Sep 302014
 

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RBI Reference Rate for US $ – Dated:- 30-9-2014 – The Reserve Bank of India s Reference Rate for the US Dollar is ₹ 61.6135 on September 30, 2014. The corresponding rate for the previous day (September 29, 2014) was ₹ 61.4273. Based on the reference rate for the US Dollar and the middle rates of the cross-currency quotes, the exchange rate of EUR, GBP and JPY against………………

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Sep 302014
 

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Service Tax – Dated:- 30-9-2014 – Valuation – inclusion of reimbursement of expenses – If the appellants have collected these charges and remitted the same to th………………

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Sep 302014
 

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Service Tax – Dated:- 30-9-2014 – Service Tax Voluntary Compliance Encouragement Scheme – Commissioner Service Tax to reconsider the issue in light of whether the earlier show-cause notice dated 19/03/2010 culminating in the order dated 23/12/2010 i………………

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Sep 302014
 

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Service Tax – Dated:- 30-9-2014 – Export of services – foreign exchange – Revenue was of the view that since the dividends have been repatriated and since dividends arise out of the………………

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Sep 302014
 

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Service Tax – Dated:- 30-9-2014 – Clearing and forwarding agent service – Activity to receive the products manufactured/purchased or otherwise acquired by the Cipal at their premises ………………

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Sep 302014
 

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Central Excise – Dated:- 30-9-2014 – CENVAT Credit on returned / damaged goods – Rule 16 of central excise rules, 2002 – re-winding or reconditioning of the yarn is impossibility an………………

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Sep 302014
 

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Central Excise – Dated:- 30-9-2014 – Manufacture – by cutting/slitting the jumbo rolls of paper and by placing the carbon paper in between two ………………

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Sep 302014
 

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Income Tax – Dated:- 30-9-2014 – Income deemed to accrue or arise as per Explanation to Section 9(1)(i)(b) or not – Merely because the assessee do not place orders for purchase, in law ………………

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Sep 302014
 

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Income Tax – Dated:- 30-9-2014 – Interest expenses utilized for business purpose or not – no material has been brought on record by the revenue either to demon………………

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Sep 302014
 

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Income Tax – Dated:- 30-9-2014 – Refund of customs duty as part of incentive measure – the finding of the Tribunal that the amounts received by the as………………

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Sep 302014
 

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Export of Imported goods to Nepal – Customs – Import – Export – SEZ – By: – CA Sumit Aggarwal – Dated:- 30-9-2014 – On 25th September, 2014, Mr. Narendra Modi, our Prime Minister, launched the Make in India campaign. The government has identified 25 key sectors in which our country has the potential of becoming a world leader. The PM s motivated plan is to grow the manufacturing sector s share in the GDP from the current 15 to 25 per cent. There is no doubt that import and export plays a vital role in economy growth of a country. To achieve the dream seen by our PM; I am highlighting an issue in trading with our neighbour country, Nepal. In present trade scenario, export to Nepal is increasing day by day. Indian manufacturers require indigenous as well as imported inputs to manufacture the machineries like crane, excavators, car etc. Indian manufacturers are not only selling their final products in domestic market but also in foreign markets. It is very common that agreement to sell contains warranty clause and also after sale service clause; which requires that the manufacturer will provide the repair and maintenance service to its customer either by itself or through its authorised agent/dealer. To upkeep the machinery, manufacturer/dealer is required to provide the spare parts for repair or maintenance of machinery. The company shall have the responsibility to maintain the Spare Parts availability at accepted industry levels to enable dealer to meet the above responsibilities for customer's support. There is no obstruction to maintain such stock either in India or outside India except Nepal. (In the absence of any clarification from Customs Department). Import or export of spare parts of machinery is free under ITC (HS) of Import/Export Policy. With effect from 1st March, 2012, CBEC puts export to Nepal at par with exports to other countries (except Bhutan). Export of goods to Nepal is also not restricted by the Customs Act; however it imposes restriction on claiming duty drawback if the exported goods were imported in to India from third country and the value of exported goods received in currency other than freely convertible foreign currency. Foreign Trade Policy 2009-14 nowhere puts any bar/restriction on export of goods to Nepal. As per Para 2.35 of FTP provides the provisions for export of imported goods, which permit such export against payment in freely convertible currency. But treaty between India and Nepal prohibits re-exports of goods imported from third countries without manufacturing activity. The………………

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Sep 302014
 

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Import of Currency Paper and Security Printing Paper; conditions thereof – DGFT – 94 /(RE-2013) / 2009-2014 – Dated:- 29-9-2014 – To be Published in the Gazette of India Extraordinary Part-II, Section – 3, Sub-Section (ii) Government of India Ministry of Commerce & Industry Department of Commerce Udyog Bhawan, New Delhi Notification No. 94 /(RE-2013) / 2009-2014 Dated the 29th September, 2014 Subject: Import of Currency Paper and Security Printing Paper; conditions thereof: S.O.(E) – In exercise of powers conferred by Section 3 read with paragraph 1.3 of the Foreign Trade Policy, 2009-2014, the Central Government hereby amends the Policy Condition No.1 and 3 of Chapter 48 of ITC(HS), 2012, Schedule 1 (Import Policy) as under:- 2. Existing Policy Condition No. 1 and 3 of Chapter 48 is as under: (1) The conditions for import of currency paper (water-mark bank note paper) are as follows: (i) Import of Water-mark Bank Note Paper may be made, without an import licence, by the Note Printing Presses of the Government of India, namely, Currency Note Press, Nasik; Bank Note Press, Dewas; Bharatiya Reserve Bank Note Mudran Ltd., Mysore; Bharatiya Reserve Bank Note Mudran Pvt. Ltd., Salboni and Bharatiya Reserve Bank Note Mudran Ltd., Bangalore subject to Actual User Condition on a specific letter of approval from the Ministry of Finance (Department of Economic Affairs), Government of India for the import. The letter of approval of the Ministry of Finance should be submitted to the Customs for clearance of the import. (3) The conditions for import of Security Printing Paper are as follows: (i) Import of Security Printing Paper may be made without an import license by India Security Press, Nasik and Security Paper Press, Hyderabad subject to actual user condit………………

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Sep 302014
 

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Revision in Import Policy for some primary agricultural commodities appearing in Chapter 10 of ITC(HS), 2012, Schedule 1 (Import Policy) – DGFT – 93 (RE – 2013)/2009-2014 – Dated:- 29-9-2014 – To be published in the Gazette of India Extraordinary Part-II, Section – 3, Sub-Section (ii) Government of India Ministry of Commerce & Industry Department of Commerce Udyog Bhawan Notification No. 93 (RE – 2013)/2009-2014 New Delhi, Dated the 29th September, 2014 Subject: – Revision in Import Policy for some primary agricultural commodities appearing in Chapter 10 of ITC(HS), 2012, Schedule 1 (Import Policy). S.O. (E): – In exercise of powers conferred under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 read with paragraph 2.1 of the Foreign Trade Policy, 2009-2014, as amended from time to time, the Central Government hereby makes the following amendments in Import Policy of Chapter 10 of ITC (HS) 2012, Schedule 1 (Import Policy): Exim Code Item Description Existing Revised Policy Policy Conditions Policy 1001 99 20 Meslin State Trading Enterprise Import allowed through FCI subject to Para 2.11 of FTP. Free 1002 RYE 1002 90 00 Other State Trading Enterprise Import allowed through FCI subject to Para 2.11 of FTP. Free 1004 OATS 1004 90 00 Other State Trading Enterprise Import allowed through FCI subject to Para 2.11 of FTP. Free 1005 MAIZE (CORN) 1005 90 00 Other State Trading Enterprise Import allowed through FCI subject to Para 2.11 of FTP. Free 1007 GRAIN SORGHUM 1007 90 00 Other State Trading Enterprise Import allowed through FCI subject to Para 2.11 of FTP. Free ………………

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Sep 302014
 

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Finance Secretary Exuberates Confidence on Achieving A Growth Rate in the Range of 5.7 to 5.9 Per Cent During the Current Fiscal Year 2014-15; Investment Data in September 2014 Shows an Uptick with A Growth Of 9.8 Per Cent as Against 6.7 Per Cent Growth – Dated:- 30-9-2014 – During the Corresponding Period in the Last Fiscal ; Total FDI Flows in India During April –July 2014, Stood at USD 14.6 Billion as Compared to USD 11.7 Billion During the Same Period A Year Ago Dr Arvind Mayaram, Finance Secretary, Government of India exuberated confidence on achieving a growth rate in the range of 5.7 to 5.9 per cent during the current fiscal year 2014-15. Dr Mayaram was speaking at a function organized by the Madras Chamber of Commerce & Industry to celebrate their Chamber Day at Chennai. He said that an upgrade by S&P in the overall outlook from negative to stable reaffirms the fact that the health of the economy is in a much better condition than it was a year ago. Finance Secretary Dr Mayaram said that the indices in H1 of 2015 appear to be more robust, with the first quarter GDP growth numbers coming in at 5.7 per cent, significantly low rates of inflation and a healthier external account balance. He said that investments are higher compared with the levels in the previous year. Finance Secretary Dr Arvind Mayaram said that the new Government through its General Budget 2014-15 indicated the overall direction in which the Indian economy would move. He said that infrastructure development is one of the foundations on which the present Government wants to accelerate growth and create employment opportunities. In the past, large projects had come to a standstill and many others were stressed on account of slow decision making and paralysis. Finance Secretary said that signs of recovery are visible in the sector, albeit slowly. Dr Mayaram said that the investment data in September 2014 shows an uptick with a growth of 9.8 per cent as against 6.7 per cent growth during the corresponding period in the last fiscal year. He said that he is confident that the steps taken by the Government to distress projects and simplify decision making will show increasingly better results in the coming quarters. He further said that SEBI has already notified the guidelines on REITS and InvITs. FDI limi………………

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Sep 302014
 

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Niko Resources Ltd. Versus Assistant Director of Income Tax – Income Tax – GUJARAT HIGH COURT – HC – Reopening of assessment u/s 148 – Bar of limitation – Details of depreciation claimed given by assessee – Held that:- The notice issued u/s 148 for reopening of case of the assessee for AY 2005-06 dated 26.12.2012 directed the petitioner to produce accounts and documents as also the information in respect of the concerned assessment year – The reasons for reopening u/s 147 does not say anywhere that on account of any failure on the part of the assessee, excessive depreciation had been allowed – The assessee had claimed and was allowed the depreciation at the rate of 25% on construction of offshore platform – the original assessment for the captioned year i.e. 2005-06 was completed u/s 143 (3) after the scrutiny and the notice was issued on 30.3.2012 which is after expiry of 4 years from the end of relevant assessment year i.e. 31.3.2006 and, therefore, case of the petitioner is that its case is not covered under first proviso to section 147 of the Act. Assessee had given details of depreciation claimed by the company – It had specified that there is no sale nor any act of discard of any depreciable assets during the year under question and additions were made – the assessee had stated that supporting documents are bulky and voluminous and it showed willingness to produce the same for verification at the time of assessment proceedings – In the assessment order passed on 30.12.2008, nowhere there is any reference of non-compliance of the direction of the AO – It also does not mention anywhere the absence of production of record ensured to be done at the time of assessment proceedings – in absence of any specific averment in the reasons recorded for reopening of the assessment, that there was any failure on the part of the assessee to disclose fully and truly all material facts, it would not be possible for the Court to allow the notice u/s 148 to be sustained,which is wholly without any backing of law. Structure of such kinds are not so uncommon that its true picture/ meaning cannot be grasped, without furnishing more details than already provided by the petitioner – Again, assuming without accepting that onus was entirely on the assessee to bifurcate all the three structures (i) The module large pre-built units meant for accommodation, production and drilling zones (ii) The Jacket foundation on which platform sits (iii) Derrick -the highest area of platform for drilling, it can be noticed that when specific query was already raised in relation to this in scrutiny assessment and answered by the petitioner as detailed hereinabove, documents were also offered while replying to such query, if they were not found necessary to be called while carrying out original assessment despite due application of mind to the very issue, this case surely does not lend jurisdiction to the AO to reopen the assessment beyond the period of four years from the end of the assessment year under question. Offshore platform as per the reasons recorded consisted of module, jacket and derrick – If there was any clarification that was further needed after the description of the items purchased and put to use, was particularly replied to by the assessee on 6th July, 2007, it was open for the AO to further raise the queries and call for more documents – In the event of the AO not being satisfied with the reply, he could have denied the depreciation as a claim made in the particular year by the assessee which was almost 50% of the total amount of claim of deprecation which ran into 56.77 crores – being a special knowledge of the assessee company dealing with the subject concerned, non-furnishing of those particulars should amount to not having revealed the primary facts necessary to be revealed by the assessee – in any case this being the reopening beyond the period of 4 years in absence of any material to indicate the failure on the part of the assessee to disclose fully and truly all material facts, when the assessee had discharged onus of having revealed the primary facts, on jurisdictional ground itself, notice must fail – Decided in favour of assessee. – 2014 (9) TMI 892 – GUJARAT HIGH COURT – TMI – Special Civil Application No. 7307 of 2013 – - Dated:- 25-7-2014 – M. R. Shah And Sonia Gokano,JJ. For the Appellant : Mr. Saurabh Soparkar, Sr. Adv. & Mr B S Soparkar, Adv. For the Respondent : Mr. M. R. Bhatt, Sr. Adv & Mrs Mauna M Bhatt, Adv. JUDGMENT (Per : Honourable Ms. Justice Sonia Gokani) 1. This petitioner challenges the notice of reopening dated 30.3.2012 issued by respondent for reopening under section 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The petitioner is the non-resident company registered under the laws of Canada and derives income from the business of exploration, prospecting, production and marketing of natural gas and mineral oil. It entered into an agreement dated 23.9.1994 with GPCL, a company incorporated under the laws of India for production sharing contracts with the Government of India for exploration and extraction of mineral oil and natural gas in certain fields situated in the State of Gujarat. The petitioner, therefore, earned income that accrues and arises in India and is subject to taxation in India. 2. The return of income under section 139 of the Act was filed by the petitioner on 29.10.2005 for the assessment year 2005-06 declaring total income as "nil" along with Tax Audit Report. The petitioner paid tax under section 115JB of the Act. 3. The return of the petitioner was taken under scrutiny assessment under section 143(1) of the Act and notice issued under section 143(2) was duly served upon the assessee. The questionnaire was supplied along with notice under section 142(1) to the petitioner and pursuant to such notice, requisite details were furnished by the petitioner. A letter was issued dated 8.1.2007 requiring the petitioner to furnish all details of depreciation claimed along with items purchased and put to use. Petitioner replied to such specific query as also stated that any supporting document that may be called for at the time of hearing shall be produced being voluminous in nature. 4. The respondent passed the assessment order under section 143(3) of the Act on 30.12.2008 where various deductions claimed by the petitioner assessee were considered, disallowing the depreciation claimed on well and pipelines and allowing the rest of the claims of depreciation. 5. It appears that respondent issued the impugned notice under section 148 dated 30.3.2012 seeking to reopen the assessment of the petitioner assessee for the Assessment Year 2005-06. 6. The reasons for reopening on asking were supplied to the petitioner on 26.12.2012, nearly 9 months after the issuance of the notice. Such grounds are as under: "Assessee a non-resident company filed its return of income on 31/10/2005 declaring nil income and paid tax under section 115JB of the Act. The case was completed under section 143(3) of the Act on 30/12/2008 determining total income for ₹ 15,18,91,760/-. It was observed from the depreciation chart filed along with Form 3CD that assessee had claimed and was allowed depreciation of ₹ 25,97,14,874/- @ 25% on construction of "offshore Platform" valued ₹ 1038859497/-, depreciation at the rate of 25% was admissible for Plant and Machinery. According to Section 32 read with Rule 5 of Income Tax, depreciation on Plant & Machinery is admissible @ 15% whereas on Building @ 10% from A.Y. 2006-07. Offshore Platform is not exclusively a plant and machinery. It is raised area/stage on which plant and machinery alongwith various monitoring and dwelling units are installed. Three key features tend to make an offshore platform are :(1) The Modules-large pre-built units that include accommodation, production and drilling zones, (2) The Jacket- An intricate spiders web of steel piles, beams and triunions combine to provide a formidable foundation which the entire platform sits and (3) Derrick-Usually the highest point on the platform. In this area the drilling is carried out. Offshore Platforms are also not oil rig . It is usually termed as oil platform or offshore platform/offshore installation for the structure as a whole. Oil Rig actually means the part of the platform where the drill crew operates from, whereas there is a lot more to the structure than just the derrick area. This being due to the fact that an offshore platform is usually one that is permanently fixed to the sea bed. Thus, Offshore Platform is not a plant and machinery in itself. It consists of dwelling units, production units and drilling area. The plant and machinery are installed on such Offshore Platform. Offshore Platform could therefore, correctly be classified under the Block of assets "Building" only. Thus, depreciation was correctly allowable on Offshore Platform @ 10% applicable to "Building". Accordingly, the assessee was entitled for depreciation of ₹ 103885950/- (10% of ₹ 1038859497/-) and this excess depreciation of ₹ 155828924/- resulted in underassessment of income of ₹ 155828924/-. Therefore I have reason to believe that income to the tune of at least ₹ 155828924/- has escaped assessment in case of the assessee for AY 2005-06. Issue notice u/s 148 read with section 147 of the IT Act 1961." 7. Objections were raised by the petitioner, objecting to the reopening of the assessment, contending inter alia that the assessment beyond the period of 4 years from the end of the relevant assessment year is not permitted statutorily when the assessee has disclosed fully and truly all material facts necessary for the assessment. It is also further contended that the original assessment was completed on scrutiny assessment and admittedly as the assessment was completed on 31.3.2006, the case of the assessee company falls under 1st proviso to section 147 of the Act, for such reopening is on expiry of 4 years period from the end of the relevant assessment year. On merits, it was contended as under:- "1.5 The primary information on depreciation claimed under section 32 was submitted with the return of income along with the Tax Audit Report (TAR). More so this information was specifically called for during the course of assessment proceedings. The following may please be noted:- * In the Return of Income, vide annexure 2, it has been mentioned that tax depreciation claim has been made as per Section 32 of the Act and the amount of depreciation claim as per Clause 14 of the TAR. * Clause 14 of TAR refers to Enclosure II wherein under the Fixed Assets caption entry of Offshore Platform is distinctly and separately mentioned with Nil opening balance an addition of ₹ 1,038,859,497 along with other numbers corresponding to their respective details like deletion during the year, total as on 31 March 2005, depreciation rate, total depreciation and closing written down value (WDV). The total depreciation claimed on offshore platform of ₹ 157,867,098 is also mentioned in the line entry. * During the course of assessment, the assessing officer has in his notice dated 8 Jan 2007 vide point no.5 asked for the full details of depreciation claimed alongwith items purchased and put to use. * In reply to the notice dated 8 Jan 2007, the company in its submission dated 6 July, 2007 has mentioned vide point no.5 that the company has made the depreciation claim as per Annexure 3 and additions to asset are as per Annexure 4. It would be pertinent to note that Annexure 4 was fieldwise depreciation in which fieldwise particulars of all assets like the opening block, additions/deletions made during the year, total depreciation claimed and the closing WDV were tabulated." 8. These objections were rejected by a detailed order dated 26.2.2013 essentially on the ground that Explanation 1 to section 147 notes that production of accounts books or other evidence from which material evidence with due diligence have been discovered by the Assessing officer, would not amount to disclosure. It also further notes that mere production of accounts and other documents since cannot be termed as disclosure, the Assessing Officer cannot be said to have formed any opinion based on the facts that documents containing entries about the issue under consideration were not filed during the course of assessment proceedings. Thereafter on 15.3.2013, a draft of proposed reassessment order was prepared. 9. Aggrieved petitioner has preferred present petition, seeking the following prayers:- " 7(aa) To quash and set aside the impugned assessment order under section 144C(1) r.w.s. 147 r.w.s. 143 at Annexure A1" 7(bb) Pending the hearing and final disposal of the petition to stay the implementation and operation of the order at Annexure A1 and refrain the respondent from initiating recovery proceedings against the petitioner pursuant to the said order." 10. On issuance of notice, the respondent filed the affidavit-in-reply through the Deputy Director of Income-tax (International Taxation), inter alia, contending that there is an alternative efficacious remedy available by way of appeal to the Commissioner of Income Tax (Appeals) and thereafter to the Income-Tax Appellate Tribunal as per the provisions of the Act, therefore, present petition is not maintainable. 10.1 It is further contended that submissions made by the assessee on 6.7.2007 does not refer to the depreciation on specific items nor had the Assessing Officer raised an query on depreciation of any specific items in the notice referred to by the petitioner. Moreover, Annexure-3 attached to the reply of the assessee referred to the depreciation chart in Tax Audit Report. However, that itself did not contain details of depreciation. Therefore, it will be wrong to say that the Assessing Officer applied his mind at the stage of assessment proceedings. As also to the reply submitted by the assessee, the Assessing Officer also does not contend any discussion of depreciation on offshore platform. In short, it is contended that when the issue of depreciation on offshore platform was never examined by the Assessing Officer, during the course of assessment proceedings, the Assessing Officer cannot be said to have applied his mind at the stage of assessment proceedings. 10.2 It is further contended that the issue of depreciation on offshore platform was never examined at any stage of assessment. The detailed submission in relation to the depreciation was only the chart as per the Tax Audit Report, listing the items on which different rates were applied. It would not be possible to comment on correct rate of depreciation on an asset as offshore platform was a complex issue, unless fully examined by the Assessing Officer after all the necessary details are furnishe………………

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Sep 302014
 

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New Holland Tractors (India) Private Limited Versus Commissioner of Income Tax, Delhi-V – Income Tax – DELHI HIGH COURT – HC – Taxability of license fee – Whether entire license fee received or paid under the agreement dated 14th July, 1995 is taxable in the year of receipt or it should be spread over three years – Held that:- The students were required to make deposit of the whole fee for the entire course, but it was held that the amount deposited also included “deposit” or “advance” and it cannot be said that the entire fee had become “due” at the time of deposit – The fee was paid in advance presumably as there should not be any default in payment by the students during the term of the course – assessee adopted another line of argument – It was submitted that the appellant-assessee would have been liable for damages in case of defective technology – Therefore the amount received had not accrued or arisen and it would have accrued or arisen only after end of three years – There is no specific stipulation in the agreement relating to damages in case the technology made available between 1991-94 was found to be defective – unknown and off chance claim for damages in the present factual matrix is certainly not equivalent to claim for warranty, which are to be allowed only on the basis of past data, as products sold and consideration are taxable and, therefore, the expenses which have to be incurred to meet the warranty claims computed on scientific and actuarial basis, have a co-relation with the receipt – Contingent liability is not an expenditure and even when an assessee is following mercantile system of accounting, it cannot be allowed as a deduction u/s 37 of the Act – The submission does not have any merit as it relates to unascertained liability, the happening of which was dependent on a doubtful and uncertain contingency in future. The amount received was not an inchoate amount depending upon any contingency before it could be appropriated – The appellant-assessee was not under an obligation to refund the said amount under any of the clauses – Liability to pay damages under the law of contract for breach of a contract does not make the receipt an inchoate receipt – revenue accepts that if ₹ 15,68,50,000 is taxed in the AY 1996-97, then the bifurcated differential amount should not be taxed in the AYs 1997-98 to 1999-2000 – thus, the order of the Tribunal is upheld – Decided against assessee. Levy of penalty for concealment u/s 271(1)(c) – Inaccurate particulars filed or not – Held that:- The assesee had discharged the onus, there is no allegation that full details with regard to the agreement, quantum of receipt, the factum why the payment was made and also the fact that the receipts had been offered for taxation in four separate assessment years, were duly disclosed and stated – assessee had claimed that technical know-how would be used for three years and, therefore, consideration received was relatable to three years – the assessee did not try to draft the agreement in a way, which could have ensured that the amount received was bifurcated/divided as income of four assessment years – in view of the explanation offered by the assessee it is not a fit case, where penalty for concealment of income u/s 271(1)(c) should be imposed – The assessee‘s conduct shows that they had acted in a bona fide manner and also furnished all material facts and particulars – Penalty u/s 271(1)(c) is directed to be set aside – Decided in favour of assessee. – 2014 (9) TMI 891 – DELHI HIGH COURT – TMI – Income Tax Appeal Nos. 182/2002 & 255/2003 – - Dated:- 25-9-2014 – Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. C. S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. versus For the Respondent : Mr. N.P. Sahni, Sr. Standing Counsel. ORDER Sanjiv Khanna, J. These two appeals by the assessee-New Holland Tractors (India) Private Limited relate to Assessment Year 1996-97. In ITA No. 182/2002, the issue raised is whether entire license fee of ₹ 15,68,50,000/- received or paid under the agreement dated 14th July, 1995 is taxable in the year of receipt or it should be spread over three years. In ITA No. 255/2003, the appellant-assessee has challenged order of the Income Tax Appellate Tribunal (Tribunal, for short) upholding levy of penalty for concealment in respect of the aforesaid amount under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short). 2. To have clarity and in order to appreciate the controversy, we will be first taking up ITA No. 182/2002 as it pertains to quantum addition made in the assessment order. ITA No. 182/2002 3. By order dated 24th September, 2002, the following substantial question of law was framed:- Whether, in the circumstances of the case and on the true and correct interpretation of tripartite agreement dated 14.7.1995, the Tribunal was correct in law in concluding that the entire licence fee of ₹ 15,68,50,000/-,received by the appellant company, for granting the right to use technical know how, could be taxed in the assessment year 1996-97? 4. The facts are that (a) in 1969 Escorts Limited (Escorts, for short) and Ford Motor Company entered into a joint venture and established a company, i.e. Escorts Tractors Limited (ETL, for short), in India. (b) In 1990, the entire shareholding of Ford Motor was transferred to New Holland North America, U.K. (NHNA, for short), (c) By virtue of the joint venture relationship, technology for various Ford tractor models, including technology for Ford tractor model 3610 was to be made available to ETL till the termination of the joint venture, (d) Subsequently, NHNA transferred their rights in various engineering component and technical services, including the technology for Ford tractor model 3610 to its subsidiary/appellant-assessee herein, i.e., New Holland Tractors India Private Limited ( NH India or the assessee, for short), (e) In July, 1995, NHNA and Escorts mutually agreed to terminate their joint venture, (f) A tripartite disengagement agreement dated 14th July, 1995 was executed between the NHNA, NH India and Escorts, whereby NHNA agreed to sell 25,50,000 shares in ETL to Escorts for a consideration for Rupees equivalent of US$ 98,00,000. (g) Further, the NH India (the appellant assessee) agreed to licence the right to use technology of the tractor model No. 3610, i.e., design engineering component for a period of three years for consideration of US$ 50,00,000, to be paid in Indian Rupees (Rs 15,68,50,000/- on conversion) on non-repatriable basis. (h) In order to facilitate transactions, the agreement stipulated an arrangement under which an escrow bank account was opened. (i) by specified dates Escorts/ETL had to deposit payments in the escrow for the shares as well as technical fee. (j) Upon successful implementation of the said tripartite agreement, NH India received payment of ₹ 15,68,50,000/- during the previous year relevant to the assessment year in question. (k) ₹ 3,72,44,848/- was offered for taxation in the assessment year in question and ₹ 5,22,83,333, 5,22,83,333 and 1,50,38,486 were offered to be taxed in the subsequent Assessment Years 1997-98, 1998-99 and 1999-2000, respectively. 5. The short question is whether the aforesaid amount of ₹ 15,68,50,000/-, which was received in the previous year relevant to the assessment year in question, had accrued and, therefore, should be taxed in the Assessment Year 1996-97 relevant to receipt year or should be proportionately taxed over the period of three years, which would fall in the Assessment Years 1996-97 to 1999-2000. The Assessing Officer, Commissioner of Income Tax (Appeals) and Tribunal have held that the aforesaid amount of ₹ 15,68,50,000/- was taxable in the year of receipt, i.e., Assessment Year 1996-97 as it had accrued and the accrual was not postponed to the subsequent Assessment years 1997-98 to 1999-2000. 6. We need not refer to the case law on the subject, what is income or accrual of income, except by referring to the authoritative pronouncement of this Court in Commissioner of Income Tax versus Dinesh Kumar Goel, (2011) 331 ITR 10, wherein earlier judgments of the Supreme Court in E.D. Sassoon and Company Limited versus Commissioner of Income Tax, (1954) 26 ITR 27 and Calcutta Company Limited versus Commissioner of Income Tax, West Bengal (1959) 37 ITR 1 were elucidated and explained. In Dinesh Kumar Goel (supra), the respondent-assessee, a coaching institute, following mercantile system of accounting had received the total fee for the entire course on enrolment or at the time of admission, which could be for a two years duration. Question answered was, whether the entire fee on receipt should be treated as income of the current year or could be spread over/divided, depending upon the tenure or period of the course for which payment was made? The question was decided in favour of the assessee but for reasoning and findings, which do not support the appellant-assessee in the present case. In fact the ratio is contrary and against the appellant-assessee. 7. Section 5(i) of the Act on the scope of total income of an resident states that it includes income of any previous year of a person, from all sources derived; (a) received or deemed to be received in India, (b) accrues or arises or is due to accrue or arise to the person in India, and (c) accrues or arises to him outside India during such year. In Dinesh Kumar Goel (supra) it was observed that when an assessee was following mercantile system of accountancy, receipt of a particular amount in the relevant year would be relevant at the time of accrual or arisal for the purpose of taxation. This would make the income chargeable to tax in the particular year, and not mere receipt of the amount. Thus, when income accrues or arises, actual receipt of amount may not be there and it would be chargeable to tax in the said year and equally receipt or right to receive a particular sum under an agreement would not be sufficient, unless the right had accrued by rendering of services and not by promising for services. In the latter cases, the income would accrue on rendering of services. The following quotation from E.D. Sassoon and Company Limited (supra) was highlighted:- Mukerji J. has defined these terms in Rogers Pyatt Shellac and Co. v. Secretary of State for India (1925)1 I.T.C. 363, 371: Now what is income? The term is nowhere defined in the Act……… In the absence of a statutory definition we must take its ordinary dictionary meaning – 'that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation" (Oxford Dictionary). The word clearly implies the ideal of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. 'Accrues,' 'arises' and 'is received' are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word 'receiving' itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these works have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of springing as a nature growth or result. The three expressions 'accrues,' 'arises' and 'is received' having been used in the section, strictly speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L.J. in Colquhoun v. Brooks (1888) 21 Q.B.D. 52 , [this part of the decision not having been affected by the reversal of the decision by the House of Lords (1889) 14 App. Cas. 493 that both the words are used in contradistinction to the word "receive" and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called 'income. The observations of Lord Justice Fry quoted above by Mr. Mukerji J. were made in Colquhoun v. Brooks (1888) 21 Q.B.D. 52while construing the provisions of 16 and 17 Victoria Chapter 34 Section 2 schedule 'D'. The words to be construed there were 'profits or gains, arising or accruing,' and it was observed by Lord Justice Fry at page 59: In the first place, I would observe that the tax is in respect of 'profits or gains arising or accruing.' I cannot read those words as meaning 'received by.' If the enactments were limited to profits and gains 'received by' the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this county. The result would be that no Income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits. To the same effect are the observations of Satyanarayana Rao J. in Commissioner of Income tax Madras v. Anamallais Timber Trust Ltd. [1950] 18 ITR 333 (Mad) and Mukherjea J. in CIT v. Ahmedbhai Umarbhai and Co. [1950]181 ITR 472 (SC) where this passage from the judgment of Mukerji J. in Rogers Pyatt Shellac & Co. v. Secretary of State for India 1 I.T.C. 363 , is approved and adopted. It is clear therefore that income may accrue to an Assessee without the actual receipt of the same. If the Assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive th………………

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Sep 302014
 

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Neeraj Kanta Verma Versus Union of India And Others – Income Tax – ALLAHABAD HIGH COURT – HC – Validity of notice u/s 148 – Reason to believe – Capital gains income had escaped assessment or not – Conversion from lease hold to free hold resulting into short term capital gains or not – Held that:- The AO has wide powers to reopen the assessment if he has reasons to believe that the income chargeable to tax has escaped assessment – this wide power is circumscribed and does not give jurisdiction to the AO to reopen a completed assessment on a mere change of opinion – AO recorded that the assessee has sold her property but no capital gains income had been shown in the return of income and, therefore, there was reasons to believe that capital gains income had escaped assessment for the AY 1997-98 – the notice was issued after four years but before six years – the reasons so recorded by the AO was not sufficient to initiate proceedings u/s 148 of the Act – relying upon Ganga Saran And Sons Private Limited Versus Income-Tax Officer And Others [1981 (4) TMI 5 - SUPREME Court] – no satisfaction has been recorded by the AO in his reasons to believe , that there was omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Assessee had disclosed fully and truly all material facts necessary for his assessment – The fact that short term capital gains tax is to be paid or long term capital gains tax is to be paid is a different issue and for this purpose, reassessment proceedings, if any, ought to have been drawn within four years which, in the present case had not been done – where a notice is issued after four years the jurisdiction of the AO is conferred where he has reasons to believe that income chargeable to tax has escaped assessment and that such under assessment has occurred by reason of omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment in that year – the conversion of the rights of the lessee in the property from lease hold to free hold was only an improvement of the rights over the property, which the assessee enjoyed and this would not have any effect on the taxibility of capital gains from such property. Since the property was held by the petitioner for more than three years, short term capital gains would not be applicable – The conversion from lease hold to a free hold being an improvement of the title, does not have any effect on the taxibility of profits as short term capital gains – the assessee cannot be non-suited on this ground at this stage, especially when the writ petition was entertained in the year 2003, 2007 and 2008 and since affidavits have been exchanged, it would be unfair at this stage to relegate the petitioner to avail an alternative remedy – the notices issued u/s 148 of the Act does not comply with the proviso to Section 147 and 149 of the Act – The reasons recorded does not indicate that the assessee has failed to disclose fully and truly all material facts necessary for his assessment and that the escaped income was likely to be ₹ 1 lac or more – the notices issued u/s 148 of the Act cannot be sustained and are quashed – All proceedings initiated in pursuance of the notices u/s 148 of the Act would be wholly illegal and without jurisdiction and are also quashed – Decided in favour of assessee. – 2014 (9) TMI 890 – ALLAHABAD HIGH COURT – TMI – Civil Misc. Writ Petition (Tax) No.1357 of 2003, Civil Misc. Writ Petition (Tax) No.678 of 2007, Civil Misc. Writ Petition (Tax) No.330 of 2008 – - Dated:- 26-9-2014 – Hon'ble Tarun Agarwala And Hon'ble Dr. Satish Chandra,JJ. ORDER (Per: Tarun Agarwala, J.) In this group of writ petitions, the petitioner has challenged the validity and legality of the notices issued under Section 148 of the Income Tax Act for the assessment years 1997-98, 2000-01 and 2001-02. The facts leading to the filing of the writ petition is, that the father of the petitioner was the original lessee of Nazul land (Site F) Civil Station at Allahabad since 1958 situate at 46, Lal Bahadur Shastri Marg, Allahabad. In the lease deed registered on 29th December, 1972, the lessee was permitted to transfer by succession, sale, assignment, etc. with the previous approval of the State Government. The father of the petitioner, Sri S.K. Verma retired as the Chief Justice of the Allahabad High Court and died on 9th May, 1988. Upon his death, a memorandum of partition was executed between Smt. Nirmala Verma, widow of Sri S.K. Verma and three sons. Based on this family partition, an application was filed before the Collector, Allahabad for the division of the lease deed. This application was forwarded to the State Government. The State Government granted permission for the execution of the lease deed in favour of the heirs of Sri S.K. Verma on the same terms and conditions. As a consequence thereof, fresh and separate lease deeds on the same terms and conditions were executed on 3rd February, 1996 in favour of the heirs of Sri S.K. Verma. The State Government floated a policy for conversion of lease land into free hold. The heirs applied for free hold. After paying conversion charges, the State Government converted the lease land into free hold land and a sale deed dated 20th November, 1996 was executed in favour of the petitioner. Free hold deed in favour of Smt. Nirmala Verma was also executed on 21st November, 1996. Thereafter, some portion of the land was sold by Smt. Nirmala Verma and the petitioner to different parties on different dates. For the assessment year 1997-98, Smt. Nirmala Verma filed her return on 17th May, 1997 disclosing the premium paid for conversion of lease land into free hold and also disclosing the sale of land to a third party. Smt. Nirmala Verma also filed a chart showing the computation of capital gains tax liability upon the transfer of the land which is reflected in the return. The said return was accepted by the issuance of the acknowledgement of the return by the authorities on 19th February, 1997 . Smt. Nirmala Verma died on 17th March, 2001, leaving behind three sons and three daughters including the petitioner. The Assistant Commissioner of Income Tax, Range-I, Allahabad issued a letter dated 3rd June, 2002 to Smt. Nirmala Verma indicating therein that the department has received information that she had deposited a sum of ₹ 12,02,432/- for conversion of land into free hold land and, consequently, requested Smt. Nirmala Verma to furnish information as to when the return was filed. In response, the heirs through their Chartered Accountant submitted a reply informing the respondent about the death of Smt. Nirmala Verma and also furnished the return in which the details of the transaction was disclosed. Inspite of furnishing the desired information, the Assistant Commissioner of Income Tax, Range-I, Allahabad, respondent no.3 issued a notice dated 22th August, 2002 under Section 148 of the Act to Smt. Nirmala Verma care of the petitioner for reopening the assessment for the assessment year 1997-98. In response, the petitioner submitted a reply dated 18th October, 2002. The petitioner thereafter, received a notice dated 2nd November, 2003 wherein the Assessing Officer directed the petitioner to furnish certain information and documents. The petitioner supplied the desired information vide reply dated 22nd September, 2003. The petitioner thereafter, approached the Assessing Officer to supply a copy of the reasons given by the Assessing Officer for reopening the assessment. The Assessing Officer did not supply the reasons and eventually, on the petitioner's insistence, was allowed to inspect the record. The petitioner noted down the reasons, which has been reproduced in paragraph 19 of the writ petition. The reasons recorded was that Smt. Nirmala Verma had deposited ₹ 12.02,432/- as free hold charges and had sold her property but no capital gains income had been shown in the return of income. Therefore, the Assessing Officer had reasons to believe that income chargeable to tax had escaped assessment. It is at this stage, the petitioner filed Writ Petition No.1357 of 2003 praying for the quashing of the notice dated 22nd August, 2002 under Section 148 of the Act and notice dated 2nd September, 2003 under Section 142 of the Act. For the assessment year 2000-01, the petitioner, in his individual capacity, also sold a portion of the land. The petitioner filed his return of income on 18th September, 2000. A computation of the capital gains was also filed along with the return, which was processed under Section 143(1) of the Act. The Assessing Officer recorded his reasons for reopening the assessment on 23rd March, 2007. Approval was granted by the Additional Commissioner of Income Tax on the same date and, thereafter, a notice under Section 148 of the Act was issued on 23rd March, 2007. The reasons were supplied and the petitioner filed response to the notice indicating the Assessing Officer that his return filed on 18th September, 2000 may be treated as his reply in response to the notice under Section 148 of the Act. Subsequently, a notice under Section 143(2) of the Act was issued directing the petitioner to furnish certain information and documents. The petitioner, being aggrieved by the notice issued under Section 148 of the Act dated 23rd March, 200 for the assessment year 2000-01, has filed Writ Petition No.678 of 2007. Similarly, for the assessment year 2001-02, the petitioner filed the return of income along with the computation of the capital gains on 31st July, 2001, which was processed under Section 143(1) of the Act. The Assessing Officer recorded the reasons for reopening of the assessment on 6th December, 2007 and, on the same date approval was granted by the Additional Commissioner of Income Tax. Notice under Section 148 of the Act was also issued on the same date i.e. 6th December, 2007. On demand, the reasons were supplied to the petitioner on 12th February, 2008. The petitioner filed Writ Petition No.330 of 2008 for the quashing of the notice issued under Section 148 of the Act. In this background, the Court has heard Sri V.K. Rastogi and Sri A.D. Saunders, the learned counsel for the petitioner and Sri Shambhu Chopra, Sri R.K. Upadhyaya and Sri Govind Krishna, the learned counsel for the department. The learned counsel for the petitioner contended that the notice issued under 148 of the Act was without jurisdiction. The learned counsel further contended that the reasons to believe recorded by the Assessing Officer that the income of the petitioner had escaped assessment was patently erroneous as it was not based on any fresh material. It was contended that the reasons to believe was nothing else but a change of opinion, which was not permissible, especially when all the relevant material facts were fully and truly disclosed by the petitioner. The learned counsel contended that all the material and primary facts were before the Assessing Officer and, consequently, the action of the Assessing Officer in initiating proceedings for reassessment was wholly illegal. The learned counsel contended that the assessment notice was issued after more than four years and, consequently, it was imperative for the Assessing Officer to disclose in his reasons that the assessee had failed to disclose fully and truly all material facts, which is an essential requirement for initiating proceedings under Section 148 of the Act. The learned counsel submitted that in the reasons so recorded there is no allegation or even a whisper that the assessee had failed to disclose fully and truly all material facts, which is sine qua non for initiating proceedings under Section 148 of the Act. The learned counsel contended that in the absence of any allegation that the assessee had fialed to disclose fully and truly all material facts, no proceedings could be initiated under the proviso to Section 148 of the Act after the expiry of four years from the end of the relevant assessment year. The learned counsel consequently submitted that the proceedings initiated under Section 148 of the Act was barred by limitation. It was further contended that the reasons to believe recorded by the Assessing Officer was nothing else but a change of opinion based on a decision of the Karnataka High Court in Commissioner of Income Tax Vs. Dr. V.V. Mody, 218 ITR 1. On the other hand, the learned counsel for the department contended that the Assessing Officer has wide powers to reopen the assessment, if he has reasons to believe that the income had escaped assessment. The learned counsel submitted that even after the expiry of four years, reassessment proceedings could be opened upon permission being granted by the competent authority, which in the instant case was taken and, therefore, the notice was not barred by limitation. The learned counsel submitted that in the instant case the petitioner disclosed the capital gains tax liability, whereas the petitioner was liable to pay short term capital gains tax. It was urged that the reasons disclosed by the Assessing Officer justified his action in issuing notice under Section 148 of the Act. Before proceeding further, it would be appropriate to peruse Section 147 and 148 of the Act which existed at the relevant moment of time and which is extracted hereunder:- "Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which………………

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