Court, was rejected and, thus, it was prevented from discharging the liability to pay the advance tax.

c)The Tribunal held that the provisions of sections 234A, 234B and 234C were not applicable to the notified persons and therefore, they were exempted from the liability to pay interest.

On appeal, the High Court held in favour of assessee as under:

1)The Tribunal had erred in taking a view that the assessee being a notified person under the Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 was not liable to pay interest under sections 234A, 234B and 234C.

2)Thus, merely because the assets and properties had been attached, it did not mean that the liability to pay interest would not arise. - CIT v. Cascade Holdings (P.) Ltd [2014] 45 taxmann.com 228 (Bombay)

Forced staying period in India on impounding of passport is excludible to determine residential status in India

In order to determine residential status of assessee in India during relevant assessment years, number of days of his forced stay due to untenable impounding of passport was to be excluded.

Facts:

a)Consequent to search operations carried out on assessee, the department had found evidence that assessee was getting huge amount of commission from the companies outside India which was brought into India in the form of FDI.

b)Accordingly, the AO had made additions to the income of assessee in respect of unexplained investment. The assessee contending that for relevant assessment years his status in India was that of non-resident as his stay in India had exceeded 182 days during the year because of illegally impounding of his passport by the Govt. agencies.

c)The CIT(A), however, confirmed the order of AO. He, however, partly deleted the additions made by the AO on merits. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The assessee's over stay in India was neither attributable to his volition nor free will and was because of untenable actions of impounding of his passport by executive orders which were quashed by the highest Court.

2)In these circumstances, the literal meaning of the provisions led to a manifest absurdity in as much as by untenable actions of executive, a taxpayer was exposed to the perils of losing his valuable right under taxation law, i.e., retaining his NRI status.

3)The legislature in its wisdom might not have envisaged such a situation wherein a person was forced to become a resident due to wrongful restraint in absence of eligibility to travel outside India.

4)Therefore, assessee's case was fit where doctrine of forced meajure might be applied as it was impossible for the assessee to move out of country and, therefore, doctrine of impossibility of performance was also applicable.

5)The stay of assessee was to be calculated after exclusion of days of wrongful impounding of his passport, which constituted forced stay in India. Thus, assessee's residential status was to be held as 'non-resident'. – SURESH NANDA V. ACIT [2014] 45 taxmann.com 269 (Delhi - Trib.)

Sec. 54F stipulates deposit of unutilized sum within due date specified under sec. 139(1) and not sec. 139(4)

'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:

a)The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.

b)On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.

c)Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?

The Tribunal held as under:

1)The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.

2)The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);

3)When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;

4)Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the AO. – ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Trib.)

Payments of commission for services rendered in relation to securities are out of ambit of sec. 194H; no TDS

Services rendered in relation to securities are excluded from express definition of 'brokerage or commission' and, thus, excluded from purview of section 194H.

Facts

a)The assessee received certain amount from Mutual fund houses and paid commission to TPL on account of brokerage for motivating potential investors to invest through the assessee in Mutual funds. According to agreement entered into by the assessee, TPL canvassed and marketed various Mutual fund schemes to potential investors after collecting details from the assessee.

b)The Joint Commissioner passed an order under section 144A directing disallowance of the commission paid to TPL.

c)The Assessing Officer disallowed the commission paid by the assessee to TPL under section 40(a)(ia) on the ground that tax was liable to be deducted at source under section 194H, but had not been deducted.

d)On appeal, the CIT(A) set aside the disallowance holding that services rendered in relation to securities are excluded from the express definition of 'brokerage or commission' and, thus, excluded from the purview of section 194H. Further, the Tribunal upheld the order of the CIT(A). The aggrieved- revenue filed the instant appeal.

The High Court held in favour of assessee:

1)The Joint Commissioner was in error in holding that while TPL had motivated investors to subscribe to Mutual Funds, it had no connection whatsoever with 'securities' as defined in Explanation to section 194-H. Explanation (iii) to section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956.

2)Once it was an admitted position that TPL had motivated potential investors to invest through the assessee in Mutual Funds, it had to be held that these services were rendered in relation to a transaction in 'securities' and would be excluded from the definition of 'brokerage or commission' under section 194-H.

3)The CIT(A) was justified in coming to the conclusion that the services were rendered by TPL were in relation to 'securities'. Consequently, the disallowance under section 40(a)(ia) was not warranted.

4) Thus, there was no reason to hold that the Tribunal was in error. The appeal by the revenue had not given rise to a substantial question of law - CIT V. TANDON & MAHENDRA [2014] 45 taxmann.com 183 (Allahabad)

Details of assets reported in wealth-tax returns by loan defaulter to be shared by I-T Dept. with PSU Banks

Every Return of Wealth filed by the assessee is subject to assessment under the Wealth Tax Act (‘the WT Act’). The information contained therein qualifies for being supplied, provided that the CCWT/CWT is satisfied that supply of such information to Public Sector Banks (PSBs) would be in public interest.

The CBDT in this context has clarified that sharing of information on assets of loan defaulters to enable recovery of loans by PSBs from such defaulters would be in public interest. It has further clarified that such information may be provided in respect of the borrower/mortgager/guarantor of the loan only.

At the time of supply of such information a confidentiality clause may be included specifying that such information should be used only for the purpose of recovery of loan and will not be shared with any other person/agency.

To ensure that the tax dues of the Department against the defaulter (if any) are safeguarded, the PSBs are required to obtain a NOC from the jurisdictional CIT of the loan defaulter, information in respect of whom is shared by department. These guidelines are to be brought to the notice of all DGsIT, CCsIT and CsIT. – Letter No. F. No. 328/10/2014 – WT, dated 28-05-2014.