Income generated from sale of carbon credits won't be eligible for sec. 80-IA relief

Even though income on sale of Certified Emission Reduction/carbon credit would form part of profits and gains of business, yet it cannot be treated as profit 'derived from' industrial undertaking and, therefore, assessee would not be entitled to deduction under section 80-IA in respect of said income.

Facts:

a)The assessee received certain amount from sale of carbon credit issued by United Nations Framework Convention on Climate Change under Kyoto Protocol, generated in the gas turbine unit.

b)The assessee claimed that the income earned on sale of carbon credit was directly and inextricably linked to generation of power, therefore, the assessee was entitled to relief under section 80-IA.

c)The Assessing Officer and the DRP found that the income was not derived from eligible business, consequently, they held that the assessee was not eligible for deduction under section 80-IA. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The income on sale of carbon credit was attributable to the business of the assessee. Since the carbon credit was conferred on the assessee under the scheme promoted by United Nations Framework Convention on climate change under Kyoto Protocol.

2)But it was not the direct source of income from the industrial undertaking of the assessee. At best, it could be said that it had a nexus with the business of the assessee or was attributable to the business of the assessee.

3)Therefore, the income on sale of carbon credit would form part of the profits and gains of business. However, it could not be treated as profit 'derived from' the industrial undertaking. Thus, the assessee was not entitled to deduction under section 80-IA.- APOLLO TYRES LTD. V. ASSTT. CIT [2014] 47 taxmann.com 416 (Cochin - Trib.)

CCI imposes Rs 2,500 crore penalty on Car Cos for indulging in unfair trade practices in spare part markets

Competition Commission of India imposed Rs 2,500 crore penalty on Car Companies for indulging in practices resulting in denial of market access to independent repairers.

Facts:

a)The informant approached the Commission alleging anti-competitive conduct by Car manufactures (i.e., opposite parties). It was alleged that opposite parties abused their dominance by restricting the supply of genuine spare parts of automobiles.

b)The informant pleads before the commission to hold an enquiry against opposite parties. The Competition Commission of India held as under:

1)Each ‘original equipment manufacturer’ (OEM) was a 100 per cent dominant entity in aftermarket for its genuine spare parts and correspondingly for repair services for its brand of automobiles.

2)In most cases, the owners of various brands of automobiles are completely dependent on authorized dealer’s network of OEMs and they are not in a position to exercise option of availing services of independent repairers.

3)OEMs used their dominance in relevant market of supply of spare part to protect other relevant market namely after sales services and maintenance thereby violating section 4(2)(e) of Competition Act, 2002 (‘the Act’).

4)OEM’s have contravened provisions of sections 3 and 4 of the Act. They had to allow Original Equipment Suppliers to sell spare parts in open market without any restriction, including on prices.

5)The opposite parties may develop and operate appropriate systems for training of independent repairer/garages, and also facilitate easy availability of diagnostic tools.

6)Thus, penalty of around Rs 25,00 crore was imposed on opposite parties (computed as percentage of total turnover of respective opposite parties in India) – SHAMSHER KATARIA V. HONDA SIEL CARS INDIA LTD. [2014] 48 TAXMANN.COM 300 (CCI)

Revenue could recover excise dues of lessor by detaining excisable goods belonging to lessee

Section 11 of Central Excise Act read with section 142 of Customs Act empower authorities to attach/detain excisable goods belonging to defaulting-assessee including transferee/lessee/buyer of its business.

Facts:

a)The assessee (lessor), engaged in manufacture of tea, had failed to pay certain excise dues. The assessee leased out tea garden/factory to two petitioners (lessees). Department attached and detained goods (tea) to recover excise dues from lessor.

b)The lessees argued that duty was already on tea owned by them and, therefore, such tea could not be detained for recovery of dues of lessor.

c)The assessee further argued that only Commissioner could issue order of attachment/detention and not Deputy Commissioner.

The High Court held in favour of revenue as under:

1)Officers who signed attachment/detention orders were 'Central Excise Officer' under section 2(b) ibid and were empowered to issue impugned orders.

2)Moreover, once provisions relating to detention/attachment contained in Customs Act were made applicable for recovery of dues under Central Excise Act, all provisions of Central Excise Act including section 2(b) would apply for recovery.

3)Furthermore, section 11 read with section 142 empower authorities to raise demand and also to issue attachment/detention orders to detain goods belonging to defaulting assessee including his transferee who stepped into his shoes to carry on business either by purchasing said business or otherwise. Hence, impugned demands/orders were valid. – BOGIDHOLA TEA & TRADING CO. (P.) LTD. V. UOI [2014] 47 taxmann.com 221 (Gauhati)

Mere admission before SetCom couldn’t be sole ground to confirm demand in adjudication proceedings

Whatever assessee admitted while submitting settlement application could not be deemed as its accepting liability; if application or proceedings before Settlement Commission (SetCom) failed, Central Excise Officer had to adjudicate the case in entirety.

Facts:

a)The assessee admitted clandestine removal of goods before SetCom but it sent the case back to adjudicating authority.

b)The adjudicating authority had confirmed clandestine removal of goods based on admission of assessee before SetCom.

c)Thus, the issue that arose before the High Court was: Whether revenue was required to establish clandestine removal, despite the same having been admitted by assessee before SetCom?

The High Court held in favour of assessee as under:

1)Even in view of section 32L(2) of Central Excise Act, 1944 whatever had been admitted by assessee while submitting settlement application under section 32E(1), straightway, couldn’t be said to be admission on behalf of assessee accepting clandestine removal of goods.

2)If the contention on behalf of the department had been accepted, in that case there would be no question of further adjudication by the Central Excise Officer. 3)Once application or proceedings before SetCom failed, the Central Excise Officer was required to adjudicate the case in entirety. Thus, adjudication was required and mere reliance on admission before Settlement Commission was not sufficient. Hence, department's contention was to be rejected – COMMISSIONER V. MARUTI FABRICS [2014] 47 taxmann.com 298 (Gujarat)

Extending benefits to hospitals only with NABH accreditation wasn’t abuse of dominance by Director General of Health Services

Where opposite party-DGHS was not directly engaged in any economic and commercial activities and different rates of empanelment fees prescribed by it for hospitals under ‘National Accreditation Board for Hospitals and Healthcare Providers’ (NABH) were not anti-competitive, there was no abuse of dominant position by DGHS.

Facts:

a)The informant alleged that opposite party-The Director General of Health Services (DGHS) was abusing its dominance for empanelment of private hospitals for purpose of healthcare and medical services to Central Government Health Scheme (CGHS) beneficiaries.

b)Further, it was alleged that DGHS had colluded with other opposite parties to give benefit to a selected hospitals having NABH accreditation and reimburse them with payments at higher rates compared to other hospitals without NABH accreditation

The Competition Commission of India held as under:

1)Since the DGHS’s role was limited to control and regulate heath care system in country and was not directly engaged in any economic and commercial activities, it could not be covered in definition of enterprise.

2)The different rates prescribed by DGHS for NABH accredited hospitals could not be considered as anti-competitive in any manner; rather it would act as an incentive to non-accredited hospitals to secure such accreditation and provide quality health care services, which would ultimately benefit patients.

3)Since informant had not submitted any cogent evidence stating existence of any agreement in any manner between opposite parties, the provisions of section 3 of the Competition Act, 2002 could not be invoked. – DR. BISWANATH PRASAD SINGH V. DIRECTOR GENERAL OF HEALTH SERVICES [2014] 47 taxmann.com 373 (CCI)

Tippers purchased for letting out purposes couldn’t be deemed as part of plant & machinery; depreciable at 40%

Facts:

a)The assessee claimed depreciation at 40 per cent on tippers. However, the Assessing Officer (‘AO’) held that tippers were part of block of plant and machinery and, thus, the assessee was eligible for depreciation at 25 per cent only.

b)On appeal, the CIT(A) directed the AO to allow depreciation at 40 per cent. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)It was noticed that the assessee was not carrying out any construction activity, therefore, it could not be said that the tippers were part of block of plant and machinery or construction equipment forming part of plant and machinery.

2)It was also not in dispute that the tippers were given on hire to a company from which the assessee received hire charges. The tippers were registered as vehicles with the registration authority, therefore, these were road transport vehicles and given on hire.

3)Thus, they were eligible for depreciation at 40 per cent instead of at 25 per cent allowed by the AO. – Asstt. CIT v. Ashok Doshi [2014] 47 taxmann.com 390 (Jodhpur - Trib.)

Exp. on issue of FCCBs were allowable as holders had no compulsion but an option to convert them into equity shares

Expenses on issue of Foreign Currency Convertible Bonds (FCCBs) couldn’t be disallowed just because they were issued with an option to convert them into equity shares within a period of one month.

Facts

a)Assessee issued Foreign Currency Convertible Bonds (FCCBs) with an option to convert them into equity shares within a period of one month from the date of issue of such bonds.

b)Assessing Officer (AO) allowed assessee's claim for deduction of expenditure incurred on issue of FCCBs. The CIT disallowed assessee’s claim by revising the order of AO.

c)Further, the Tribunal set aside the order of CIT. Revenue contended that once the FCCBs were capable of being converted, then, the expenditure incurred in relation thereto, could not be said to be revenue expenditure and, therefore, the expenditure ought to have been classified as capital expenditure. The Aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under-

1)The conclusion reached by the AO was that the conversion of FCCBs was not automatic. Thus, the CIT could not have concluded on same material that the FCCBs, in real sense, were equity shares right from the beginning and that the conversion of bonds was only a routine technical compliance as per the Regulations and guidelines.

2)The Tribunal was justified in setting aside the revisional order of CIT as conversion of FCCBs into equity shares was not automatic as conversion was not permissible unless option for the same was exercised by the holder of FCCBs.

3)Thus, a possible view taken by AO could not be termed as prejudicial to the interest of the revenue. Therefore, Commissioner was not justified in exercising his powers under section 263. -CIT vs. Tata Teleservices (Mah) Ltd. [2014] 47 taxmann.com 238 (Bombay)

Relinquishment of right to purchase a property in lieu of a sum was ‘transfer’; to be taxed as capital gain

Consideration received from relinquishment of right to purchase a property to be taxed as capital gain and not as income of other sources as relinquishment of right over a capital asset amounts to transfer under section 2(47).

Facts:

a)The assessee entered into an agreement to purchase a plot. As per the terms of agreement of sale, assessee paid certain sum as advance to the vendor with the understanding to pay the balance at the time of registration.

b)Since the vendor did not act upon the agreement of sale, the assessee filed a suit for specific performance, which ultimately resulted in compromise. A Memorandum of Understanding (‘MOU’) was entered into between the assessee and the land owner in terms of which assessee gave up his claim over property against consideration of Rs. 1.50 crore (including the advance of Rs. 25 lakhs paid by the assessee at the time of agreement of sale).

c)The assessee disclosed said amount as sale consideration received by him for transfer of plot and computed long term capital gain which was accepted by the Assessing Officer (AO)

. d)The CIT revised the order of AO with an opinion that amount received by the assessee from the land owner being a windfall gain, should have been assessed as income from other sources and not as long-term capital gain. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Relinquishing or extinguishing one's right over a capital asset amounts to transfer as per section 2(47) of the Income-tax Act. Therefore, when the assessee, as per terms of the MOU, gave up his claim over the property against consideration, certainly it could be interpreted that the assessee had relinquished or extinguished his right over the property.

2)Thus, there was 'transfer' of capital asset within the purview of section 2(47) attracting capital gain.

3)The assessment order passed by AO could not be considered to be erroneous and prejudicial to the interests of revenue, only because the Commissioner considered the receipts as windfall gain and in his opinion such receipt had to be assessed as income from other sources -P. Ramgopal Varma vs. ACIT [2014] 47 taxmann.com 334 (Hyderabad - Trib.)

SAT: Failure to make disclosure under Insider Trading norms attracts penalty, irrespective of mitigating factors

Irrespective of mitigating factors such as disproportionate gain or unfair advantage derived or any loss caused to investors, failure to make timely disclosures under regulation 13 SEBI (Prevention of Insider Trading) Regulations, 1992 would attract penalty

FACTS:

a)The appellant-company had become part of the promoter group of 'INCL' and on account of acquiring control of 'INCL' was obliged to file disclosures under regulation 13(2A) , read with regulation 13(6) of the SEBI (Prevention of Insider Trading) Regulations, 1992.

b)The appellant-company was imposed with penalty for not making disclosures within stipulated time period under regulation 13(2A) of the SEBI (Prevention of Insider Trading) Regulations, 1992.

c)On appeal to the Securities Appellate Tribunal

On appeal, The Securities Appellate Tribunal held as under:

1)An obligation to make disclosure under said regulation is not restricted to cases where there is disproportionate gain or unfair advantage and where loss is caused to investors as a result of failure to make disclosures.

2)Since Explanation to regulation 13 of the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992 does not deal with disclosure requirements, argument of appellant-company that there was confusion regarding disclosure requirements contemplated in said regulations as compared to Takeover Regulations did not merit consideration.

3)Therefore, penalty imposed after consideration of mitigating factors could not be said to be arbitrary or unreasonably excessive and, thus, order passed by Assessing Officer could not be interfered with. – IndiaNivesh Capitals Ltd. vs. Securities and Exchange Board of India [2014] 47 taxmann.com 339 (SAT - Mumbai)

Institutions providing event management courses without awarding any diploma not entitled to sec. 12AA registration

Institutions conducting classes in event management were not entitled to Section 12AA registration as such courses do not result in conferment of any degree or diploma; such activity would not fall within the meaning of education under Sec. 2(15).

Facts:

a)The assessee-institution was formed with an object to establish and administer schools, colleges, etc.

b)In furtherance of its objects, it established an institution for teaching event management course. It filed an application seeking registration under section 12AA.

c)The CIT held that activity carried on by assessee would not fall within meaning of education as mentioned in section 2(15) and rejected assessee's claim for registration. The aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The Supreme Court in case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 held that the acquisition of all kinds of knowledge would not fall within the definition of education as provided under Section 2(15) and the acquisition of knowledge should be through a normal schooling to be regarded as education.

2)Thus, it was a well-settled principle that there had to be a systematic instruction to the students by way of normal schooling to be regarded as education. Mere conducting of event management classes might provide some kind of knowledge to the students; but that acquisition of knowledge would not fall within the meaning of 'education' as provided in section 2(15).

3)In the instant case, the assessee was conducting classes in event management but the government or any governmental bodies did not recognize the institution run by the assessee.

4)Therefore, the teaching courses conducted by the assessee would not result in conferment of any degree or diploma and remained unrecognised. Thus, the assessee was not eligible for registration under section 12AA. – IMPRESSARIO EDUCATIONAL TRUST V. CIT [2014] 47 taxmann.com 259 (Cochin - Trib.)