Marker and highlighter are 'pens' and exempt under Rajasthan Sales Tax Act, 1994; eraser and carbon paper are stationery and taxable

a)The assessee was engaged in the business of manufacturing (i) Marker or highlighter, (ii) Carbon paper, (iii) Stamp pad and ink of stamp pad (iv) Covert (eraser).

b)The assessing authority held that

a.Marker or highlighter would fall in the category of stationery, liable to be taxed at the rate of 4 per cent.

b.Carbon paper, Stamp pad, ink of stamp pad and Covert (eraser) would fall in the general category and liable to be taxed at the rate of 10 per cent.

c)The first appellate authority held that

a.Marker or highlighter would fall within the definition of a pen and, therefore, no tax was leviable thereon.

b.Other three items would fall within the category of stationery and were liable to be taxed at the rate of 4 per cent/8 per cent. d)The Rajasthan Tax Board sustained the order of the first appellate authority.

e)Revenue argued that marker/highlighter was only for the purpose of highlighting a portion or marking a portion for the benefit of a reader; one could not write words or figures with marker/highlighter as a pen could do and therefore, it could not fall within the category of 'pen'.

High Court held in favour of assessee as under:

1)Earlier, the category for classification of goods under Rajasthan Sales Tax Act, 1994 was 'all types of fountain pens, ball pens and accessories thereof' and afterwards it was exchanged to 'all types of pens including parts and accessories thereof, drawing materials and poster colours'. Therefore, the scope of pen was enlarged and marker or highlighter fell within the meaning of a pen. By highlighter or marker one could certainly write. Though the flow by writing from marker or highlighter might not be to that extent, but it was definitely instrument of writing. The Apex Court in the assessee's own case, titled as Camlin Ltd. v. CCE 2009 (11) VAT 28, observed that the fountain pens, marker pens, croquill lettering pens, sketch pens, etc. were definitely the instruments of writing.

2)The other category was 'all kinds of paper, stationery, greeting/wedding and other printed cards'. Therefore, the other three items, namely, Carbon paper, Stamp pad and ink of stamp pad and Covert (eraser) would fall within the category of stationery. The sales tax enactment was one which touched the common man and his everyday life. Therefore, the terms in the said enactment must be in the manner in which the common man would understand them.

3)In common parlance (i) Carbon paper, (ii) Stamp pad and ink of stamp pad and (iii) Covert (eraser) could certainly be called to be the items of stationery. These items would be available in a stationery shop alone. If one had to purchase such items, one would have to go to a shop of stationery only to get those items rather than from a textile or a grocery shop. Therefore, all these items formed part of stationery items and could not be termed as failing within the general category.

4)In view of the aforesaid, the order of the Tax Board deserved to be upheld - Assistant Commissioner, Anti Evasion, Rajasthan-I v. Camlin Ltd. (2015) 55 taxmann.com 369 (Rajasthan).

Non-furnishing of PAN by NR doesn't attract higher TDS rate of 20% u/s 206AA if tax rate under DTAA is beneficial

Where payment has been made to non-residents who did not have PAN and tax has been deducted on the strength of the provisions of DTAAs, the provisions of section 206AA could not be invoked by the AO to insist on the tax deduction at 20% having regard to overriding nature of Section 90(2).

Facts:

a)Assessee made payment of royalty and fee for technical services to non-residents after deducting tax at source in accordance with the rates provided under DTAAs.

b)It was noted by the AO that on account of payment of royalty and fee for technical services in case of some of the non-residents, the recipients did not have PANs. As a consequence, AO treated such payments, as cases of 'short deduction' of tax in terms of the provisions of section 206AA of the Income-tax Act (‘the Act’).

c)The AO contended that assessee was under an obligation to deduct tax at higher rate of 20% following the provisions of section 206AA, hence he raised demand relatable to the difference between 20% and the actual tax rate provided under the DTAAs.

d)Onappeal, the CIT(A) deleted the demandas he was of the view that Section 206AA would not be applicable in case of non-residents as the DTAA overrides the Act. The aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)Section 206AAof the Act prescribes that where PAN is not furnished by recipient of income on which tax is deductible the payer would be required to deduct tax at the higher of the following rates:

- At the rate prescribed in the relevant provisions of the Act; or

- At the rate/rates in force; or

- At the rate of 20%

2)Further, Section 90(2) of the Act provides that the provisions of the DTAAs would override the provisions of the Act in cases where the provisions of DTAAs are more beneficial to the assessee.

3)Thus, there could not be any doubt to the proposition that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and the relevant country, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2) of the Act.For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation.

4)It would be incorrect to say that though the charging section 4 and section 5 of the Act are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2) of the Act. Notably, section 206AA of the Act is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source.

5)Therefore, where the tax has been deducted on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act could not be invoked by the AO to insist on the tax deduction at 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. -DEPUTY DIRECTOR OF INCOME-TAX V. SERUM INSTITUTE OF INDIA LTD.[2015] 56 taxmann.com 1 (Pune - Trib.)

Discount allowed by ONGC to Oil Marketing Cos. for sale of petroleum products would not form part of sale price

Gujarat VAT - Where assessee for first quarter of April, 2014 to June, 2014 had given discount to Oil Marketing Companies on sale of its petroleum products by way of credit note, amount of discount would not form part of sale price as directed by Government of India.

a) The assessee was engaged in exploration, development and production of the petroleum products. It was obliged to act as an instrument to implement the policy of the Central Government subject to such directives as might have been issued by the President from time-to-time with a view to exercise control over strategic areas of economy and to serve public interest.

b) For the first quarter of April, 2004 to June, 2004, the assessee had given discount to the Oil Marketing Companies (OMCs) on the sale of its petroleum products as directed by the Government of India in its letter dated 27-8-2004 by way of a credit note dated 13-9-2004. It claimed that the amount of such discount would not form part of taxable turnover.

c) The assessing authority held that the discount given by the assessee to the OMCs on the sale of petroleum products was not an admissible deduction. The assessee was required to pay the tax inclusive of such discount.

d) Both, the First Appellate Authority and the Tribunal upheld the order of the Assessing Authority.

High Court held in favour of assessee as under: 1) The assessee could charge only such rate from the OMCs as Government of India directed.The broad formula adopted for such purpose was the crude price in international market minus the last discount which would prevail for a quarter. At the end of the quarter after, taking into consideration all the relevant factors, the Government of India would declare the final price.

2) Since for the petroleum products already supplied by the assessee to the OMCs during such quarter the invoices would have been raised on the basis of provisional discount, the adjustment would have to be done on the basis of final discount declared by the Government of India. Though in most of the cases, the final discount might have been higher than the provisional discount earlier declared, it was entirely possible that in some cases such final discount might have been lower than the provisional price. The assessee would eventually adjust its accounts with the OMCs by raising either the debit note or credit note, as might be required.

3) Perhaps it is a misnomer, though consistently so referred to by the Government of India as well as by the assessee, to term this component as discount. A discount is reduction in catalogue price for any reason recognised by the trade. In the instant case, there was no prefixed price which as per the trade practice was reduced by a discount given by the seller to the purchaser. It was a case where under a price control regime under the directives of Government of India, the assessee was obliged to sell its products at lesser than the market price. These terms were determined even before the sale. Initial invoices at the time of actual supply of petroleum products by the assessee were merely provisional. They were based on provisional price fixation by the Government. They were never meant to reflect final sale consideration for the goods sold. They were always subject to adjustment once the Government of India finally declared the reduced rate of specified petroleum products. Comparing the invoiced price with the finalised price after adjustment was a complete fallacy. Even invoiced price whenever based on provisional price fixed by the Government was always below the market price which the assessee could have fetched.

4) Therefore, the amount of discount given by the assessee to the OMCs on sale of its products would not form part of sale price. The assessee was not required to pay tax on such discount - ONGC Ltd. v. State of Gujarat - (2015) 55 taxmann.com 297 (Gujarat).

Dividend paid by foreign Co. abroad for shares deriving substantial value from Indian assets not taxable: CBDT

The existing provisions of Section 9 of the Act deal with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section provides that all income accruing or arising, whether directly or indirectly, through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India.

The Finance Act, 2012 inserted an Explanation 5 to section 9(1)(i) to clarify that an asset or capital asset, being any share or interest in a company or entity registered outside India, shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.Further, the Finance Bill, 2015 clarified the meaning of the term "substantially", thereby putting to rest the never ending controversy and providing a stable taxation regime. However, apprehensions have been expressed about the applicability of the Explanation 5 to the transactions not resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed out that such an extended application of the provisions of the Explanation 5 may result in taxation of dividend income declared by foreign company outside India, in respect of shares deriving substantial value from assets located in India. This may cause unintended double taxation and would be contrary to the object and purpose of amendment made by the Finance Act, 2012.

TheExplanation 5sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India.Thus, declaration of dividend by foreign company outside India does not have the effect of transfer of any underlying assets located in India. Therefore, CBDT has clarified that dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets located in India would not be deemed to be income accruing or arising in India by virtue of provisions of the Explanation 5 to Section 9(1)(i).

SEBI notifies revised delisting norms

In order to make delisting more effective, the SEBI has notified revised regulations for delisting process through the reverse book-building route that would make the delisting easier for companies. Under the revised norms the timeline for completing the process has been reduced. It provides for relaxation of rules on a case-to-case basis. The key features of amendment are as under:

i. Timeline for completing the delisting process has been reduced to 76 working days from 137 calendar days.

ii. Now stock exchanges would be given five working days to give their in-principle approval for delisting.

iii. SEBI has retained the reverse book building process for determining the price of shares for the purpose of delisting. However, delisting would be considered successful only if at least 25 % of the public shareholders would participate in the reverse book building process. Further, the shareholding of the acquirer, together with the shares tendered by public shareholders, should be 90 % of the company's total share capital.

iv. To ensure that a delisting plan has been decided in a fair manner, company's board would have to approve of it only after a due diligence process, for which it can appoint a merchant banker on behalf of the firm and the promoter.

v. Further, the company's board would have to certify that the company is in compliance with applicable securities law and that it would be in the interest of shareholders.

vi. Companies having paid-up capital of not more than Rs 10 crore, and networth that does not exceed Rs 25 crore as on the last day of the previous financial year are exempted from following the Reverse Book Building process.

vii. The exemption would be available only if there is no trading in the shares of the company in the last one year from the date of the board's resolution authorising the company to go in for delisting, and trading of shares of the company has not been suspended for any non-compliance during the same period.

Sec. 54 relief allowed on cap gain from land, viz, long-term asset, though flat that existed on it was short-term asset

Where assessee constructed a building on land, which was long-term capital asset even though said building was short-term capital asset, assessee was entitled to claim benefit of section 54 to the extent capital gain attributable to land.

Facts:

a)Assessee transferred a building (used for residential purposes) within 3 years of its purchase which was constructed on a land, viz, long-term capital asset.

b)Assessee claimed exemption under Section 54 in respect of investment made by him in another residential house to the extent capital gain attributable to sale of land.

c)The Assessing Officer (AO) opined that capital gain as was attributable to long-term capital asset, viz, land would not qualify for relief under section 54 as the building which existed on the same was a short-term capital asset.

d)The appellate authorities upheld the order passed by the AO. Aggrieved-assessee filed the instant appeal before the High Court. The High Court held in favour of assessee as under:

1)The legislature has defined the meaning of house property as ‘building or land appurtenant thereto’. In view of the aforesaid definition of house property, a land appurtenant to a residential house is entitled to benefit under Section 54. Therefore, if a land appurtenant to a residential house could be entitled to benefit under Section 54, it was difficult to accept that the land on which the residential building was constructed would not be entitled to the said benefit.

2)When a property, i.e., residential house is sold, the sale consideration includes the value of the land and the value of the construction. The AO treated the capital gain on sale of land (on which the residential house was constructed) as a long-term capital gain while the capital gain on sale of building was treated as a short-term capital gain. Therefore, if, for levying tax under the Act, such a distinction could be made, one failed to understand why that distinction would not be kept in mind in extending the benefit under section 54.

3)Therefore, the assessee was entitled to the benefit of section 54 to the extent capital gain attributable to land. - C.N. ANANTHARAM V. ASSISTANT CIT [2015] 55 taxmann.com 282 (Karnataka)

SEBI Board meets- approves norms of IFSCs, eases conversion of debt into equity by banks/FIs; nods to municipal bonds

The SEBI held its board meeting at New Delhi on 22.03.2015 and took the following decisions:

1.Introduction of framework for IFSC : SEBI has approved guidelines on regulation of International Financial Services Centre (IFSC) set up under Section 18(1) of Special Economic Zones Act, 2005. The key features of guidelines on IFSC are as under:

i. Gujarat International Finance Tec-City (GIFT City) would be country's first IFSC.

ii. Subsidiaries of domestic as well as foreign stock market intermediaries and clearing corporations of stock exchanges allowed to set-up and undertake business at IFSC. The guidelines permits issuance of depository receipts and debt securities by domestic as well as foreign companies under 'Foreign Currency Depository Receipt' Scheme

iii. The guidelines also provide for listing and trading of shares and other derivatives of foreign companies incorporated in India. All categories of investors such as - Non resident Indian, foreign investor, institutional investors and Resident Indian eligible under FEMA are allowed to participate in IFSC

iv. Mutual funds and Alternative Investment Funds set up in IFSC are also allowed to invest in securities listed in IFSC

2.Conversion of debt into equity by Banks/FIs made easier : The Board has approved a proposal to relax provisions relating to 'Issue of Capital and Disclosure requirements' and Take over Code while converting debt into equity of listed borrowers companies in distress by the lending institutions. The conversion of debt into equity would be allowed at face value or at new fair-price formula. The new guidelines aims to revive listed companies in distress and to provide more flexibility to the lending institutions to acquire control over the company in the process of restructuring

3.Review of continuous disclosure norms for listed companies : In order to enable investors to make well informed decision, the SEBI has proposed following changes to Listing obligations and Disclosure requirements by Companies:

i. Listed company shall have to disclose all events/information first to stock exchange(s) as soon as reasonably practicable and not later than 24 hours of occurrence of event/information. Further, listed entities are required to make public the outcomes of board meeting within 30 minutes of meetings

ii. The listed entity has to provide specific and adequate reply to queries of stock exchange(s) with respect to rumours. The listed entity is required to disclose on its website all events/information which is material and such information shall be hosted for a minimum period of 5 years. The listed entity must disclose all events/information with respect to its subsidiaries which are material.

4.Issue and listing of municipal bonds : The Board considered and approved regulations relating to issuance and listing of bonds by municipalities. The regulations are in line with guidelines issued by Govt of India for issue of tax-free bonds by Municipalities. The key features are as under:

i. Municipalities making public issue shall issue only revenue bonds. For private placement, issuer may issue general obligation bonds or revenue bonds. Minimum tenure of bonds will be of three years

ii. Issuer need to obtain credit rating from credit rating agencies and it is to be noted that Municipality must not have defaulted in previous 365 days and its net worth should be positive for three preceding years

Rent-a-cab and outdoor catering services used for business purposes are eligible for credit

Rent-a-cab services, outdoor catering services consumed for factory canteen and repair/maintenance of vehicles used for business purposes are eligible for credit as 'input services'; however, no credit is available to extent of amount recovered from employees.

a)Assessee took input service credit as follows:

a.'Rent-a-cab' services for bringing workers to their factory and vice versa.

b.Outdoor catering services availed by its workers on ground that it was statutory requirement to maintain factory canteen as there were more than 350 workers. Further, assessee submitted that pro rata credit attributable to amount recovered from workers for supply of concessional food was reversible.

c.Repair and maintenance services for vehicles owned by it.

b) Department denied credit on ground that these services had no nexus with manufacture.

Tribunal held partly in favour of assessee as under :

1) For 'rent-a-cab' and outdoor catering services: services in question had been availed by assessee in course of business of manufacturing; hence, assessee was entitled to take impugned credit. However, if any amount was recovered from employees towards these services, same was not entitled to credit. As this fact had not been examined, matter was remanded back for verification as to amount recovered from employees.

2) For repair and maintenance service: any service availed by a manufacturer in course of business is eligible for credit. Admittedly, vehicles in question had been used by assessee in course of their business being a manufacturer of excisable goods. Hence, assessee was entitled to credit – Caparo Fasteners v. Commissioner of Central Excise, Jaipur I - (2015) 55 taxmann.com 165 (New Delhi - CESTAT).

Act of ICSI of prohibiting associate members from contesting elections of regional council isn't arbitrary

Action of ICSI in barring 'Associate Members' from contesting and getting elected to Regional Councils is not arbitrary, illegal and violative of article 14 of Constitution

Facts:

a)The petitioners were registered as associate members of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980.

b)The council of ICSI issued a notification fixing the schedule for conduct of elections to the Council and Regional Councils (‘RC’) in the year 2014. As per the said notification, only the Fellow Members of the Institute were eligible to stand for election to the RCs.

c)Aggrieved by the same, the petitioners filed instant petition contending inter alia that the action of the respondents in barring the 'Associate Members' from contesting and getting elected to the Regional Councils was arbitrary, illegal and violative of article 14 of the Constitution.

d)The petitioners also sought a direction to provide an opportunity to the Associate Members of the Institute to stand for election to the Council of the Institute proposed to be held under the election notification on par with the Fellow Members of the Institute.

High Court dismissed petition and held as under:

1)Right to contest election to Regional Councils, being a statutory right created by Company Secretaries Act, 1980 and rules and regulations made thereunder, it is subject to qualifications and disqualifications prescribed therein and, thus, petitioners could neither claim an absolute right to stand for election to Regional Councils nor contend that their right to contest election was defeated by stipulating that fellow members alone were eligible to stand for election to Regional Council

2)As stipulated in section 5(3), an Associate Member who has been in continuous practice as a Company Secretary for at least five years or an associate member who possesses such qualifications or practical experience as the council may prescribe are entitled to be entered in the Register as Fellow Members. Thus, it is clear that the Fellow Members and Associate Members constitute two different classes.

3)As fellow members belonged to a different class and being more experienced and knowledgeable, impugned provisions in making only fellow members eligible to stand for election to Regional Councils could not be held to be discriminatory and violative of article 14 of Constitution thus, legislative intendment was clear that Council shall be composed of only fellow members - PRINCE KUMAR V. INSTITUTE OF COMPANY SECRETARIES OF INDIA [2015] 55 TAXMANN.COM 215 (DELHI)

NI Act: Order of Magistrate was to be set-aside as it took cognizance of complaint without verifying POA

Where Magistrate had taken cognizance of complaint without prima facie establishing fact as to whether power of attorney existed in first place and whether it was in order, order passed by Magistrate was to be set aside

Facts:

a)The appellant, vice-Chairman and managing director of the company under a scheme of investment had collected various amounts from various persons in the form of loans and, in consideration thereof, issued post-dated cheques either in his personal capacity or as the signatory of the company which later on got dishonoured.

b)Respondent No. 2, the power of attorney holder of six complainants, filed complaint against the appellant u/s 138 and 142 before the Metropolitan Magistrate.

c)The Additional Chief Metropolitan Magistrate issued summons against the appellant u/s 204 of the CrPC for the offences punishable u/s 138 and 142 of the NI Act.

d)The appellant, aggrieved by issue of summon, moved an application for discharge/recall of process in each of the complaints. The application filed by the appellant was dismissed.

e)The appellant preferred applications before the High Court for quashing of the complaints. However, the said applications were dismissed by the High Court.

On appeal, the Supreme Court held as under:

1)The Magistrate had taken cognizance of complaint without prima facie establishing fact as to whether power of attorney existed in first place and whether it was in order? Magistrate wrongly took cognizance in matter

2)From the bare perusal of the complaint it could be seen that except mentioning in the cause title there was no mention of or a reference to the Power of Attorney in the body of the said complaint nor was it exhibited as part of the said complaint.

3)Since aforesaid fact had been overlooked by High Court while passing impugned judgment, order passed by Magistrate and impugned judgment passed by High Court were to be set aside - A.C. NARAYANAN V. STATE OF MAHARASHTRA [2015] 55 TAXMANN.COM 118 (SC)