SC rejects High Court's order quashing search warrant due to non-communication of reasons thereof to assessee

Facts :

a)The block assessment of the assessee was sought to be initiated under Section 153A of the Income-tax Act ('the Act') following a search conducted on the assessee. The same has been interdicted by the High Court rejecting the validity of the warrant authorizing the search under section 132 of the Act;

b)The High Court held that it was the Director General who took the decision to issue the search warrant but the said decision was not on the basis of its own satisfaction but was issued on the basis of the satisfaction recorded by the Director of Income-tax (Investigation). Consequently, the High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who issued the search warrant, there by vitiating the authorization issued;

c)Aggrieved by the order of High Court the revenue filed the instant appeal.

Supreme Court held in favour of revenue as under :

1)The necessity of recording of reasons in case of search under Section 132 has been repeatedly stressed upon by the Courts so as to ensure accountability and responsibility in the decision making process;

2)The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, it would not confer on the assessee a right of inspection of the documents or to a communication of there a sons at the stage of issuing of the authorization. Any such view would undermine the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee;

3)The High Court had committed a serious error in reproducing in great details the contents of the satisfaction notes containing the reasons for the satisfaction arrived at by the authorities under the Act. We have already indicated the time and stage at which the reasons recorded may be required to be brought to the notice of the assessee. Thus, we could not approve of the aforesaid part of the exercise undertaken by the High Court which has the potential of conferring an undue advantage on the assessee;

4)A careful reading of the order of the Director General would go to show that all he did was to record the view that the satisfaction of the Director, Income-tax (Investigation) was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, could not be sustained. In view of the foregoing discussions the order of the High Court was to be set aside. - DGIT (Investigation) v. Spacewood Furnishers (P.) Ltd. (2015) 57 taxmann.com 292 (SC)

No sec. 80QQB relief on royalty received for writing a cookery book as it wasn’t earned in exercise of profession

Facts:

a)Assessee received royalty for writing a cookery book on which she claimed deduction under Section 80QQB.

b)The Assessing officer (AO)disallowed deduction on ground that coking was not an 'art' and was a 'skill'.

c)Further, the CIT(A) sustained the disallowance made by AO for the reasons that firstly, according to requirement of Section 80QQB, such income should have been earned in the exercise of the profession and secondly, the cookery does not come in the definition of "art". The aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1)"Profession includes vocation" as per the definition of profession given under Section 2(36) of income-tax Act. There should be some special qualification of a person apart from skill and ability which are required for carrying on any activity which could be considered as "profession". This could be education in a particular system either in the college or university or it may be through experience.

2)In the instant case, the Ld. Counsel for assessee submitted that assessee did not write any other book before or after release of cookery book. Further, no particulars had been placed on record to show that assessee was specially qualified apart from skill and ability to write book.

3)There was also no material available on record to show that assessee was having education in the field of cookery either in the college or university or even by experience. Thus, there was no material on record to suggest that the assessee had qualified the parameters laid down for considering particular activity as a professional activity.

4)Income earned by assessee as royalty could not be said to be have been earned"in exercise of her profession". Thus, non-fulfillment of such condition would disentitle the assessee to claim deduction under Section 80QQB.Mrs. Pratibha A. Kothavale v. DCIT [2015] 57 taxmann.com 257 (Mumbai - Trib.)

Effluent couldn't be regarded as goods; its transportation through pipeline not liable to service tax

Movable property in general trade parlance is considered as a property in goods which can fetch certain price; hence, effluent waste, which is not being purchased by any person, cannot be regarded as 'goods' and transport thereof through pipeline cannot be charged to service tax.

Assessee was providing services of transportation/disposal of 'effluent waste' through its pipeline or conduit on certain consideration. Department demanded service tax thereon under Section 65(105)(zzz).

Section 65(105)(zzz) reads as under:

'Taxable service' means any service provided or to be provided to any person by any other person, in relation to transportation of goods other than water, through pipeline or other conduct.

Assessee argued that effluent waste is not goods; hence, service is not taxable.

Tribunal held in favour of assessee as under:

As per definition of 'goods' given in Section 65(50) of the Finance Act, 1994 the meaning of 'goods' for the purpose of Service Tax law has to be as assigned in Clause (7) of Section 2 of the Sale of Goods Act, 1930.

As per the provisions of Section 2(7) of Sale of Goods Act, 1930 the goods has to be a category of 'movable property'. Movable property in general trade parlance is considered as a property in goods which can fetch certain price.

In the present facts and circumstances of the case the effluent discharge facility is for disposal of a waste which is not being purchased by any person but is only being disposed of by utilizing the services of the appellant. As the relevant facilities/services of transportation provided by appellant are not for the 'goods' as defined in Section 2(7) of the Sale of Goods Act, 1930, the same cannot be considered as a service provided for transportation of goods, hence not taxable - Gujarat State Fertilizers And Chemicals Ltd. v. Commissioner of Central Excise, Vadodara [2015] 56 taxmann.com 448 (Ahmedabad - CESTAT).

Editor's note:

Under present law, if waste is not 'goods', transport thereof is taxable because negative list contains transport of 'goods' only.

Sum Received in lieu of relinquishment of right to sue 'Coca-Cola' was capital receipt: ITAT

Consideration received on relinquishment of right to sue is not taxable under section 28; it is a capital receipt

Fact:

a)The assessee-company entered into a franchisee soft drink bottling agreement with Cadbury Schweppes Beverages India (P) Ltd. (CSBIPL) to sell its soft drinks. CSBIPL transferred its soft drink brands to Coca Cola. Coca Cola refused to encourage sale of cold drink sold by assessee to avoid competition to its own products.

b)Assessee suffered huge losses, thus filed a complaint under Monopolies and Restrictive Trade Practices Act (MRTP) before the MRTP Commission. Thereafter, the assessee and coca cola had entered into a settlement agreement through which the assessee had transferred its bottling business assets as well as immovable property to Coco Cola against a consideration.

c)Assessee submitted that the entire compensation received was in lieu of withdrawing the right to sue against Coca Cola and was patently a capital receipt. But Assessing Officer treated the compensation as revenue in nature under section 28(ii)(c) and taxed accordingly.

d)CIT (Appeals) held that provisions of section 28(va) were applicable and not section 28(ii)(c).Consequently the part of compensation indicated by Assessing Officer was held taxable under section 28(va). Aggrieved-assessee filed instant appeal before tribunal.

Tribunal held in favour of assessee as under:

1)All the clauses of the agreement between the assessee and coca colareflect that the real intent, objective and purpose of the payment of compensation as per settlement agreement was to ensure withdrawal of all the pending litigation by assessee, from various forums instituted for breach of terms or conditions.

2)The dominant consideration for compensation being surrendering the right to sue; its neither in lieu of surrender of any agency or agreement for non-competition and thus, the compensation neither fell in the ambit of section 28(ii)(c) nor under section 28(va).

3)Assessee had vehemently denied having anywhere admitted that part of the compensation was for non-competition. The compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola besides entailing huge cost and efforts of litigation.

4)Thus, the impugned amount was a capital receipt hence not liable to Income-tax. Satyam Food Specialities (P.) Ltd. v. DCIT [2015] 57 taxmann.com 194 (Jaipur - Trib.)

In case of transit sales via dealer, consignee can take credit on basis of invoice issued by manufacturer/importer

The Government vide Notification No. 8/2015 - Central Excise (NT), dated 1-3-2015inserted 3rd and 4th proviso to rule 11 of Central Excise Rules, 2002. The amendment provided facility to direct dispatch of goods to customer’s premises without bringing them to premises of dealer/importer.

It has been clarified that the purpose of inserting said provisos is to allow an additional facility for direct transport of goods from the manufacturer/importer to the consignee where the consignee can avail Cenvat Credit on the basis of the Cenvatable invoice issued by the registered dealer/registered importer. This facility obviates the need for the goods to be brought to the premises of the registered importer/registered dealer for subsequent transport of the goods to the consignee.

Further, various issues referred by the trade are clarified as follows:

1)Consignee can avail cenvat on the basis of invoice issued by the manufacturer/registered importer where registered dealer negotiates-

osale of an entire consignment from manufacturer/registered importer and orders direct transport of goods to the consignee

osale of goods from the total stock ordered on a manufacturer/importer to multiple buyers and orders direct transportation of goods to the consignees where the manufacturer/importer is willing to issue individual invoices for each sale in favour of the consignees for such individual sale. In both the forgoing cases, dealer won’t issue cenvatable invoice but it can issue commercial invoice.

2)Consignee can avail cenvat on the basis of invoice issued by registered dealer where such dealer negotiates sale by splitting a consignment procured from a manufacturer/registered importer and issues Cenvatableinvoices for each of the sale. In such case, it would now be possible for the dealer to order direct transport of the consignments as per the individual sales to the consignee without bringing the goods to his godown.

3)Where goods are sold by the registered importer to an end-user (say a manufacturer) who would avail credit on the basis of importer's invoice and the goods are transported directly from the port or warehouse at the port to the buyer's premises, the amendment prescribes that for such movement the factum of such direct transport to the buyer's premises needs to be recorded in the invoice - CIRCULAR NO.1003/10/2015-CX, DATED 5-5-2015.

LPG subsidy isn't taxable as it is for welfare of people; Govt. clarifies provision in Finance Bill, 2015

A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or an individual) generally with the aim of promoting economic and social policy. Subsidies come in various forms - direct one (cash grants, interest-free loans) and indirect ones (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebate etc.).

There was an unendingdispute between the revenue and the taxpayers about the tax treatment of the subsidy received from Government or any other authority. The revenue always tried to treat subsidy as revenue receipt but the assessees always opposed such treatment and wanted to treat it as capital receipt.

The Government tried to settle this dispute by proposing amendments to the Finance Bill, 2015 as passed by Lok Sabha. It has been proposed that assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession, etc. (by whatever name called) by the Government or any authority or body or agency, in cash or kind to the assesse (other than one considered under Explanation 10 to Section 43(1)) would be includible in income.

In view of aforesaid amendment certain doubts had arisen on tax treatment of LPG subsidy received by individuals under direct benefit transfer. Certain tax experts were of the view that this proposal would deem such LPG subsidy as income of individuals and they would be required to pay taxes on subsidy received in their bank accounts.

In this regard, the CBDT has clarified that the proposed amendment in the Finance Bill, 2015 would not be applicable to individuals not having any income chargeable under the head "Profits and gains of business or profession" and receiving LPG subsidy or any other subsidy which is for the welfare of the individuals. Thus, it has been clarified that LPG subsidy received by Individuals would not be taxable.

CAT dismisses complaint of Adidas against Nike as latter had taken permission of ICC to use Sachin’s name on T-shirts

Where pursuant to sponsorship agreement with International Cricket Association Nike was permitted to use names of cricketers including Sachin Tendulkar on its sports products for purpose of advertising, it could not be said that Nike had violated separate agreement between Adidas and Tendulkar entered for advertising Adidas sports product; unfair trade practice could not be alleged

Facts:

a)The complainant-company Adidas and the respondent-company Nike were engaged in business of manufacturing, distributing and selling quality footwear, sports equipments and other products and were competitors in the market.

b)The Complainant's brand, i.e., Adidas was endorsed by Cricketer Sachin Tendulkar pursuant to an agreement between both parties.

c)Later on, Nike signed an agreement for sponsorship and supply of footwear, apparel and related cricketing accessories with International Cricket Association and sold T-shirts bearing names of various members of Indian Cricket Team including Sachin Tendulkar’s

d)Accordingly, Adidas filed complaint alleging unfair and restrictive trade practice indulged by Nike.

The Competition Appellate Tribunal held as under:

1)Since sponsorship and licence agreement entered between Nike and Cricket association permitted former to use name of members of cricket team for purpose of advertising in different ways, same did not amount to unfair trade practice

2)The products such as T-shirts and Tees manufactured by Nike did not violate agreement entered between Adidas and Tendulkar; hence, Nike could not be held to have indulged in any unfair trade practice and, thus, complaint was to be dismissed - ADIDAS INDIA MARKETING (P.) LTD. V. NIKE INDIA (P.) LTD. [2015] 56 TAXMANN.COM 344 (CAT)

MCA simplifies incorporation process; releases new integrated Form INC-29 for Cos applying for incorporation

With a view to simplify the process of incorporation of a company, MCA has introduced new ‘Integrated Incorporation Form – INC.29’ which is effective from 01.05.2015. Form No. INC.29 is a single integrated from for incorporating a company. Form No. INC. 29 comprises of three separate segments namely, 1) Application for allotment of DIN; 2) Application for reservation of Name, 3) Application for incorporation of Company. The key features of Form No.INC.29 are as follows:

a)Now, applicant of the proposed company can propose only one name for approval in this e-form.

b)Application for DIN is permissible upto 3 directors through this INC-29. Personal details in relation to the director or subscriber is not required in case director/subscriber already has DIN. Scanned copy of Memorandum and Articles of Association need to be attached with the form.

c)There will be an additional Fee for the form is Rs. 2000/- in addition to the normal registration fee.

d)Facility for using ‘integrated form’ is not available for incorporating Section 8 companies.

Introduction of this new form has resulted in doing away with filing of the following e-forms:

1.Form DIR-3 (Application for allotment of DIN in case proposed Directors have no DIN)

2.Form INC-1/INC-2 (Application for Reservation of name)

3.Form INC-7 (Application for incorporation of a company other than OPC)

4.Form DIR-12 (Details of Directors)

5.Form INC-22 (Details of registered office) (Optional at the time of incorporation)

However, it is to be noted that the facility to file single integrated application form for incorporation in Form No INC.29 is optional. If any stakeholder wants to avail the existing process for incorporating company he may use aforesaid forms instead of filing single integrated form.

Rental income taxable as business income if main object of Co. as per MOA is to earn income by letting out properties

Where in terms of memorandum of association, main object of assessee-company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property.

Facts:

a)The assessee-company was incorporated with main object, as stated in the Memorandum of Association (MOA)of acquiring the properties and letting out of those properties.

b)It had rented out such properties and shown the rental income received therefrom as income from business.The Assessing Officer (AO) held that since the income was received from letting out of the properties, it was in the nature of rental income. He, thus, treated it as income from house property and taxed accordingly.

c)Assessee filed appeal before CIT(A) who treated such rental income as income from business, which was confirm by the Tribunal. d)On further appeal, the High Court set-aside orders of lower authorities. The aggrieved-assessee filed instant appeal before the Supreme Court.

The Supreme Court held in favour of assessee as under:

1)The main object of the company was to acquire and hold the properties and to let out those properties.

2)In 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)] the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income received from letting out of those mining leases was shown as business income. Department took the position that it was to be treated as income from the house property. The Court pointed out that the deciding factor was not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. It held that such income was to be treated as business profits.

3)The judgment in case of Karanpura Development Co. Ltd (Supra)was squarely applied to the facts of the present case. Thus, after applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property.

4)In the instant case, in the return of income that was filed by the assessee,the entire income was shown through letting out of properties. There was no other income of the assessee except the income from letting out of these two properties.Thus, assessee had rightly disclosed the income under the Head Income from Business as it could not be treated as 'income from the house property'. - CHENNAI PROPERTIES & INVESTMENTS LTD. V. CIT[2015] 56 taxmann.com 456 (SC)

Assessee can be prosecuted anytime when exonerated in penalty proceedings on ground of limitation and not on merits

Where exoneration in adjudication/penalty proceedings is not on merits but on ground of limitation, assessee-accused cannot take shelter thereof to avoid prosecution proceedings; since there is no time-limit for launching prosecution, same can be launched despite recovery/penalty becoming time-barred.

Facts:

a)Department initiated prosecution proceedings for wrongful credit.

b)Revisional court discharged assessee on ground that penalty proceedings were decided in its favour and department's appeal thereagainst before High Court was dismissed.

c)Department argued that penalty was dropped on ground of limitation and not on merits and appeal before High Court was dismissed for non-appearance; hence, same cannot be relied upon in criminal matters, where there is no time-limitation.

High Court held in favour of revenue as under:

1)Proceedings for recovery of duty with penalty and prosecution/ punishment are separate proceedings. For recovery, there is time-limit of 1 year/5 years in section 11A, but, for prosecution there is no time-limit in section 9.

2)In this case, despite arguments on merits, adjudication/recovery/penalty was dropped on ground of limitation and not on merits and appeal thereagainst was dismissed on ground of non-appearance and not on merits.

3)Since exoneration in adjudication/penalty proceedings is not on merits, assessee-accused cannot take shelter thereof to avoid prosecution proceedings. Since there is no time-limit in section 9, prosecution proceedings can be launched despite recovery/penalty becoming time-barred. Hence, prosecution was valid - Superintendent (Prosecution) Central Excise & Customs Department v. Ashok Leyland Ltd. (2015) 56 taxmann.com 309 (Rajasthan).

Editor's Note:

In adjudication, the appellate authority may decide appeal on grounds of limitation and not on merits despite strong case on merits. In such cases the prosecution may be initiated by the department since there is no adjudication on merits. It appears that in adjudication proceedings on huge tax demand, the assessee must press more on merits (if they are strong enough) and not on limitation to avoid prosecution.