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2008 (3) TMI 691
Issues involved:
The issues involved in this case are related to the treatment of undisclosed income, family arrangement, capital gains tax, and the validity of declarations made under the Kar Vivad Samadhan Scheme (KVSS).
Summary:
1. Appeal No. 68/2002 and Appeal No.41/2001:
The appeals arose from a common judgment of the learned Tribunal dated 7.12.2000. Appeal No.68/2002 was admitted by the Court on 21.3.2007, raising substantial questions of law regarding the family arrangement and treatment of jewellery found during a search.
2. Background and Proceedings:
After various orders and hearings, both appeals were connected and heard together. The appeals involved common substantial questions of law and were decided by a common order.
3. Facts:
A search in December 1987 led to the finding and seizure of valuables in the possession of family members. A family arrangement was subsequently entered into, distributing the valuables among family members. The assessee sold certain articles, declaring long-term capital gains from the sale.
4. Tribunal's Decision:
The Assessing Officer treated the sale proceeds as undisclosed income, a decision upheld by the C.I.T. (Appeals). The Tribunal considered the source of jewellery and its acquisition, noting declarations made by family members under the KVSS. The Tribunal upheld the addition of the entire sale consideration as undisclosed income.
5. Arguments:
The assessees argued that the family arrangement allocated properties to various family members, and other family members had been taxed only for capital gains on jewellery sold. They contended that the impugned order should be set aside.
6. Court's Analysis:
The Court considered the declarations made by family members and the relevance of the family arrangement. It noted discrepancies in the acquisition of jewellery and concluded that the assessees should be taxed only for capital gains, not as undisclosed income.
7. Conclusion:
The Court found that the assessees should be taxed only for capital gains, similar to other family members in similar situations. Both questions of law were answered in favor of the assessees, the appeals were allowed, and the impugned orders were set aside. The matter was to go back to the Assessing Officer for tax assessment on capital gains.
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2008 (3) TMI 690
Issues involved: Whether service charges paid by assessee-company to a partnership firm can be allowed as a deduction u/s 40A(2)(b) of the Income-tax Act for the assessment year 1992-93.
Summary:
The assessee-company engaged in the business of manufacturing and trading returned an income of Rs. 11,25,466 for the assessment year 1992-93. The company paid service charges to a consultant firm M/s. Team Paarel for consultancy in various areas. The Assessing Officer disallowed the service charges deduction based on the involvement of company directors and lack of business increase due to the consultancy services. The Commissioner of Income-tax (Appeals) and the Tribunal allowed the deduction, but the revenue appealed to the High Court.
The revenue contended that the service charges were excessive and unreasonable, considering the commonality of partners between the company and the consulting firm. They argued that the increase in sales was due to higher discounts, not the consultancy services. They relied on the Supreme Court decision in McDowell & Co. Ltd. v. CTO [1985] to support their position.
The assessee argued that the consultancy services led to business improvement and increased turnover. They maintained that the service charges were legitimate and necessary for the company's operations. The High Court analyzed the provisions of section 40A(2)(a) and (b) and the facts of the case. They found that the service charges were not justified as they were essentially payments to company directors for services already rendered.
The High Court concluded that the service charges were a device to avoid tax and not a genuine business expense. They overturned the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal, ruling in favor of the revenue. The High Court set aside the previous orders and restored the Assessing Officer's decision to disallow the service charges deduction.
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2008 (3) TMI 689
Long-term capital gain - sale proceeds of shares - Claim Exemption u/s 54F - Income from undisclosed sources - Genuine transaction or not - HELD THAT:- The evidences submitted by the assessee are not proved to be bogus, false or incorrect. Assessee has no other source of income except rental income and share from partnership firm. The Revenue too has not brought on record any source from which the assessee could have earned this alleged undisclosed income and there is no material on record to establish or even suggest that cash actually flowed from the assessee to purchase the demand drafts as alleged by the Revenue. On the other hand the broker has categorically confirmed that he made the payment of sale proceeds.
After lifting the veil Department's enquiry should have gone to establish logically, from the records, that sale consideration was actually the money of the assessee converted under the guise of share transaction. Similarly, here there was no tax planning for which any colourable device or collusion could have been used. It was a simple transaction of sale of shares at the most opportune time which is perfectly in tune with the human nature. As a matter of fact the entire approach and findings of the lower authorities are based on suspicion, surmises and conjectures and badly affected by various other cases, which have no application to the assessee's case.
In our view, the action of the Revenue authorities in concluding that the sale value of shares is income of the assessee from undisclosed sources cannot be accepted. Thus, the income declared by the assessee under the head long-term capital gain is directed to be assessed as such.
In the result, appeal by the assessee is allowed.
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2008 (3) TMI 688
The Supreme Court dismissed a special leave petition regarding whether share money can be considered undisclosed income under Sec. 68 of the Income Tax Act, 1961. The Court found no merit in the petition as the Department can proceed to re-open individual assessments of alleged bogus shareholders.
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2008 (3) TMI 687
Addition on unexplained cash credits - credits in bank accounts - earned commission income at the rate of 0.15% - reasonable percentage of the commission on the total turnover? - HELD THAT:- Having carefully examined the various Orders in the case of different assessees' it has become amply clear that in these type of activities brokers are only concerned with their commission on the value of the transactions. The assessee has also made out a case that the customers do not come directly to him and they come through a sub-broker who also charge a particular share of commission. In all the judgments what has been stated is that an average percentage of commission is between . 15% to .25%.
In the cases of Palresha & Co. (supra) and Kiran & Co. (supra), the Tribunal has considered reasonableness of percentage of commission to be earned on turnover was at .1%. The assessee himself has offered the percentage of commission at 0.15%, which is more than the percentage of commission considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), in similar type of transactions. The theory of the Assessing Officer to treat the entire deposit as "unexplained cash credits, cannot be accepted in the light of assessment orders in the case of beneficiaries and also in the light of the fact that assessee is only concern with the commission earned on providing accommodation entries.
We, therefore, of the view that since the assessee itself has declared the commission on turnover at 0.15% which is more than the percentage considered to be reasonable by the Tribunal in the cases of Palresha & Co. (supra) and Kiran & Co. (supra), the same should be accepted. We, accordingly, accept the commission declared by the assessee and set aside the Order of the CIT (A) in this regard.
Disallowance on loss - sale of assets - HELD THAT:- The assessee company was asked to submit the details of the same and in response thereto, it was stated that the company was taken over by the assessee with assets and liabilities. At the time of take over, it was decided that fixed assets and debtors were to be realized and out of such realization, the creditors were to be paid. During the course of this process, the company had suffered a loss of which details are given in para 10 of the assessment order. The assessee company was asked to produce the supporting bills for repairs and name and addresses of the parties on behalf of the company made transactions, but, the assessee did not file any details and the Assessing Officer has rejected the claim of the assessee. Similar was the position before the CIT (A) and the CIT (A) confirmed the disallowance. Before the Tribunal, the assessee could not improve his case and we, therefore, find no merit in this ground. Accordingly, we, dismiss the same.
In the result, appeal of the assessee is partly allowed and that of the Revenue is dismissed.
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2008 (3) TMI 686
Payment of commission for export of wheat - Relationship between "Principal and Agent or not" - Liability to deduct tax at source u/s 194J? - default within the meaning of Section 201(1)/(1A) - HELD THAT:- A perusal of clauses clarifies that during the financial year, the relationship between M/s. PEC and assessed was that of Principal and Agent. It is clear from the Clause 6 that M/s. PEC had transferred its wheat export L/Cs in favor of the assessed for execution of the wheat export and M/s. PEC charged commission for the export. Therefore, it can be said that M/s. PEC Ltd. transferred foreign buyers L/Cs in favor of the assessed against commission charges.
As per Clause 4 of agreement, the assessed agreed that the quantity of wheat delivered by FCI for the purpose of export against the export contract shall be exported in full to the foreign buyer and will not be sold in domestic market. All important works is being done by the assessed and M/s. PEC had transferred a simple contract of supplies to the assessed against the payment of commission and M/s. PEC was not rendering any kind of professional/technical services. Thus, the provision of Section 194J of the Act is not applicable.
It is clear that the amount paid by assessed to M/s. PEC was not towards fee for professional or technical service. Therefore, the provisions of Section 194J of the Act are not applicable to the facts of the present case and the assessed is not liable to deduct tax at source on this amount under Section 201/201(A) of the Act.
Therefore, we do not find any infirmity in the impugned order passed by the Tribunal and thus in our opinion no substantial question of law arises for consideration.
The appeal filed by the Revenue is hereby dismissed.
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2008 (3) TMI 685
Unexplained investment - addition made on the basis of statements of third parties - no opportunity given to controvert the evidence utilized in the assessment which was in the shape of statement - Onus to Prove - failed to allow cross examination - HELD THAT:- Even if the explanation of the assessee is not found to be satisfactory, the ITO has discretion to treat or not to treat such investment as assessee’s income. For this proposition reliance can be placed in the case of CIT v. Smt. P.K. Noorjahan [1997 (1) TMI 6 - SUPREME COURT] and CIT v. Moghul Durbar [1995 (2) TMI 34 - ANDHRA PRADESH HIGH COURT]. It is clear from the reading to section 69 that before the amount of unexplained investment, is included in the total income of the assessee, he is entitled to an-opportunity to explain T.C.N. Menon v. ITO [1973 (7) TMI 17 - KERALA HIGH COURT].
The assessee’s income is to be assessed by the Assessing Officer on the basis of material which is required to be considered for the purposes of assessment and ordinarily not on the basis of statement of a third party, unless there is a material to corroborate that statement is available on record. The mere fact that somebody made a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had disclosed income is on the revenue and that burden cannot be said to be the charged by merely referring to the statement of a third party in connection with the transaction, therefore, such statement cannot be made the sole foundation that the assessee deliberately suppressed his income.
Even otherwise, if the explanation of the assessee is not acceptable, the onus shifts to the revenue to prove the same with corroborating material. Identical ratio was laid down by the Hon’ble Madras High Court in the case of CIT v. N. Swamy [1998 (9) TMI 27 - MADRAS HIGH COURT]. No specific infirmity has been pinpointed by the revenue in the impugned order, nor any adverse material has been brought on record by the Assessing Officer to substantiate its contention that the assessee paid any underhand money except the money which has been shown in the sale deed, therefore, in the light of the facts and the cases relied upon, we have no option but to uphold the impugned order.
In the result both these appeals of the revenue are dismissed.
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2008 (3) TMI 684
Whether the appellant ought to have reinstated the respondent at the same place where he was earlier working and from where his services were terminated and holding that the respondent has been asked to work at Pauri to nullify the award passed by the Labour Court?
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2008 (3) TMI 683
Issues Involved:
1. Whether the Income-tax Appellate Tribunal erred in confirming the charge of interest u/s 217 by invoking sub-clause (6) of section 215 despite the original return being filed on 31-10-1988 and the reassessment not being the "first assessment".
Summary:
Issue 1: Confirmation of Interest Charge u/s 217
- The assessee filed the return of income for the assessment year 1988-89 on 31-8-1988. A search and seizure operation was conducted on 13-5-1989, leading to a notice u/s 148 to initiate reassessment proceedings u/s 147. The reassessment was completed on 6-3-1995, and interest was charged u/s 139(8) and 217.
- The CIT(A) initially allowed the appeal, holding that interest was not chargeable either u/s 139(8) or 217. However, the Tribunal modified this, charging interest u/s 139(8) for one month and remanding the issue of interest u/s 217 back to CIT(A), who upheld the interest charge.
- The Tribunal, in its order dated 31-10-2006, held that the assessee failed to show that the assessment was framed on the return filed on 31-8-1988, justifying the interest charge u/s 217 as a regular assessment within the meaning of sub-section (6) of section 215.
Arguments by Assessee's Counsel:
- The assessee's counsel argued that a valid return was filed on 31-8-1988, acknowledged by the Tribunal. If an assessment was made on this return, the reassessment u/s 147 was not the "first assessment," and no interest u/s 217 could be levied. If no assessment was completed, the reassessment notice itself was invalid, and no interest could be levied.
Arguments by Revenue's Counsel:
- The revenue's counsel supported the orders and argued that the appeal involved no substantial question of law, citing K. Govindan & Sons v. CIT, which held that an assessment made for the first time u/s 147 is a regular assessment.
Court's Analysis:
- The court analyzed sections 215 and 217, noting that sub-section (6) of section 215, effective from 1-4-1985, treats an assessment made for the first time u/s 147 as a regular assessment.
- If an assessment was framed on the return filed on 31-8-1988, the reassessment cannot be termed as "first assessment," and interest u/s 217 could not be charged.
- If no assessment was framed, the reassessment notice was invalid, and no interest u/s 217 could be levied, supported by precedents like M.K.K.R. Muthukaruppan Chettiar and CESC Ltd.
Conclusion:
- The court concluded that the levy of interest u/s 217 was unsustainable, and the Tribunal erred in deciding against the assessee. The substantial question of law was decided in favor of the assessee, and the appeal was allowed, holding that no interest u/s 217 could be validly levied.
In favour of assessee
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2008 (3) TMI 682
Issues: Challenge to High Court judgment in Writ Petition, Disposal of application for mining lease, Similarity to previous case judgment, Pursuing remedies despite stay order
In this case, the appeal challenged the judgment of the Bombay High Court in a Writ Petition filed by the respondents seeking to quash orders related to a mining lease application. The High Court directed the authorities to dispose of the application within six weeks, imposing exemplary costs on the respondents for the delay. The appeal raised various points, including similarities to a previous case involving the same parties. The counsel argued that the High Court should not have given the directions after the matter had been finalized between the parties. On the other hand, it was highlighted that the respondents had already moved the Revisional Tribunal of the Central Government, which had decided in their favor. Despite a stay order by the Supreme Court, the respondents pursued their remedies before the Revisional Tribunal, which was deemed improper. The Supreme Court set aside the High Court's order and directed that the earlier decision between the parties would stand, rendering any decision by the State or Central Government inconsequential due to the Supreme Court's stay order. The appeal was allowed with no order as to costs.
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2008 (3) TMI 681
Issues Involved:
1. Validity and execution of the Will by Shanti Sarup.
2. Admission and subsequent withdrawal of statements by Respondent No.6.
3. Application for amendment of the written statement by Respondent No.6.
4. Legal principles governing the amendment of pleadings and admissions in legal proceedings.
Detailed Analysis:
1. Validity and Execution of the Will by Shanti Sarup:
The Will executed by Shanti Sarup on 23.9.1999 bequeathed his properties in equal shares to the appellant and Respondent No.7, Ritu Sarup. The appellant filed a suit for declaration of title and a decree of permanent injunction. Respondents 1 to 5 did not deny the execution of the Will but filed a counterclaim. Respondent No.6 initially admitted the averments in the plaint but later disputed the claim.
2. Admission and Subsequent Withdrawal of Statements by Respondent No.6:
Respondent No.6 initially filed a written statement through Advocate M.P. Vasudeva, admitting the appellant's claims. She later filed another written statement denying the claims, alleging she had not engaged Vasudeva and her signatures on the first statement were forged. The Trial Judge allowed her application to withdraw the first statement. The High Court directed an enquiry, which concluded that Respondent No.6 had indeed engaged Vasudeva and filed the written statement. Her revision application against this finding was dismissed by the High Court.
3. Application for Amendment of the Written Statement by Respondent No.6:
Respondent No.6 filed an application for amendment of her written statement, which was allowed by the Trial Court. The appellant's revision application to the High Court was dismissed. The High Court opined that the plaintiff (appellant) would not be prejudiced by allowing the amendment, as the burden of proving the Will still lay with the plaintiff. The High Court also stated that the questions regarding the admissions in the original written statement could only be decided after allowing the amendment.
4. Legal Principles Governing the Amendment of Pleadings and Admissions in Legal Proceedings:
The Supreme Court analyzed the legal principles under Order VI Rule 17 of the Code of Civil Procedure, which allows amendments to pleadings to determine the real questions in controversy. The Court noted that an admission in a pleading is not treated the same as an admission in a document and can be explained or clarified but not completely resiled from. The Court referenced several precedents, including Modi Spinning & Weaving Mills Co. Ltd. v. Ladha Ram & Co., which held that amendments displacing the plaintiff's case based on admissions should not be allowed.
The Court concluded that Respondent No.6, having accepted the appellant's claims in her initial written statement, could not entirely resile from those admissions. The Court emphasized that while procedural amendments should be granted liberally, they must be done judiciously. The Court found that Respondent No.6's attempt to amend her written statement was not justified, as her initial admissions were clear and unequivocal.
Conclusion:
The Supreme Court set aside the High Court's judgment allowing the amendment of the written statement by Respondent No.6. The appeal was allowed, with no order as to costs. The Court held that Respondent No.6 could not resile from her clear admissions in the initial written statement and that the procedural amendments should not be used to unjustly prejudice the appellant's case.
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2008 (3) TMI 680
Validity of assessment order - Sec.46 of the Delhi Sales Tax Act - Held that: - the Commissioner ought not to have interfered with the Assessment Order under Sec.46 of the Delhi Sales Tax Act particularly when the requirements of that Section do not stand complied with - SLP dismissed.
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2008 (3) TMI 679
Long-term advantage of an enduring advantage - Payment towards licence fee for acquisition of technical knowledge - revenue or capital expenditure - AO unable to explain why after a gap of almost 10 years decide to treat the expenditure incurred by the assessee as a capital expenditure - HELD THAT:- We do not find any reason to differ with the opinion on the facts of this case and it is quite clear that the ratio of the decisions of the Supreme Court in Jonas Woodhead & Sons (India) Ltd.’s case [1997 (2) TMI 4 - SUPREME COURT] and Empire Jute Co. Ltd.’s case [1980 (5) TMI 1 - SUPREME COURT] were fully applicable to the facts of this case and both the authorities were right in concluding that the payments made by the assessee towards licence fee to SECL was a revenue expenditure.
We may note that the Assessing Officer had allowed 75 per cent of the expenditure but had disallowed only 25 per cent of the licence fee. Therefore, the dispute is limited only to the 25 per cent amount.
No substantial question of law arises - Appeal is dismissed.
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2008 (3) TMI 678
The appellant cleared wires and cables for windmills, claiming exemption under Notification No. 205/88. The Supreme Court dismissed the appeal, citing a previous judgment against the appellant. (2008 (3) TMI 678 - SC)
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2008 (3) TMI 677
CENVAT/MODVAT credit - Whether the Modvat credit is admissible on components of Diesel Generating Power Plant (DGPP) installed in the factory when the Diesel Generating Power Plants are exempted from payment of duty? - Held that: - It is not in dispute that the Diesel Generating Power Plants on which Modvat credit is availed, have been used in the manufacture of final product and on which excise duty has been paid - reliance placed in the case of ESCORTS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DELHI [2004 (8) TMI 106 - SUPREME COURT OF INDIA], where it was held that the Appellants will be entitled to Modvat credit on duties paid for the inputs used for manufacture of parts, so long as the parts are used in the manufacture of tractors on which duty is paid - credit allowed - appeal dismissed - decided against Revenue.
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2008 (3) TMI 676
Issues Involved:
1. Whether "finance charges" collected under hire-purchase agreements attract tax u/s 2(7) of the Interest-tax Act, 1974.
2. The nature of hire-purchase transactions and their classification as loans or advances.
Summary:
Issue 1: Taxability of "Finance Charges"
The primary question in the appeals is whether "finance charges" collected by respondent-companies under hire-purchase agreements are taxable u/s 2(7) of the Interest-tax Act, 1974. The revenue contends that these charges are essentially "interest" collected at a flat rate along with the loan amount in installments, making them assessable under the Act. The respondents argue that hire-purchase transactions fall outside the scope of the Interest-tax Act, and thus, finance charges should not be assessed as interest.
Issue 2: Nature of Hire-Purchase Transactions
The court examined whether the transactions in question are genuine hire-purchase agreements or merely loans disguised as such. The respondents, being hire-purchase finance companies, are covered by the definition of "credit institution" liable to pay interest tax on interest u/s 2(7) of the Act. The Assessing Officer found that the "finance charges" are essentially interest collected at a flat rate, making the transactions financial in nature rather than genuine hire-purchase agreements. The court noted that the vehicles are registered in the name of the borrower, and the respondents have only a license to repossess the vehicle on default, indicating a loan transaction rather than a hire-purchase agreement.
The court referred to the Supreme Court's decision in Sundaram Finance Ltd. v. State of Kerala, which distinguishes between genuine hire-purchase agreements and loan transactions secured by a right of seizure of goods. The court concluded that the transactions in question are loans, as the respondents have only a license to repossess the vehicle and the interest is loaded to the loan amount.
The Tribunal's reliance on the Hire Purchase Act, 1972, was found to be misplaced, as the option to purchase the vehicle for a nominal amount is an empty formality. The court also noted that the Circular No. 760 issued by CBDT does not exclude interest recovered under hire-purchase agreements from the Interest-tax Act.
Conclusion:
The court allowed the appeals, reversing the Tribunal's order and restoring the assessments confirmed in the first appeals. The transactions were found to be loans, and the finance charges were deemed taxable u/s 2(7) of the Interest-tax Act. The O.P. No. 10041/1996 was dismissed.
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2008 (3) TMI 675
Issues involved: Challenge to re-assessment order u/s 12-A of Karnataka Sales Tax Act, 1957 and consequential demand notice for assessment year 2004-05 due to incorrect notice issued to non-existent entity.
Summary:
Issue 1: Incorrect Notice Issued to Non-Existent Entity
The petitioner, a private limited company, challenged the re-assessment order u/s 12-A of the Karnataka Sales Tax Act, 1957 and the consequential demand notice for the assessment year 2004-05. The petitioner contended that the assessing authority wrongly issued notice to M/s IBM India Limited, a non-existent entity, instead of the actual dealer, despite being informed of the name change through necessary applications and objections. The petitioner requested a personal hearing through counsel, which was not considered, leading to the unilateral order and demand notice. The High Court observed that the assessing authority did not conduct a proper inquiry or afford a reasonable opportunity of hearing to the petitioner, rendering the impugned order unsustainable. Consequently, the court set aside the order and remitted the matter back to the competent authority for reconsideration and appropriate decision within three months, directing the issuance of a fresh notice and submission of objections by the petitioner within specified timelines.
Conclusion:
The High Court allowed the writ petition in part, setting aside the impugned order and demand notice, and directed the competent authority to re-examine the matter after affording the petitioner a proper opportunity of hearing.
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2008 (3) TMI 674
Whether the conviction and sentence of the accused-appellant under Section 21(c) of the Narcotic Drugs and Psychotropic Substances Act, 1985 (hereinafter referred to as the NDPS Act ) was correct?
Whether the contravention involved in this case is small, intermediate or commercial quantity under Section 21 of the NDPS Act?
Whether the total weight of the substance is relevant or percentage of heroin content translated into weight is relevant for ascertaining the quantity recovered from the accused?
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2008 (3) TMI 673
The Supreme Court granted leave for the appeal and expedited the hearing, but refused to grant a stay. (Citation: 2008 (3) TMI 673 - SC)
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2008 (3) TMI 672
The Supreme Court dismissed the case due to delay, but kept the question of law open. (2008 (3) TMI 672 - SC Order)
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