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2005 (4) TMI 530
Deduction of tax at source u/s 195 - Payments for import of software - Assessee in default - non-resident - Payment of royalty chargeable u/s 9(1)(vi) - HELD THAT:- This Tribunal in the case of Samsung Electronics Co. Ltd. v. ITO [2005 (2) TMI 438 - ITAT BANGALORE-A] has recently held that where the software imported which is a shrink wrapped software or off the shelf software, same amounts to purchase of goods and not payment of royalties. The payment is for use of copy rights article and not for acquiring any copy right. This view has been arrived at after considering various decisions on the subject as well as the decision of Hon’ble Supreme Court in Tata Consultancy Services’ case [2004 (11) TMI 11 - SUPREME COURT].
We accordingly hold that the payments for import of software do not amount to payment of royalty chargeable u/s 9(1)(vi) of the Act. The payments partakes the character of purchase and sale of goods. Actually, the payee has no permanent establishment in India. Hence, it can be concluded that no income is deemed to accrue or arise in India. Accordingly, the provision of section 195 is not applicable to such payment. The assessee therefore cannot be fastened with liability by treating it as in default u/s 201 of the Act. We accordingly set aside the order u/s 201(1) as well as charging of interest u/s 201(1A) of the Act.
In the result all the appeals are allowed.
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2005 (4) TMI 529
Issues Involved:
1. Treatment of payments made by the tenant on behalf of the appellant as income of the appellant.
2. Interpretation of Section 23(1)(b) of the Income-tax Act, 1961.
3. Alternative claim to treat the reimbursed amount as "Income from other sources" under Section 56 of the Income-tax Act.
4. Deduction under Section 57 of the Income-tax Act.
Issue-wise Detailed Analysis:
1. Treatment of Payments Made by the Tenant as Income:
The primary issue was whether the payments made by the tenant to the co-operative housing society on behalf of the appellant should be treated as the appellant's income. The Assessing Officer considered these payments as part of the rent receivable by the appellant under Section 23(1)(b) of the Income-tax Act, 1961. The CIT(A) upheld this view, stating that the reimbursements were indirect rent paid by the tenant to the licensor and should be included in the income from property.
2. Interpretation of Section 23(1)(b) of the Income-tax Act:
Section 23(1)(b) defines the annual value of the property as the actual rent received or receivable by the owner if it exceeds the reasonable expected rent. The Assessing Officer included the payments made by the tenant for maintenance and other charges as part of the actual rent receivable. The Tribunal examined the clauses of the agreement, which specified that the tenant was responsible for maintenance and other charges, and concluded that these payments should not be treated as rent received by the owner. The Tribunal found no evidence that the rent received was lower than the prevailing rent in the locality, and thus, the annual value was wrongly determined by the Assessing Officer.
3. Alternative Claim Under Section 56 of the Income-tax Act:
The appellant alternatively claimed that the reimbursed amount should be treated as "Income from other sources" under Section 56 of the Income-tax Act and sought a deduction under Section 57. The CIT(A) rejected this claim, stating that the rental income was earned by virtue of being the owner of the property and should be taxed under the head "Income from house property." The Tribunal did not find it necessary to adjudicate this alternative claim as it had already determined that the annual value was incorrectly assessed.
4. Deduction Under Section 57 of the Income-tax Act:
The appellant sought a deduction for the payments made to the society under Section 57 of the Income-tax Act. The Assessing Officer had rejected this claim, stating that the expenditures were capital expenditures for long-term benefits and not deductible under Sections 37 or 57. Given the Tribunal's finding that the annual value was wrongly determined, it did not need to address the deduction under Section 57.
Conclusion:
The Tribunal allowed the appeals, concluding that the payments made by the tenant for maintenance and other charges should not be treated as rent received by the appellant. The annual value of the property was wrongly determined by the Assessing Officer, and there was no need to adjudicate the alternative grounds regarding deductions under Section 57. The main grounds raised in both appeals were allowed, resulting in the appellant's favor.
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2005 (4) TMI 528
Issues:
Denial of Modvat credit based on invoice discrepancy.
Analysis:
The appeal concerns the denial of Modvat credit to the respondents amounting to Rs. 3,840 due to an issue with the invoice where the name of the respondents was not shown as the consignee but as the buyer. The appellant argued that this was a procedural error, citing relevant circulars and judgments to support their case.
Upon review of the records and hearing arguments from both sides, it was found that the invoice in question was issued by a specific company, indicating clearance for home consumption without specifying delivery to the respondents. Although the respondents' address was mentioned as the buyer, there was no clarity on who placed the order and received the goods. The appellant's claim of direct receipt from the manufacturing company and payment to them lacked substantial evidence.
The appellant presented a post-order affidavit from the company's General Manager claiming direct delivery to the respondents, but this was deemed insufficient as it lacked supporting documentation or official correspondence. Additionally, a certificate from a logistics company was also dismissed as it was created after the order without proper details or reference to the invoice number.
The Board's circular and legal precedents cited by the appellant were deemed inapplicable to the current case, as the omission of the respondents' name in the invoice was not considered a technical error. The judgment referenced cases where specific circumstances justified deviations from standard procedures, which did not align with the present situation.
Consequently, the impugned order was set aside, and the appeal of the revenue was allowed, granting consequential relief in accordance with the law.
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2005 (4) TMI 527
Issues: Delay in filing appeal, Grounds for condonation, Communication of order, Change in factory status, Address communication
In this case, the main issue revolves around the delay of 73 days in filing the appeal by the appellants. The impugned Order-in-Appeal was passed on a specific date, and the appellants claimed that the order was communicated to them at a later date. The appellants provided grounds for condonation of the delay, stating that the copy of the order was received by their security guard at the factory premises, who later informed the Director about it. However, the Tribunal found discrepancies in the affidavits submitted by the security guard and the Director. The Tribunal noted that the security guard's affidavit seemed to be prepared to justify the delay, as the stamp paper used for the affidavit was purchased by the Director before the security guard's return from his village, raising questions about the authenticity of the statements made.
Another issue raised by the appellants was the status of their factory, which they claimed was closed four years prior. However, there was no evidence to suggest that any change in address was communicated to the Department for official communication purposes. Despite the appellants' assertion that the factory was closed, it was established that the copy of the Order-in-Original was indeed received by the Director at the factory premises, indicating that the Department sent correspondence to the known address.
After considering the arguments and evidence presented, the Tribunal concluded that there were insufficient grounds to condone the delay in filing the appeal. Therefore, the Tribunal dismissed the condonation application and subsequently dismissed the appeal as time-barred. The decision was made based on the lack of valid justifications for the delay provided by the appellants and the discrepancies found in the affidavits submitted. The judgment highlights the importance of timely filing appeals and the need for accurate and reliable communication of orders and address changes to avoid procedural complications in legal matters.
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2005 (4) TMI 526
Issues involved:
1. Assessment of duty on the quantity of tin plates used in manufacturing tin containers.
2. Dispute regarding the calculation of assessable value based on the quantity of tin plates consumed.
3. Imposition of penalty due to duty calculation mistake.
Analysis:
1. The appellant filed an appeal against the Order-in-Appeal passed by the Commissioner (Appeals) concerning the duty assessment on the quantity of tin plates used in manufacturing tin containers on a job work basis. The Revenue contended that a higher quantity of tin plates was received by the appellant during the specified period, leading to a differential duty demand. However, the appellant maintained records showing the actual consumption of tin plates as 302.536 MT, disputing the Revenue's calculation based on average weight. The Tribunal noted that the appellant's records were consistent with the actual consumption, and since the actual receipt and balance of tin plates were not disputed, the demand based on average weight was deemed unsustainable and set aside.
2. The dispute further revolved around the calculation of the assessable value of the goods manufactured based on the quantity of tin plates consumed. The Revenue argued for considering an average weight of tin plates consumed, while the appellant contended that their internal records accurately reflected the consumption of 302.536 MT during the disputed period. The Tribunal acknowledged the appellant's diligent record-keeping practices, which included details of tin sheet receipts and usage in manufacturing tin containers. As the appellant promptly rectified any duty calculation mistake upon notification by the Revenue, the penalty imposed was also set aside, and the appeal was allowed.
3. The Tribunal's decision highlighted the importance of maintaining accurate records in demonstrating the actual consumption of raw materials in manufacturing processes. By upholding the appellant's records and rejecting the Revenue's reliance on average weight calculations, the Tribunal emphasized the significance of documentary evidence in resolving disputes related to duty assessment and penalty imposition. The judgment underscored the need for transparency and precision in maintaining records to support claims and defenses in customs and excise matters, ultimately leading to a favorable outcome for the appellant in this case.
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2005 (4) TMI 525
Issues Involved:
1. Demand of Custom Duty due to mis-declaration of values and country of origin.
2. Confiscation of seized goods.
3. Imposition of penalties under Section 114A and other provisions of the Customs Act, 1962.
4. Denial of natural justice due to refusal of cross-examination of a key witness.
5. Reliability and authenticity of evidence, including witness statements and documents.
Issue-wise Detailed Analysis:
1. Demand of Custom Duty due to mis-declaration of values and country of origin:
The adjudicator confirmed the demands of duty based on alleged mis-declaration of values and country of origin. However, the tribunal found that the case built on the basis of photocopies of alleged export declarations filed by suppliers could not be sustained. The corroboration brought in by the witness, Puri, and his statements were found unreliable as he was not cross-examined. The tribunal also noted the lack of authenticated or certified copies of the declarations from Hong Kong Customs. The law, as laid down by the Apex Court in the case of Collector of Customs v. East Punjab Traders, mandates that the authenticity of such photocopies must be established, which was not done in this case. Consequently, the tribunal rejected the demand of Custom Duty.
2. Confiscation of seized goods:
The adjudicator ordered the confiscation of AT&T Cable rolls. However, the tribunal found that since the valuation/imports from Pearl could not be impeached, there was no reason to not uphold the transaction value. The tribunal also noted that the declaration of the country of origin on the Bills of Entry should have been objected to by the dock staff and appraising officers if there was any discrepancy, which was not done. Therefore, the tribunal set aside the proceedings of confiscation.
3. Imposition of penalties under Section 114A and other provisions of the Customs Act, 1962:
The tribunal found that the imposition of penalty on both the proprietary firm and its proprietor showed a lack of application of mind as a proprietary firm is not a separate legal entity from its proprietor. Additionally, since the duty and confiscation were not upheld, the penalties imposed were also set aside.
4. Denial of natural justice due to refusal of cross-examination of a key witness:
The tribunal upheld the plea of denial of natural justice due to the refusal of cross-examination of Shri K.M. Puri. It was noted that the credibility of Puri's statements and his role were questionable. The tribunal highlighted inconsistencies in Puri's status and function as mentioned in the show cause notice and found that without cross-examination, his deposition could not help the department's case.
5. Reliability and authenticity of evidence, including witness statements and documents:
The tribunal found that the photocopies of export declarations relied upon by the department were not authenticated or certified by Hong Kong Customs. The tribunal referred to previous judgments, including Taito Watch Manufacturing Inds. and V.K. Impex v. Commissioner, which held that such photocopies could not be relied upon to enhance values. The tribunal also noted the failure of investigators to bring on record the alleged other invoices with different higher values, despite Puri being a willing collaborator. Consequently, the tribunal concluded that there was no material evidence to prove the alleged mis-declaration and under-valuation.
Conclusion:
The tribunal allowed the appeals, setting aside the orders of the adjudicator. The demands of duty, confiscation of goods, and imposition of penalties were all set aside due to lack of reliable evidence and denial of natural justice.
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2005 (4) TMI 524
Issues:
Dispute over excisability of waste of glass wool.
Analysis:
The appeal involved a dispute regarding the excisability of the waste of glass wool. The appellants contested the duty imposed on them for the waste of glass wool, arguing that it was not excisable as it was not listed in any tariff heading. The counsel referred to previous remand orders directing examination of excisability in light of specific court decisions. The Tribunal had previously ruled against the appellants in a similar case, holding the waste to be excisable based on employee testimony. However, the appellants claimed that this ruling was not binding as it was based on employee evidence and not challenged in a higher forum. The Tribunal, in this appeal, emphasized that the previous judgment had finality as it was unchallenged, preventing the appellants from reasserting the non-excisability of the waste. The Tribunal upheld the impugned order, dismissing the appeal of the appellants.
The key argument presented by the appellants was the non-excisability of the waste of glass wool, which they claimed was not specified in any tariff heading. The counsel also challenged the binding nature of a previous Tribunal judgment against the appellants, arguing that it was based on employee testimony and had not been challenged in a higher forum. However, the Tribunal reiterated that the previous judgment had finality as it remained unchallenged, preventing the appellants from contesting the excisability of the waste in the current proceedings. The Tribunal found no illegality in the impugned order and upheld it, ultimately dismissing the appeal of the appellants.
The crux of the issue revolved around the excisability of the waste of glass wool. The appellants disputed the duty imposed on them for this waste, contending that it was not excisable as it was not explicitly mentioned in any tariff heading. Despite the appellants' arguments, the Tribunal emphasized the finality of a previous judgment against them, which had ruled the waste to be excisable based on employee testimony. This previous ruling prevented the appellants from challenging the excisability of the waste in the current appeal. Consequently, the Tribunal upheld the impugned order and dismissed the appeal of the appellants, concluding that the waste of glass wool was indeed excisable based on the previous judgment's findings.
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2005 (4) TMI 523
Demand of duty - Clandestine removal of the goods - manufacture of fireworks - Penalty on partners - HELD THAT:- We find that the conduct of the appellants has been fraudulent in as much as in respect of shortages in the finished stock and the duty paid godown the matter has not been contested. There is a clear cut case of removal without payment of duty detected by the officers when a full truck load of fireworks were intercepted without any duty paying documents and the appellants have failed to produce any duty paying documents relating to them till today.
We, therefore, hold that the findings given by the Commissioner are fully supported by the statement of the partner and their fraudulent conduct. The packing slips were duly signed by the partner and contain all details including vehicle number and therefore they were more in the nature of delivery slip rather than the packing slips. Similarly lorry receipt bear signature in most cases of the consignee in token of having receive the goods and also admitted by the partner in his statement. The demand of duty and confiscation of goods is therefore upheld and so is the redemption fine imposed.
As regards the mandatory penalty u/s 11AC, we hold that the penalty is the maximum penalty provided and not equivalent penalty and we are inclined to reduce this penalty to Rs. 5 Lakhs only.
As regards the second appeal regarding penalty on the partner since the partner was actively involved in the removal of the goods, we find no justification to interfere with the penalty imposed on him which in our view is reasonable.
Both the appeals are disposed of in above terms.
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2005 (4) TMI 522
Issues:
- Interpretation of Notification No. 56/2002-Cus.(N.T.) retrospectively exempting waste paper imports.
- Application of surcharge on basic Customs duty and special additional duty of Customs.
- Exemption from payment of surcharge under Notification No. 26/2001-Cus.
- Time-barred demand and the knowledge of exemption by Customs House Agent.
- Mis-statement or suppression of facts by the respondents.
Interpretation of Notification No. 56/2002-Cus.(N.T.):
The appeal was filed by the Revenue against the Order-in-Original passed by the Commissioner of Customs, Amritsar regarding the importation of waste paper. The Revenue contended that the waste paper imported by the respondents was not used for the intended purpose of manufacturing paper, leading to a demand for differential duty. The Commissioner had dropped the show cause notice based on Notification No. 56/2002-Cus.(N.T.), dated 26-8-2002, which was issued retrospectively amending earlier notifications. The Revenue argued that this notification did not waive surcharge on basic Customs duty and special additional duty of Customs, thus challenging the Commissioner's decision.
Application of Surcharge on Basic Customs Duty and Special Additional Duty of Customs:
The Revenue claimed that the Commissioner erred in dropping the demand for surcharge on basic Customs duty and additional duty of Customs, as Notification No. 56/2002-Cus.(N.T.) did not cover these duties. They argued that the surcharge and special additional duty should be levied correctly, irrespective of any waiver on basic Customs duty. The order of the Commissioner regarding the dropping of the demand for surcharge and additional duty was challenged by the Revenue.
Exemption from Payment of Surcharge under Notification No. 26/2001-Cus.:
The respondents, in their Cross-Objections, highlighted that during the relevant period, all imported goods were exempt from the surcharge under Notification No. 26/2001-Cus. They provided details of the bills of entry filed against DEPB licenses, which were exempt from special additional duty of Customs. The respondents argued that the demand was time-barred and that there was no misstatement or suppression of facts on their part.
Time-Barred Demand and Knowledge of Exemption:
The respondents contended that the demand was time-barred as the show cause notice was issued after the expiry of six months. They emphasized that the Customs House Agent had filed bills of entry under the guidance of Customs, mentioning the exemption from special additional duty of Customs. The respondents claimed that the waste paper importation was allowed at a concessional rate of duty based on prevalent trade practices.
Mis-Statement or Suppression of Facts:
The Tribunal considered the submissions from both sides and found that the departmental appeal focused on the levy of surcharge on basic Customs duty and special additional duty of Customs. The Tribunal concluded that the exemption under Notification No. 26/2001-Cus. exempted the surcharge on basic Customs duty for the relevant imports. The Tribunal also noted that the respondents had paid the special additional duty of Customs as required, and the exemption under relevant notifications applied to the imports. Therefore, the Tribunal rejected the appeal of the Revenue and disposed of the Cross-Objections filed by the respondents accordingly.
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2005 (4) TMI 521
Issues Involved:
1. Levy of penalty under section 272A(2)(c) for failure to submit Form No. 52A.
2. Whether the failure to submit Form No. 52A constitutes a technical or venial breach.
3. Validity of penalty proceedings initiated separately from the assessment proceedings.
4. Consideration of "reasonable cause" under section 273B for non-compliance.
Issue-wise Detailed Analysis:
1. Levy of penalty under section 272A(2)(c) for failure to submit Form No. 52A:
The assessee, engaged in the production of cinematograph films, failed to submit Form No. 52A as mandated by section 285B of the Income-tax Act, 1961. The form was required to be submitted within thirty days from the end of the financial year or the completion of the film, whichever was earlier. Despite filing the details during the assessment proceedings in September 1996, the penalty of Rs. 1,97,900 was levied for a delay of 1979 days. The CIT(A) confirmed the penalty, stating that the submission of details during assessment did not fulfill the statutory requirement of filing Form No. 52A.
2. Whether the failure to submit Form No. 52A constitutes a technical or venial breach:
The assessee argued that the default was technical and venial, citing the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, which states that penalties should not be levied for technical or venial breaches. However, the tribunal held that the failure to submit Form No. 52A was not a mere technical or venial breach, as the form contained crucial information for the department to act upon. The tribunal emphasized that timely information was essential, and belated submission could not substitute the statutory requirement.
3. Validity of penalty proceedings initiated separately from the assessment proceedings:
The assessee contended that since penalty proceedings were not initiated during the assessment, subsequent initiation was contrary to law. The CIT(A) rejected this argument, clarifying that penalty proceedings under section 272A could be initiated at any time, unlike section 271, which requires initiation during the course of any proceedings under the Act. The tribunal concurred with this view, affirming the validity of the separately initiated penalty proceedings.
4. Consideration of "reasonable cause" under section 273B for non-compliance:
The tribunal examined whether there was a "reasonable cause" for the failure to submit Form No. 52A as required by section 273B. The assessee argued that the lack of pre-decided contract values and the submission of detailed information during assessment constituted reasonable cause. The tribunal found these arguments unconvincing, noting that the details required in Form No. 52A pertained to payments, not contract values, and that the assessee failed to provide a plausible reason for the entire period of delay. Consequently, the tribunal held that the assessee did not demonstrate a reasonable cause for non-compliance.
Judgment:
The tribunal upheld the levy of penalty but modified the period for which the penalty was calculated. It directed the Assessing Officer to compute the delay only up to 12-3-1999, the date on which the required information was submitted during the assessment proceedings. The appeal was partly allowed, reducing the penalty to reflect the revised period of default.
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2005 (4) TMI 520
Issues Involved:
1. Whether the assessee employed ten or more workers as required under section 80-IA(2)(v) of the Income Tax Act.
2. Whether casual workers should be considered as employed within the meaning of section 80-IA(2)(v).
3. Whether substantial compliance with the requirement of employing ten or more workers is sufficient for claiming deduction under section 80-IA.
Issue-wise Detailed Analysis:
1. Employment of Ten or More Workers:
The primary issue was whether the assessee's concern, M/s Goodwill Industries, employed the requisite number of workers during the relevant financial year to qualify for deduction under section 80-IA. The Assessing Officer (AO) disallowed the deduction on the grounds that the assessee did not employ ten or more workers regularly. The AO's spot enquiry and analysis of the salary register revealed discrepancies and indicated that many workers were hired on a daily wage basis with varying attendance, suggesting that the number of workers fell below ten in several months.
The assessee contended that the provision requires substantial compliance and relied on decisions from the Hon'ble Bombay High Court which supported the view that substantial employment of ten or more workers suffices for the deduction. The CIT(A) accepted this argument, noting that the number of workers employed was more than ten on a substantial basis throughout the year, as evidenced by the excise register (RG-I).
2. Consideration of Casual Workers:
The AO argued that only permanently employed workers should be counted, dismissing casual workers as not meeting the criteria of section 80-IA(2)(v). The CIT(A) disagreed, stating that the section does not differentiate between permanent and casual workers. The CIT(A) relied on the Karnataka High Court's decision in CIT v. K.G. Yediyurappa & Co., which held that in the absence of a specific definition, the term 'worker' includes casual workers.
The assessee further argued that the definition of 'worker' under the Factories Act includes those employed directly or through any agency, whether for remuneration or not, in any manufacturing process. This broad definition supports the inclusion of casual workers in the count for section 80-IA(2)(v).
3. Substantial Compliance:
The Tribunal examined whether substantial compliance with the requirement of employing ten or more workers is sufficient. The Tribunal noted that the total number of workers, as per the RG-I register, consistently exceeded ten throughout the year. Even considering the presence of workers, the number was ten or more for more than half of the days in most months.
The Tribunal relied on precedents, including the Bombay High Court's decision in CIT v. Ormerods Industries (P.) Ltd., which held that substantial compliance with the requirement of employing ten or more workers is adequate for claiming deductions. The Tribunal also referenced decisions from the Delhi High Court and Andhra Pradesh High Court, which supported the view that substantial compliance is sufficient and that temporary reductions in worker numbers do not negate compliance.
Conclusion:
The Tribunal concluded that the assessee had substantially complied with the requirement of employing ten or more workers as stipulated in section 80-IA(2)(v). The inclusion of casual workers in the count was justified, and the substantial compliance with the worker requirement was sufficient for the deduction. The appeal of the revenue was dismissed, and the order of the CIT(A) allowing the deduction was upheld.
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2005 (4) TMI 519
Issues:
- Whether the exemption under section 47(v) of the Income-tax Act requires the entire share capital of a subsidiary company to be held only in the name of the holding company or whether beneficial ownership suffices.
Analysis:
1. The main issue in this case was whether the exemption under section 47(v) of the Income-tax Act necessitated the entire share capital of a subsidiary company to be held exclusively in the name of the holding company or if beneficial ownership was sufficient. The dispute arose when the assessee transferred shares to a subsidiary, and the Assessing Officer contested the claim due to two shares being jointly held with a director. The CIT(A) reversed the decision, emphasizing compliance with the Companies Act and the nominee's lack of individual rights over the shares.
2. The interpretation of statutes was crucial in this case, as highlighted by the Hon'ble Supreme Court's emphasis on understanding legislative intent beyond literal meanings. The Court stressed the need to avoid interpretations rendering statutory provisions redundant and to ensure statutes' workability. In this context, the Court analyzed the provisions of section 47(v) in light of the Companies Act's requirements, concluding that the holding company's beneficial ownership of the entire share capital sufficed for the exemption.
3. The Tribunal rejected the revenue's argument that the shares held jointly with the director invalidated the claim under section 47(v). It emphasized that the director acted in a fiduciary capacity for the company, following its instructions, and that the beneficial ownership was never in doubt. The Tribunal criticized the strict literal interpretation proposed by the revenue, stating that such an approach would render the provision unworkable and defeat its purpose, contrary to established principles of statutory interpretation.
4. Ultimately, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. It affirmed that the holding company's ownership of the entire share capital, even if held jointly with a director, met the requirements of section 47(v) and aligned with the legislative intent. The Tribunal's ruling underscored the importance of interpreting statutes in a manner that ensures their effectiveness and purpose, rather than rigidly adhering to literal interpretations that may undermine the law's objectives.
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2005 (4) TMI 518
Deduction u/s 54 - Capital gains - Profit on sale of property used for residential house - HELD THAT:- The condition laid down in the case of purchase of the residential house is that the house must have been purchased one year prior to the sale of the capital asset or two years subsequent thereto. In the case of a residential house the condition laid down is that the residential house must have been constructed within three years after the sale of the capital asset. Therefore, for proper application of this section it has to be seen whether it is a purchase or a construction in the above case. Vide Board’s Circular No. 471, dated 15-10-1986 it has been explained that to qualify investment for construction u/s 54F the crucial date is the date of allotment of flat by DDA and payment of instalment was only a follow-up action and taking possession of the flat is only a formality, of course, instalments have to be paid by the allottee as per the schedule fixed by the DDA.
Since the flat has been allotted to the assessee by the builder who would fall in the category of other institutions mentioned in the circulars, it has to be taken as a case of construction of the residential flat and not as a purchase of a residential flat. Having come to this conclusion that it is case of construction it is now to be seen if the assessee fulfils the conditions laid down u/s 54(1) of the Act. The assessee was allotted flat No. B-62 and it was changed to C-32 vide letter dated 19-11-1999 and by letter dated 4-1-2000 the possession of the flat was already given to the assessee. Therefore, the assessee is in total enjoyment of the property by 4-1-2000, i.e., within 3 years of the sale of her flat in Mumbai on 13-1-1997. Therefore, the assessee has fulfilled the conditions prescribed in the section for claiming exemption.
We, therefore, find sufficient strength in the arguments advanced by the ld. counsel for the assessee and we are of the opinion that the order of the CIT(A) is in consonance with the provisions of the Act and it deserves to be upheld.
In the result, appeal of the revenue stands dismissed.
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2005 (4) TMI 517
Depreciation - Appellate Tribunal - Whether or not the assessee has an option to claim depreciation allowance while computing deduction u/s 80-IA - Effect of Binding Precedents - Rule of per incuriam - HELD THAT:- The effect of binding precedents in India is that the decisions of the Supreme Court are binding on all the courts. Indeed, article 141 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by the judgments of the High Court. A single Judge of a High Court is bound by the judgment of another single Judge and a fortiori judgments of Benches consisting of more judges than one. So also, a Division Bench of a High Court is bound by judgments of another Division Bench and Full. A single judge or Benches of High Courts cannot differ from the earlier judgments of co-ordinate jurisdiction merely because they hold a different view on the question of law for the reason that certainty and uniformity in the administration of justice are of paramount importance. But, if the earlier judgment is erroneous or adherence to the rule of precedents results in manifest injustice, differing from the earlier judgment will be permissible.
It is thus beyond dispute that a decision which is per incuriam is not a binding judicial precedent. It is also well-settled that when it is not open to a High Court Bench to differ from the decision of a Bench of equal strength, it cannot also be open to a Bench of this Tribunal to differ from the view taken by a co-ordinate Bench of equal strength. The only option in case one doubts the correctness of such a decision is to refer the matter for constitution of a larger Bench. A decision ignoring this rule of precedent, which is duly approved by the Hon’ble Courts from time to time, cannot but be viewed as per incuriam. Therefore, following the Hon’ble AP Court Full Bench decision in the case of B.R. Constructions [1992 (6) TMI 13 - ANDHRA PRADESH HIGH COURT], such a decision of the co-ordinate Bench was no precedence value.
Accordingly, following Hon’ble AP Full Bench judgment in the case of B.R. Constructions (supra), we decline to be guided by the same. In any case, larger Bench request has already been turned down, and, accordingly, the only option open to us is to follow the co-ordinate Bench decision in the case of Plastiblends India Ltd. [2004 (2) TMI 691 - ITAT MUMBAI]. We do so. Accordingly, we hold that it is not open to the Assessing Officer to thrust depreciation allowance while computing deduction u/s 80-IA of the Income-tax Act, 1961, in a case where the assessee has not claimed the depreciation in the books of account. The assessee gets relief accordingly.
In the result, the appeal is allowed.
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2005 (4) TMI 516
Issues Involved:
1. Addition of Rs. 8,10,000 on account of unexplained investment in excess stock.
2. Legality of the statement recorded during the survey.
3. Merits of the valuation of stock items.
4. Alleged duplication of stock items in the inventory.
Issue-wise Detailed Analysis:
1. Addition of Rs. 8,10,000 on account of unexplained investment in excess stock:
The core issue in this appeal is the addition of Rs. 8,10,000 made by the Assessing Officer (AO) due to unexplained investment in excess stock found during a survey at the assessee's business premises. The discrepancy arose between the closing stock as per the Trading Account (Rs. 14,42,082) and the inventory prepared during the survey (Rs. 22,45,941), indicating an excess stock of Rs. 8,03,859. The assessee initially offered this amount for taxation but later retracted, citing mental exhaustion and lack of accounting knowledge.
2. Legality of the statement recorded during the survey:
The assessee's counsel argued that the statement recorded during the survey was illegal and non est, as it was not recorded by an authorized officer under Section 133A of the Income Tax Act. The Tribunal found merit in this contention, noting that the statement did not indicate who recorded it and that it was likely recorded by an Income-tax Inspector, who is not authorized under Section 133A to record statements. Consequently, the Tribunal held that the statement was non est in law and could not be used to justify the addition.
3. Merits of the valuation of stock items:
The assessee contended that certain stock items were overvalued by the survey team. Specifically, the "Safex System PVC Pipes with Nipple and other accessories" were valued at Rs. 10,52,000 instead of the actual cost of Rs. 7,46,481. The Tribunal found the assessee's explanation plausible, noting that the valuation should be based on the cost price. The Tribunal directed the AO to substitute the survey valuation with the value shown in the assessee's books of account and delete the difference.
4. Alleged duplication of stock items in the inventory:
The assessee claimed that the stock of "Geared Motor with chain feeding system" was included twice in the inventory, arguing that such a system could not be stored in the small premises and was only assembled at the customer's site. The Tribunal found this explanation reasonable but required verification. The Tribunal set aside the order of the CIT (Appeals) on this matter and remitted it to the AO for fresh adjudication, directing the AO to verify if the components of the system were already included in the stock inventory.
Conclusion:
The Tribunal allowed the appeal pro-tanto, addressing the issues of legality and valuation comprehensively. It emphasized the need for proper authorization in recording statements during surveys and highlighted the importance of accurate stock valuation based on actual costs. The case was remitted to the AO for fresh adjudication on specific aspects, ensuring a fair and thorough examination of the facts.
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2005 (4) TMI 515
Issues Involved:
1. Whether the assessee has the option to claim depreciation allowance while computing deduction under section 80-IA of the Income-tax Act, 1961, when the depreciation is not claimed in the books of account.
Issue-wise Detailed Analysis:
1. Option to Claim Depreciation Allowance:
The core issue in this appeal is whether the assessee can opt not to claim depreciation allowance while computing deduction under section 80-IA of the Income-tax Act, 1961, if the depreciation is not claimed in the books of account.
Tribunal's Decision in Plastiblends India Ltd. Case:
The Tribunal's decision in the case of Plastiblends India Ltd. v. ITO [ITA No. 4542 (Mum.) of 1999, dated 10-2-2004] supports the assessee's stance. The Tribunal had concluded that depreciation not claimed in the books of account should not be thrust upon the assessee for computing the deduction under section 80-IA.
Departmental Representative's Contention:
The Departmental Representative argued for the revenue, citing subsequent Tribunal decisions in Prince SWR Systems (P.) Ltd. v. Dy. CIT [IT Appeal No. 2811 (Mum.) of 2004, dated 10-9-2004] and ITO v. Venus Jewels [IT Appeal No. 3842 (Mum.) of 2001, dated 25-10-2004], which favored the revenue.
Analysis of Prince SWR Systems (P.) Ltd. Case:
The Tribunal in Prince SWR Systems (P.) Ltd. did not follow the co-ordinate bench decision in Plastiblends India Ltd. and decided against the assessee, relying on the Bombay High Court judgment in Indian Rayon Corpn. Ltd. v. CIT [2003] 261 ITR 98. However, the Plastiblends India Ltd. case had already considered the Indian Rayon Corpn. Ltd. decision and concluded it was not relevant to the issue. According to the Supreme Court's ruling in Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722, a co-ordinate bench cannot disregard another co-ordinate bench's decision on an identical issue. Thus, the decision in Prince SWR Systems (P.) Ltd. is deemed per incuriam.
Analysis of Venus Jewels Case:
Similarly, the Tribunal in Venus Jewels favored the revenue based on the Indian Rayon Corpn. Ltd. judgment and the Rajasthan High Court's decision in Vijay Industries v. CIT [2004] 139 Taxman 353. However, Plastiblends India Ltd. had already considered these judgments and concluded that depreciation not claimed in the books should not be imposed for section 80-IA computation. Following the Supreme Court's judgment in Paras Laminates (P.) Ltd., the decision in Venus Jewels is also per incuriam.
Binding Effect of Per Incuriam Decisions:
The Andhra Pradesh High Court in CIT v. B.R. Constructions [2003] 202 ITR 2221 (FB) emphasized that a per incuriam decision is not a binding precedent. The principle of stare decisis mandates that a court follows the decisions of higher or co-ordinate benches to ensure consistency and predictability in the law.
Conclusion:
Given that the decisions in Prince SWR Systems (P.) Ltd. and Venus Jewels are per incuriam, they do not hold binding precedent value. The Tribunal is bound to follow the decision in Plastiblends India Ltd., which supports the assessee's position. Therefore, it is not permissible for the Assessing Officer to impose depreciation allowance when computing deduction under section 80-IA if the depreciation is not claimed in the books of account.
Judgment:
The appeal is allowed, and the assessee is granted relief accordingly.
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2005 (4) TMI 514
Issues Involved:
1. Applicability of section 38(2) for proportionate disallowance of depreciation.
2. Restriction of depreciation to 50% under section 32(1) due to less than 180 days of use.
3. Application of section 14A regarding expenditure related to income.
4. Application of section 50 concerning deemed sale of assets.
5. Retrospective application of Explanation 11 to section 43(1).
Issue-wise Detailed Analysis:
1. Applicability of Section 38(2) for Proportionate Disallowance of Depreciation:
The Tribunal examined whether section 38(2) of the Income-tax Act, 1961, could be invoked to disallow a proportionate amount of depreciation based on the period of use. The assessee argued that section 38(2) applies only when an asset is used partly for business and partly for non-business purposes. The Tribunal agreed, stating, "No disallowance can be made where the asset is exclusively used for the purpose of business though such assets might have been used for a lesser period in the accounting year." The Tribunal found that the equipment was used exclusively for business purposes, thus section 38(2) could not be invoked for proportionate disallowance.
2. Restriction of Depreciation to 50% Under Section 32(1) Due to Less Than 180 Days of Use:
The Tribunal analyzed the second proviso to section 32(1) which restricts depreciation to 50% if the asset is used for less than 180 days. It was noted that two cumulative conditions must be satisfied: the asset must be acquired during the previous year and used for less than 180 days. The Tribunal concluded that the asset was acquired in the preceding year, thus the first condition was not met. Consequently, the second proviso could not be applied, and the depreciation could not be restricted to 50%.
3. Application of Section 14A Regarding Expenditure Related to Income:
The Tribunal rejected the Department's contention regarding the application of section 14A, which disallows expenditure related to income not included in the total income. The Tribunal stated, "Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee." Since the entire income of the assessee was taxable, section 14A did not apply.
4. Application of Section 50 Concerning Deemed Sale of Assets:
The Department argued that the equipment should be deemed sold when sent back from India, invoking section 50 for capital gains. The Tribunal dismissed this argument, stating, "In the absence of any deeming provisions regarding the sale of the asset, the contention of the revenue cannot be accepted."
5. Retrospective Application of Explanation 11 to Section 43(1):
The Tribunal addressed whether Explanation 11 to section 43(1), introduced by the Finance Act, 1999, could be applied retrospectively. The Tribunal concluded that the Explanation was substantive and not procedural or clarificatory, thus it could not be applied retrospectively. The Tribunal emphasized, "A provision can be construed as retrospective only when such provisions are either procedural or declaratory or clarificatory or to remove the hardship caused by the main provisions."
Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the assessee's claim for full depreciation and rejecting the applicability of sections 38(2), 14A, and 50, as well as the retrospective application of Explanation 11 to section 43(1).
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2005 (4) TMI 513
Terminal benefits paid to the employees - set off of brought forward loss - expenses debited to the profit and loss account - Whether or not it was a case of cessation of business - HELD THAT:- In our considered view, there is no material to suggest that the cement manufacturing operations of the assessee company were in a stage more than that of suspension. Applying the test laid down by Hon’ble Madras High Court in L. Ve Vairavan Chettiar’s case [1965 (4) TMI 6 - MADRAS HIGH COURT], and in the light of the above factual position, the claim for deduction of expenses could not have been declined on the ground that the business of the assessee was not continuing in the relevant previous year. As evident from the nature of expenses debited in the profit and loss account, a copy of which was placed before us at the compilation of papers, unambiguously shows that even the business activities were carried out in the relevant previous year. Keeping all these factors in mind, as also entirety of the case, we are of the considered opinion that the CIT(A) was indeed not justified in holding that there was a cessation of business.
The assessee’s above grievance is, therefore, quite justified, and we uphold the same.
Claim for admissibility of certain deductions and the set off - There is no discussion about deduction in respect of expenses debited to the profit and loss account, the terminal benefits paid to the employees and the amount paid to the workers under settlement.
The Assessing Officer shall adjudicate upon the question of deductibility of these deductions and admissibility of set off of brought forward loss from the assessment year 2000-01, in accordance with the law, by way of a speaking order, and after giving due and fair opportunity of hearing to the assessee. While doing so, the Assessing Officer shall also bear in mind our observations regarding the lack of material to come to the conclusion that there was a cessation of business.
The matter thus stands restored to the file of the Assessing Officer, with our directions as above. The appeal is allowed for statistical purposes.
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2005 (4) TMI 512
Issues:
- Determination of Annual Letting Value (ALV) of the property under section 23 of the Income-tax Act, 1961.
Analysis:
The first issue in this appeal pertains to the determination of the Annual Letting Value (ALV) of a property let out by the assessee, involving the consideration of rent received and interest-free deposits. The Assessing Officer calculated the ALV by adding notional interest on the interest-free deposit to the actual rent received, citing the absence of specific guidelines under section 23(1)(a) of the Act. The Assessing Officer argued that the market value in the area exceeded the rent received, emphasizing the significance of the interest-free deposit as a relevant aspect affecting the rent amount.
The assessee challenged this determination before the Learned CIT (Appeals), contending that there was no evidence proving the rent charged was below market rates and that the security deposit should not be included in the ALV calculation. The Learned CIT (Appeals) referred to a judgment of the Hon'ble Calcutta High Court, which emphasized that notional interest on interest-free deposits should not be considered as rent unless it was proven to be a colorable device. The Learned CIT (Appeals) found no such evidence in the present case and deleted the addition made by the Assessing Officer.
The revenue appealed this decision before the Tribunal, with the Departmental Representative supporting the Assessing Officer's reasoning. The assessee's Counsel relied on various judicial precedents, including judgments from the Hon'ble Bombay High Court and the Supreme Court, to argue against the inclusion of notional interest on security deposits in the ALV calculation.
After considering the arguments and legal principles, the Tribunal emphasized that the ALV must be determined objectively under section 23 of the Act. Referring to previous court decisions, the Tribunal clarified that the standard rent or actual rent received should guide the ALV determination, with the standard rent acting as an upper limit. Notional interest on security deposits was deemed irrelevant for ALV calculation unless proven to be a colorable device. As neither authority had determined the standard rent in the present case, the matter was remanded to the Assessing Officer for fresh assessment in line with the legal principles discussed.
In conclusion, the Tribunal partly allowed the revenue's appeal for statistical purposes, setting the stage for a fresh determination of the ALV based on the guidelines provided in the judgment.
This detailed analysis highlights the legal intricacies surrounding the determination of ALV under the Income-tax Act, 1961, and the significance of judicial precedents in guiding such assessments.
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2005 (4) TMI 511
Issues: Disallowance of credit on capital goods, imposition of penalties, waiver of pre-deposit of duty.
The judgment by the Appellate Tribunal CESTAT, Mumbai, involved a case where the Commissioner of Central Excise & Customs disallowed credit on capital goods and imposed penalties on the company and its Dy. Manager. The disallowed credit amounted to Rs. 60,85,274. The Cenvat Credit Rules, 2001, allow an assessee to take 50% of the duty paid on capital goods as credit upon receipt of goods, with the balance credit in subsequent financial years when the goods are in possession and use for manufacturing final products. The applicants claimed that part of the machinery worth Rs. 20 lakhs was installed in 2001-2002, justifying the credit taken. The Tribunal noted that when the balance credit was taken, the machine was not fully installed, and the issue of partial installation would be examined during the appeal. The Tribunal directed the company to pre-deposit Rs. 5 lakhs towards the disallowed credit within 8 weeks, failing which the appeal would be dismissed. Compliance was ordered by a specific date.
The Tribunal found that the applicants did not establish a strong prima facie case for a full waiver of pre-deposit of duty. Therefore, they were directed to pre-deposit Rs. 5 lakhs towards the disallowed credit within 8 weeks. Upon this deposit, further duty and penalty were waived, and recovery was stayed pending the outcome. Failure to comply with the pre-deposit directive would lead to the dismissal of the appellant-company's appeal. The compliance deadline was set for 1-7-2005. The judgment was delivered by Moheb Ali M., Member (T), and the compliance deadline was specifically dictated in the court.
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