CLB grants 30 days’ time to ‘Unitech Ltd.’ for repayment of deposits; appoints committee to monitor repayment

Companies Act: Where Unitech Ltd. failed to repay matured FDs despite making profits yet it wanted to reschedule payment thereof, it was to be directed to repay the deposits as rescheduling of deposits was not allowed under new Companies Act, 2013 and, accordingly, directed the ‘Unitech Ltd’ to repay deposits within 30 days.

Facts:

Unitech Ltd. defaulted in repaying matured fixed deposits even when it had made profits. It made no serious effort in clearing the deposits of though it wanted to reschedule the repayment. It approached Company Law Board to grant extension of time for repayment of deposits.

The Company Law Board held as under:

Companies Act, 2013 mandates repayment of all deposits collected within the ambit of repealed Companies Act, 1956 on or before 01.04.2015, notwithstanding the fact whether they have matured or premature. 30 days’ time was to be granted to Unitech Ltd. to clear all matured deposits alongwith interest @ 12%.

Further, Committee would be appointed to ascertain progress of the company in making repayment to the depositors.- UNITECH LTD., IN RE [2015] 57 TAXMANN.COM 423 (CLB - NEW DELHI)

Editor’s comment:

The Companies Act, 2013 (‘the Act’) was enforced with effect from April 1, 2014. A company which has accepted deposits prior to commencement of Companies Act, 2013 has to repay the same within one year from the commencement of the Act, i.e., upto 31.03.2015 or on the due date of such payments, whichever is earlier.

Any company failing to repay the deposit within aforesaid time-limit shall be liable to pay minimum fine of one crore rupees which may be extended upto ten crores. Every officer of the company who is in default shall be liable to imprisonment which may be extended upto 7 years plus a fine of upto 2 Crores.

However, Company Law Board, after considering the financial position of the Company, may grant extension of time for repayment of deposits. In case of Jaiprakash Associates Ltd., [2015] 56 taxmann.com 212 (CLB - New Delhi) the CLB had given 30 days’ time to the applicant-company to repay all deposits as company was making bona fide efforts in making repayments to the depositors. In the instant case applicant (Unitech Ltd.) wanted to reschedule the repayment of deposits but under the Act there is no provision to reschedule repayment of deposits.

No denial of sec. 11 relief to hospital just because it didn't provide concessional treatment to poor patients

Section 11 exemption could not be denied to a hospital on the ground that it didn’t provide concessional treatment to poor patients as there is no provision under Income-tax Act which would disentitle assessee to claim exemption on this ground.

Facts:

a)Assessee-trust, running a multi-specialty hospital, claimed exemption of income under section 11 of the Income-tax Act (‘Act’).

b)Assessing Officer (AO) denied exemption on ground that assessee was earning profit from its activity and it had failed to provide concessional treatment to poor patients.

c)On appeal, the CIT(A) reversed the findings of the AO and allowed exemption to the assessee. Aggrieved by the order of CIT(A), the AO filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)The CBDT in its Circular No. 11, dated 19-12-2008 had clarified that where the purpose of trust or institution is relief to the poor, education or medical relief, it would constitute charitable purpose, even if it incidentally involves carrying on the commercial activities

2)In the instant case, assessee was engaged in carrying on objects of providing medical relief to people at large which has been recognised as charitable activity under the Act. Therefore, exemption under section 11 could not be denied merely because surplus was generated from such activities

3)Further, there is no provision under the Act which would disentitle assessee to claim exemption on the ground that it did not provide concession to poor patients and, therefore, this could not be a ground to disallow exemption under section 11 - ITO V. NOBLE MEDICAL FOUNDATION & RESEARCH CENTRE [2015] 57 taxmann.com 333 (Pune - Trib.)

Clearances of intermediate parts by job-worker to its principal has to be valued as per general rule of valuation

Clearances of 'motor vehicles parts' manufactured by job-worker for use in manufacture of 'motor vehicles' by principals, would be valued as per rule 11 and valuation rules 8 and 9 cannot apply thereto.

a)Assessee, a job-worker, was manufacturing motor vehicle parts for use by principal in manufacture of motor vehicles

b)Assessee and principal were related in terms of section 4(3)(b)(i) viz. interconnected undertaking.

c)Department sought valuation of 'parts' under rule 8 or proviso to rule 9 as captively consumed goods.

d)Assessee claimed valuation as per rule 11 at 'cost of materials plus job-work charges' treating assessee/job-worker's premises as deemed factory gate.

Supreme Court held in favour of assessee as under:

1)Since parts were not captively consumed by assessee-jobworker or on his behalf in production or manufacture of other articles, hence, rule 8 was inapplicable.

2)Rule 9 and consequently, proviso to rule 9, was inapplicable Since assessee and principal were interconnected undertaking related in terms of section 4(3)(b)(i). This is because rule 9 mentions relationship that is visualised in sub-clauses (ii) to (iv) only and excludes clause (i). Further, since main rule 9 is not attracted, question of applicability or proviso thereto does not arise.

3)Once it was concluded that above rules is not applicable in the case of the assessee, it is rule 11 only which becomes applicable as that is residuary provision for arriving at the value of any excisable goods which are not determined under any other rule - Commissioner of Central Excise, Pune v. Mahindra Ugine Steel Co. Ltd. (2015) 57 taxmann.com 299 (SC).

Even refund of excess self-assessment tax paid by assessee would be entitled to interest

Assessee would be entitled to interest under section 244A(1)(b) on amount of refund which was deposited by it by way of self-assessment tax under section 140A

The issue that arose before the High Court was as under:

Whether assessee was entitled to interest on the amount of refund arising due to excess self-assessment tax paid by it?

The Punjab and Haryana High Court held in favour of assessee as under-

1)Section 244A deals with the grant of interest on refund of any amount of tax which becomes due to the assessee in terms of the provisions of Act.

2)Clauses (a) and (b) of sub-section (1) of section 244A deal with two different situations. Clause (a) deals with refund of taxes which have been paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199. Clause (b) deals with refund of taxes in any other case.

3)It was clear that assessee’s case would not fall under clause (a) of section 244. However, revenue contends that cause (b) is confined to situations where the tax refund has been paid in terms of a notice of demand issued by the Assessing Officer under section 156.

4)It was held that once self-assessment tax so paid gets adjusted against the tax determined by the Assessing Officer upon assessment, it takes the imprint of a tax paid in pursuance notice of demand issued under section 156.

5)Section 244A was inserted in the statute as a measure of rationalization to ensure that the assessee is duly compensated by the Government, by way of payment of interest for monies legitimately belonging to the assessee and wrongfully retained by the Government.

6)The tax deducted at source, advance tax and also tax paid by way of self-assessment, after its adjustment in the tax liability of the assessee loses its original character and becomes tax paid in pursuance of the liability. Therefore, assessee was entitled to interest under section 244A(1)(b) on excess self-assessment tax paid by it- CIT V. PUNJAB CHEMICAL & CROP PROTECTION LTD. [2015] 57 taxmann.com 283 (Punjab & Haryana)

Editor’s Note:

Even after this verdict this issue is not resolved as judiciary differs on this issue. The Delhi High Court in the case of CIT v. Engineers India Ltd.[2015] 55 taxmann.com 1 (Delhi)denied to grant interest on excess self-assessment tax paid by assessee.

AO to transfer VAT collected on activation of SIM cards to Service Tax Department – such transaction is a service and not sales

Haryana VAT - Where collection of VAT from assessee was without authority of law and Service Tax department had raised service tax demand upon assessee for period for which Assessing Authority had levied and collected VAT, Assessing Authority was to be directed to transfer amount of VAT to Service Tax department.

1)Assessing Authority collected VAT from assessee pursuant to assessment orders on premise that activation of SIM cards was a sale.

2)Assessee approached State of Haryana for refund of amount of VAT on ground that activation of SIM card was a service and not a sale.

3)The Assessing Authority dismissed the assessee's representation for refund of the amount of VAT on the grounds that the assessee did not challenge its liability before the Assessing Authority, it did not file any appeal against the assessment orders, and as the assessee had charged VAT from its customers, the amount could not be refunded.

High Court held in favour of assessee as under:

a)Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 STT 245 held that activation of SIM cards is a 'service' and not a 'sale'. The assessee is, therefore, liable to pay service tax on the activation of SIM cards and not VAT.

b)Since Supreme Court had clearly held that VAT could not be collected on activation of SIM cards, levy and collection of VAT was without authority of law and violative of article 265 of Constitution.

c)The Union of India has raised a demand for service tax for the period for which the State of Haryana has levied and collected VAT. If the assessee is called upon to pay VAT and service tax, it would be the case of double taxation.

d)In view of the aforesaid, the revenue was to be directed to transfer the amount of VAT collected from the assessee to the Service Tax department of the Union of India - Idea Cellular Ltd. v. Union of India (2015) 57 taxmann.com 293 (Punjab & Haryana).

Subway doesn't have dominant position in fast foods restaurant chains due to presence of Pizza Hut, KFC, etc: CCI

Competition Act: Due to the presence of many competitors in the market of fast food restaurant chains, like Pizza Hut, KFC, Mc. Donald's, Cafe Coffee Day, etc., consumers have several options to choose from. Subway neither has strength to operate independently of its competitors, nor the ability to affect its competitors and consumers. Therefore, Subway does not enjoy a dominant position in the relevant market of fast food restaurant chains.

Facts:

a)The Informant and Subway Systems India Private Limited ('Subway') entered into a franchise agreement for operating "Subway" at Chennai. The Informant alleged that certain clauses of the franchise Agreement contravened the provisions of section 4 of the Competition Act, 2002 ('the Act').

b)The Informant alleged that the market share of Subway in the market of fast food restaurant chain exceeded 30%, thus, Subway had abused its dominant position by imposing unfair conditions in franchisee agreement.

c)Based on the above allegations, the Informant prayed for initiation of an investigation against the Subway under section 26(1) of the Act

The Competition Commission of India held as under:

1)Commission observed that these allegations did not have any appreciable adverse effect on the competition in the market of fast food restaurant chains since the size of such market was huge as compared with the market size of Subway. Therefore, the impact of alleged unfair conditions in franchise agreement, if any, was negligible. Thus, conduct of Subway would not contravene any provision of section 3 of the Act

2)Due to the presence of many competitors in the market of fast food restaurant chains, like Pizza Hut, KFC, Mc. Donald's, Cafe Coffee Day, etc., consumers had several options to choose from. Subway neither had strength to operate independent of its competitors, nor the ability to affect its competitors and consumers. Therefore, Subway did not enjoy a dominant position in the relevant market of fast food restaurant chains. - RAMAMURTHY RAJAGOPAL V. DOCTOR'S ASSOCIATES INC (2015) 57 TAXMANN.COM 357 (CCI)

FAQs on Gold Monetization Scheme

The Government has released the draft Gold Monetization Scheme (GMS). The main objective of the Scheme is to mobilize gold held by the households in lieu of interest and to make it available to the gems and jewellery sector as raw material on loan. This scheme aims at reducing reliance on import of gold to meet the domestic demand.

According to the draft scheme, a person can open a "gold savings account" in banks for a minimum period of one year and earn interest on the gold deposited under the scheme.

The minimum quantity of gold that a customer can deposit is proposed to be 30 grams. The gold can be in any form, i.e., bullion or jewellery.

The banks will pay interest on ‘Gold Savings Account’ after 30/60 days of account opening. The rate of interest is proposed to be decided by banks directly. Both principal and interest to be paid to the depositor shall be valued in terms of gold

Amount earned from “Gold Saving Account” under this scheme is likely to be exempted under Income-tax Act.

Click here to read FAQs on Gold Monetization Scheme

Click here to read the Gold Monetization Scheme

Harayana VAT must incorporate provisions to exclude value of land from works contract

Where assessee, a builder/developer, entered into agreements with prospective buyers to construct flats, etc. and thereafter sell same with some portion of land against valuable consideration, activity of assessee would be covered under term 'works contract' but Assessing Authority was to be directed to pass fresh assessment order

Facts :

1)Assessee, a builder/developer, entered into agreements with prospective buyers to construct flats, etc., and thereafter sell same with some portion of land against valuable consideration.

2)Assessing Authority in terms of circulars dated 7-5-2013, 4-6-2013 and 10-2-2014 providing for levy of VAT on builders, etc., levied VAT on transaction of sale of flats, floors and villas effected by assessee.

3)Assessee filed writ petition for declaring provisions which include value of land for charging VAT on developers to be ultra vires the Constitution.

High Court held partly in favour of assessee as under :

a)From a consideration of various decisions of the Supreme Court arising under article 366(29A) of the Constitution, it follows that the agreement between the promoter/builder/developer and the flat purchaser to construct a flat and thereafter sell the flat with some portion of land does involve construction which would be covered under the term 'works contract'.

b)Rule 25 provides for exclusions in respect of labour, services and other like charges and does not provide for any mechanism for exclusion of the value of land. Wherever developer/builder/promoter or the sub-contractor who carries on construction work in a works contract maintains proper accounts, it shall be on the basis of actual value addition on account of goods utilized in the property. Rule 25(2) provides for deduction of charges towards labour, services and like charges and where they are not ascertainable from the books of account maintained by a developer, etc., the percentage rates are prescribed in the table provided in the said rule.

c)It is necessarily required to provide mechanism to tax only the value addition made to the goods transferred after the agreement is entered into with the flat purchaser. The 'deductive method' thereunder does not provide for any deduction which relates to the value of the immovable property. The legislature has not made any express provision in rule 25 for exclusion of value of immovable property from the works contract and its method of valuation has been left to the discretion of the rule making authority.

d)Essentially the value of immovable property and any other thing done prior to the date of entering into the agreement of sale is to be excluded from the agreement value. The value of goods in a works contract in the case of a developer, etc., on the basis of which VAT is levied would be the value of the goods at the time of incorporation in the works even where property in goods passes later on.

e)Further, VAT is to be directed on the value of the goods at the time of incorporation and it should not purport to tax the transfer of immovable property. Consequently, rule 25(2) is held to be valid, but State Government shall bring necessary changes in the said rule inconsonance with the above observations - CHD Developers Ltd. v. State of Haryana (2015) 57 taxmann.com 315 (Punjab & Haryana).

Compilation of data and its transformation into e-book for foreign clients held as export of software u/s 10B

Where assessee was collecting text, compiling material, designing same and exported it in form of computer software, assessee was entitled to claim benefit of section 10B

Facts:

a)The assessee was involved in process of collecting text, compiling material, designing layout, scanning, etc., for projects of foreign clients. She claimed herself to be a software exporter and, accordingly, claim exemption under section 10B.

b)The Assessing Officer (AO) disallowed said claim holding that process deployed by the assessee was neither manufacture nor did it amount to creation of software.

c)On appeal, CIT(A) upheld the order of the AO which was reversed by the tribunal. Aggrieved with the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under:

1)Section 10B uses the expression "manufactures or produces…… things or computer software". The four stage process of collecting text , compiling material, designing the layout, scanning, digital image editing (to remove distortion) and final arrangement of the data, ultimately transmitted according to the customer's specification - and ready to be used for printing, (or even e-Book publication) is undoubtedly manufacture or production.

2)CBDT vide Notification No. 11521, dated 26.09.2000 had specified ‘content Development or animation’ or ‘Data Processing’ as information technology enabled products or services.

3)"Content Development or animation" covers compilation of material or data and its transformation into a ready to print/ready to publish book.

4)In the instant case, the work which ultimately results in the culmination of the assessee's efforts of compiling, editing, digital designing, etc. “is transmitted or exported from India to any place outside India by any means”. It is, therefore, computer software that is produced or manufactured, to qualify for benefit under section 10B.

5)Hence, tribunal rightly allowed assessee’s claim of deduction under section 10B. - CIT v. Ms. Kiran Kapoor [2015] 57 taxmann.com 39 (Delhi)

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)