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Showing 341 to 360 of 703 Records
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2009 (10) TMI 664
Issues:
1. Whether the applicants are liable to pay Service Tax for the services provided.
2. Whether the demand of Service Tax and penalty amount should be waived.
Analysis:
1. The applicants filed for waiver of pre-deposit of Service Tax and penalty amount totaling Rs. 1,84,91,931. The demand was based on the services provided by the applicants, including Business Auxiliary Services, Cargo Handling Services, and Site Formation Services. The contention was that the mining service, which came under the scope of Service Tax from 1-6-2007, was composite with ancillary services and not separately chargeable. The Tribunal's decisions in similar cases were cited to support this argument.
2. The Revenue argued that the transportation and other charges were separately shown in the contracts, indicating separate chargeable services. Specifically, a contract dated 24-2-05 for hiring heavy machinery was highlighted, stating that the services provided were for site formation, not mining. The Tribunal found that two contracts were for mining, while the contract dated 24-2-05 was for site formation activities like drilling, blasting, loading, stacking, and dumping. The Tribunal agreed with the Revenue's contention regarding this contract and directed the applicants to deposit Rs. 17.00 Lakhs within six weeks. The remaining amount of Service Tax, interest, and penalties were waived, with recovery stayed during the appeal's pendency. Compliance was to be reported by December 7, 2009.
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2009 (10) TMI 663
Issues:
Waiver of pre-deposit of service tax, penalty, and interest amounts.
Analysis:
The case involved a stay petition seeking waiver of pre-deposit of service tax, penalty under Section 76 of the Finance Act, 1994, penalty under Section 78, and interest under Section 75. The appellants had already deposited the entire amount of service tax during the proceedings but were directed by the learned Commissioner (Appeals) to deposit an additional amount towards penalty and interest. The appellants requested reconsideration of the pre-deposit order, which was dismissed, leading to the dismissal of the appeal for non-compliance with the order. The Tribunal noted that the issue was narrow and decided to waive the condition of pre-deposit to proceed with the appeal.
Upon reviewing the records, the Tribunal found that the appeal was dismissed by the learned Commissioner (Appeals) solely due to non-compliance with the pre-deposit order, despite the appellants having already deposited the entire service tax amount before the show cause notice was issued. The Tribunal considered the service tax deposit sufficient for hearing and disposing of the appeal. However, it was noted that the Commissioner (Appeals) had not considered the case on merits, leading to the inability to address the merits at that stage.
Consequently, the Tribunal set aside the impugned order and remanded the matter back to the learned Commissioner (Appeals) to reconsider the issue afresh and dispose of the appeal on merits without requiring any further pre-deposit. The Tribunal emphasized that the Commissioner (Appeals) must adhere to the principles of natural justice before reaching a conclusion. The stay application and appeals were disposed of accordingly.
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2009 (10) TMI 662
Issues:
1. Service Tax demand on "Construction of Complex service" for a specific period.
2. Validity of invoking a longer period in the proceedings.
3. Waiver of penalty under Section 76 of the Finance Act, 1994.
4. Extension of relief under Section 80 of the Act to other penalties.
Service Tax Demand on "Construction of Complex service" for a specific period:
The judgment affirmed the demand of Service Tax and Education Cess found due from the appellants for services under the category of "Construction of Complex service" rendered during a specific period. The tax, interest, and penalties imposed under relevant sections of the Finance Act, 1994, and Service Tax Rules, 1994 were also upheld. The appellants had paid the tax with interest before adjudication.
Validity of invoking a longer period in the proceedings:
The appellants argued that the show cause notice invoked a longer period, which they claimed was not valid as a similar dispute had already been decided against them for an earlier period. The appellants contended that the longer period could not have been properly invoked in the present proceedings. However, the tribunal did not find merit in this argument and proceeded with the decision based on the impugned order.
Waiver of penalty under Section 76 of the Finance Act, 1994:
The impugned order vacated the penalty imposed on the appellants under Section 76 of the Act, invoking Section 80 of the Act. It was accepted that there was a reasonable cause that prevented the assessee from timely payment of service tax. The Commissioner (Appeals) waived the penalty under Section 76 after being satisfied with the reasonable cause for the delayed payment. Consequently, the tribunal held that the appellants had not followed statutory formalities, leading to other penalties being imposed. Therefore, the tribunal ordered the waiver of the penalties sustained in the impugned order and stayed the recovery pending the decision in the appeal.
Extension of relief under Section 80 of the Act to other penalties:
The appellants argued that the relief under Section 80 should be extended to other penalties as well, besides the penalty under Section 76. The tribunal, after considering the circumstances and the waiver of one penalty, ordered the waiver of other penalties sustained in the impugned order and stayed the recovery pending the final decision in the appeal.
This detailed analysis of the judgment covers the issues related to Service Tax demand, validity of invoking a longer period, waiver of penalties under Section 76, and extension of relief under Section 80 to other penalties, providing a comprehensive understanding of the tribunal's decision in the case.
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2009 (10) TMI 661
The Appellate Tribunal CESTAT KOLKATA granted a complete waiver of pre-deposit for service tax, interest, and penalties amounting to Rs. 2,31,916.00 in a case involving provision of 'pandal and shamiana' services to District Election Officers. The Stay Petition was allowed, and recovery of the amounts was stayed during the appeal's pendency.
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2009 (10) TMI 660
Issues:
1. Liability of service tax on commission received by the appellant.
2. Request for stay against the recovery of penalty imposed under Sections 75A, 76, 77, and 78 of Finance Act, 1994.
Analysis:
1. The appellant, registered for paying service tax on Business Auxiliary Services, did not pay service tax on commission earned from selling offset printing machines. A service tax liability of Rs. 3,48,387/- for July 2004 to March 2006 was identified. The appellant, after being informed of the liability, paid the full amount of service tax with interest for six months in 2006. The dispute was regarding the penalty amounting to approximately Rs. Seven Lakhs imposed under various sections of the Finance Act, 1994. The appellant sought a stay against the penalty recovery, acknowledging the undisputed service tax liability and interest already paid.
2. The appellant's Chartered Accountant contended that the appellant was unaware of the service tax liability on received commissions and believed in good faith that no tax was due. The appellant accepted the liability and paid for the subsequent six months after being informed by the partner and due to financial constraints. The appellant requested leniency under Section 80 of the Finance Act, 1994, for waiving the penalties. The SDR argued that the appellant, being registered, had no justification for ignorance of the law, and penalties were discussed in detail by the Commissioner (Appeals).
3. The Tribunal considered both submissions and noted that the appellant had a significant commission income exceeding Rs. 42 Lakhs over about 2.5 years, indicating a substantial organization. This raised doubts about the appellant's claim of ignorance of the law and non-payment of service tax. Consequently, the appellant failed to establish a strong case for a complete waiver of the pre-deposit requirement. The Tribunal directed the appellant to deposit Rs. two lakhs within eight weeks and report compliance by a specified date. Subject to this pre-deposit, the Tribunal granted a waiver for the balance penalty amount and allowed a stay during the appeal process.
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2009 (10) TMI 659
Addition u/s 40A(2)(a) - Trade discount allowed to a sister concern - assessee has allowed discount on sales to a related concern covered by s. 40A(2)(b) - as per AO only 5 per cent of the discount would be justified - HELD THAT:- As Sec. 40A(2)(a) pertains to disallowance to an expenditure which is made by the assessee i.e., an amount actually spent by the assessee as an expenditure. The expression used in this provision is 'incurs any expenditure in respect of which payment has been or is to be made to any person'. This clearly shows that actual payment must be made and there has to be an expenditure incurred before the provision can be said to be applicable. A trade discount, and admittedly it is not in dispute that the subject-matter of the claim is a trade discount and not an expenditure, clearly therefore there does not arise the question of applicability of s. 40A(2)(a).
Moreover, this is a case of trade discount allowed to a sister concern on sale made to it, and not a case of any business expenditure paid to sister concern, and as such, otherwise provisions of s. 40A(2)(a) are not applicable. The AO has also not been able to prove that the discount allowed by the assessee to a sister concern was excessive or unreasonable having regard to the commercial practice prevailing in the market.
Addition u/s 40(a)( ia) - non deduction of TDS on account of freight and cartage and contractual civil job carried out - Payment towards agency charges - HELD THAT:- As the assessee has deducted tax at source, and the said payment has not been disallowed by the AO.
Two payments are towards payment of customs duty, and other expenses paid by the agent for/on behalf of the assessee - These reimbursement expenses were not made towards any services rendered by the agent, but have been made to set off of the expenses incurred by the agent while clearing the imported goods from the customs for/on behalf of the assessee. Since no element of income is embedded in reimbursement of expenses incurred by agency for/on behalf of the assessee, the assessee was not obliged to deduct tax at source, and, therefore, the CIT(A) has rightly deleted the addition.
Contractual civil job carried out - It seems that the payments were made towards repairing and maintenance of the building. The nature of the work undertaken was painting, polishing, POP, punning of walls, fixing of mirrors, optic light fixing complete with tubelights, P&F, and floor tiles etc. The whole work is composite, and the supply of the goods were not made independently to that of the labour works. Merely because the assessee has bifurcated the payment into two groups that by itself is not sufficient to say that there were two independent and distinct contracts entered into by the assessee with the contractor.
The assessee's contention is, thus, found to be without merit, and since the assessee has not deducted the tax with regard to the payment paid to M/s Unicorn Constructions, the AO was very much justified in disallowing the deduction by invoking the provision of s. 40(a). Therefore, the order of the CIT(A) on this issue is set aside, and that of the AO is restored, meaning thereby that the disallowance made by the AO is justified, and is to be added back to the total income of the assessee.
Addition on late deposit of employees contribution to PF account - payment made before the due date of filing of the return of income - HELD THAT:- In the light of the decision referred by the CIT(A), and in the light of the decision in the case of CIT v. Dharmendra Sharma [2007 (11) TMI 39 - DELHI HIGH COURT] and the decision in the case of CIT v. Vinay Cement Ltd. [2007 (3) TMI 346 - SC ORDER], we do not find any infirmity in the order of the CIT(A) in deleting the addition in as much as the contribution to the PF account and ESI account has been made by the assessee before the due date of filing of the return of income and hence, it is not disallowable u/s. 43B r/w s. 36(1)(va). Thus, ground raised by the Revenue is rejected.
In the result, the appeal filed by the Revenue is partly allowed.
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2009 (10) TMI 658
Issues involved: Rejection of refund claims u/s 27 of the Customs Act, classification of imported components, unjust enrichment, admissibility of evidence, challenge to assessment orders.
Summary:
The appeal was filed against the rejection of refund claims by the assessee under Section 27 of the Customs Act, concerning the classification of imported components for the manufacture of flowmeters. The dispute arose as the assessee claimed the goods should be classified under Heading 90.26 instead of Heading 90.28, resulting in excess duty payments. The Commissioner (Appeals) ruled in favor of the assessee for one bill of entry, but the refund claims were rejected on grounds of unjust enrichment, leading to the present appeal.
Upon examination, it was argued that the excess duty burden was not passed on to customers, supported by a Chartered Accountant's certificate and relevant documents. However, the authorities found insufficient evidence to support this claim, leading to the dismissal of the appeal. The contention was raised that the constancy of price of goods did not necessarily prove that the duty burden was not passed on to customers, citing relevant case law.
The Tribunal overruled the objection that the assessments were not challenged, emphasizing that each refund claim should be examined on its own merits. The question of unjust enrichment was central to the case, with the burden on the assessee to prove that the duty burden was not passed on to buyers. The Chartered Accountant's certificates provided were deemed insufficient as they lacked necessary details and supporting documents. As a result, the case was remanded to the lower appellate authority for further consideration in accordance with the law.
Both sides requested consideration of relevant case law, highlighting the importance of addressing the issue of unjust enrichment in the reassessment of the refund claims. The Tribunal directed the lower appellate authority to review the case with the opportunity for additional evidence and further hearings.
In conclusion, the Tribunal set aside the previous order and allowed the appeal by way of remand, emphasizing the need for a thorough examination of the refund claims in light of the unjust enrichment principle and admissible evidence.
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2009 (10) TMI 657
Whether the appellant could be said to have committed the offence of forgery, cheating, etc., which are being alleged against her on the basis of which she is facing the prosecution?
Held that:- Allow the appeal. We expected some explanation and some justification for the arrest as well as for the subsequent investigation of the non-existing crimes. Obviously the whole affidavit, which we have seen very closely, is silent. Again reliance has been made on the earlier Transfer Petitions by this Police Officer also which is totally irrelevant for the present controversy. He has not explained as to how he viewed the same as an offence of forgery, cheating, etc., and for that matter how dishonest intention was deduced by him.
Thus this prosecution is nothing but an abuse of the process of law and therefore set aside the impugned judgment and quash the Prosecution Case No.3045 of 2004 pending in the court of Chief Judicial Magistrate, Rampur.
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2009 (10) TMI 656
The High Court of Bombay dismissed the appeal as no substantial question of law arose, citing previous judgments in similar cases. The appeal was dismissed with no order as to costs.
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2009 (10) TMI 655
Refund of unutilised Modvat credit due to export of entire production by 100% EOU - time limitation - Held that: - the strict law of limitation provided in Section 11B of the Central Excise Act would not apply to the claim of refund claimed pursuant to notification issued under Rule 57F. It is in our opinion procedural in nature rather than mandatory - refund allowed - appeal allowed - decided in favor of appellant.
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2009 (10) TMI 654
Issues involved:
1. Compliance with circular dated 5-12-2003 for maintaining information.
2. Cooperation with Registrar to ensure transparency in justice delivery system.
3. Registrar's role in maintaining information on reserved orders.
4. Assistance to Registrar by Courtmasters, PAs, SPSs, ARs, and DR.
Compliance with circular dated 5-12-2003 for maintaining information:
The matter was remanded from CIC for a fresh decision, emphasizing consultation with the information holder and the appellant. The circular dated 5-12-2003, initially challenging due to staff constraints, is now agreed to be implemented fully. The appellant was relieved from providing certain information related to past cases, ensuring cooperation from the Registry. The appellant's understanding of administrative challenges led to a resolution, ultimately leading to the disposal of the appeal.
Cooperation with Registrar to ensure transparency in justice delivery system:
The appellant submitted crucial documents, including the circular dated 5-12-2003 and a letter conveying specific information, to serve public interest and enhance transparency in the justice delivery system. The Registrar highlighted the importance of maintaining information on reserved orders for transparency. The Registrar requested cooperation from Courtmasters, PAs, SPSs, ARs, and DR to assist in providing necessary information to maintain records of pending cases, aligning with the orders passed by the Hon'ble President.
Registrar's role in maintaining information on reserved orders:
The Registrar expressed the necessity of obtaining information on reserved orders from various court officials to fulfill the objectives set by the Hon'ble President's orders. Lack of information on fixed dates for order pronouncements led to the Registrar's inability to share details with the public. The Registrar emphasized the need for cooperation from all concerned parties to maintain transparency and serve public interest effectively.
Assistance to Registrar by Courtmasters, PAs, SPSs, ARs, and DR:
To address the challenges faced in maintaining and sharing information, the Registrar was advised to establish a system promptly and guide the relevant court officials. The Courtmasters, PAs, SPSs, ARs, and DR were urged to provide necessary assistance to the Registrar in recording reserved cases pending order pronouncements, aligning with the directives to enhance transparency in the justice delivery process.
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2009 (10) TMI 653
Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that while computing the deduction under Section 80HHC, the deduction allowed under Section 80IB need not be reduced from the business profits ?
Held that:- The Tribunal has followed the judgment rendered by the Division Bench of this court in the case of SCM Creation vs. Assistant Commissioner of Income Tax [2008 (3) TMI 223 - MADRAS HIGH COURT] in which one of us (K.Raviraja Pandian,J) is a party. In the said decision, the question of law has already been decided against the Revenue. Appeal dismissed.
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2009 (10) TMI 652
Issues involved:
The correctness of the relief given to the taxpayer by the CIT(A) regarding the taxation of 'fees for technical services' received by the head office separately from other income of the PE.
Comprehensive details of the judgment:
1. The appellant, a company incorporated in France with a branch office in India, provided marine and certification services in India. The dispute arose when the Assessing Officer questioned the provision made towards technical expenses payable to the head office, treating it as 'fees for technical services' subject to taxation u/s 40(a)(i) and the India-France DTAA.
2. The CIT(A) justified the disallowance of expenses as a payment from self to self, citing the ABN Amro Bank case and article 7(3)(b) of the Indo-French tax treaty. However, the CIT(A) deleted the addition of the amount in question from the assessee's income, preventing double taxation.
3. The core issue was whether the addition of the amount as fees for technical services in the hands of the assessee was justified. The Tribunal emphasized that the taxable unit was the nonresident company, not its head or branch office, and analyzed the taxability under the Indo-French tax treaty.
4. The Tribunal clarified that for payments to be taxed as 'fees for technical services' under the treaty, they must involve the provision of technical knowledge or skills. In this case, the payment was a reimbursement of expenses to the head office and did not qualify as 'fees for technical services' under the treaty.
5. The Tribunal upheld the CIT(A)'s conclusion that the amount in question was not taxable in the hands of the assessee, agreeing with the reasoning and declining to interfere with the decision.
6. Ultimately, the appeal by the Income-tax Department was dismissed, affirming that the amount in dispute was not liable to be taxed as 'fees for technical services' in the hands of the assessee company.
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2009 (10) TMI 651
Issues Involved:
1. Addition of Rs. 1,02,41,723 under Section 92 of the Income-tax Act, 1961.
2. Disallowance of Rs. 46,900 royalty under Section 40(a)(i) of the Income-tax Act, 1961.
Issue-wise Detailed Analysis:
1. Addition of Rs. 1,02,41,723 under Section 92 of the Income-tax Act, 1961:
The assessee, a wholly-owned subsidiary of McDonald's Corporation, USA (MC), was established to set up and operate McDonald's restaurants in India. The assessee entered into a Master License Agreement with MC, which required the assessee to pay MC a royalty of 5% of gross sales and an initial franchise fee of US $45,000 for each new restaurant. The assessee also formed two joint venture companies in India and entered into Franchise Agreements with them, which required these companies to pay a royalty of 5.04% of gross sales and the same franchise fee. The assessee did not have the necessary RBI approval to remit the franchise fee, so it was not charged to the P&L account.
The Assessing Officer (AO) noted that the assessee had shown a service fee of Rs. 2,03,63,270 against total expenditure of Rs. 2,78,22,721. The AO invoked Section 92 of the Act, concluding that the entire expenditure was incurred for the benefit of MC and should have resulted in an income of Rs. 2,78,22,721. The AO added Rs. 1,02,41,723 to the income of the assessee, applying Rule 10(iii) of the Income-tax Rules, 1962.
The CIT(A) upheld the AO's addition, but the assessee argued that the reimbursement of advertisement expenditure to the franchises was a business transaction between the assessee and its Indian franchises, and Section 92 was not applicable. The Tribunal agreed with the assessee, noting that the advertisement expenditure was not part of the authorized expenditure under the service agreement with MC. The Tribunal found that the benefit of advertisement primarily accrued to the franchises and the assessee, not to MC. Therefore, Section 92 was not applicable, and the addition was deleted.
2. Disallowance of Rs. 46,900 royalty under Section 40(a)(i) of the Income-tax Act, 1961:
The assessee made royalty payments to MC during the financial year 1999-2000 and deducted TDS, but a portion of the TDS amounting to Rs. 7,035 was deposited late. The corresponding royalty payment of Rs. 46,900 was not claimed as an expense in the return for the assessment year 2000-01 or 2001-02. The assessee claimed this deduction during the assessment proceedings for the assessment year 2001-02.
The CIT(A) rejected the claim, stating that the deduction was not allowable since the TDS was deducted in the preceding year. The Tribunal, however, noted that as per the proviso to Section 40(a)(i), deduction is allowable in the year in which TDS is paid. Since the TDS was paid in the assessment year 2001-02, the Tribunal allowed the deduction of Rs. 46,900 in the present year.
Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the addition of Rs. 1,02,41,723 made under Section 92 and allowing the deduction of Rs. 46,900 royalty under Section 40(a)(i).
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2009 (10) TMI 650
Issues Involved:
1. Classification of lease rent as income from house property vs. income from business.
2. Treatment of temporary letting of property.
3. Applicability of various case laws to the facts of the case.
Summary:
Issue 1: Classification of Lease Rent
The primary issue was whether the lease rent of Rs. 3,10,000 should be classified as income from house property or income from business. The assessee argued that the income should be treated as business income since the property was commercially exploited. However, the Assessing Officer and the CIT(A) concluded that the income should be classified as income from house property, citing that the premises were not proven to be commercial assets and referring to the decision in Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 (SC).
Issue 2: Temporary Letting of Property
The assessee contended that the letting out of flats was incidental to its business activity of property development. The CIT(A) rejected this argument, noting that the letting out did not support the main business and was instead a means to earn rental income from unsold residential units. The CIT(A) also pointed out that the lease agreements indicated long-term letting, which contradicted the claim of temporary letting.
Issue 3: Applicability of Case Laws
The assessee cited various case laws, including CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC) and Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC), to argue that the income should be treated as business income. The CIT(A) and the Tribunal, however, relied on the decision in Shambhu Investment (P.) Ltd. (supra), which was affirmed by the Supreme Court, to conclude that the income should be classified as income from house property unless the property was part of a complex commercial activity.
Tribunal's Decision:
The Tribunal held that the classification of income depends on whether the property was exploited for commercial purposes or merely for earning rental income. It concluded that the income from the property let out to Rajinder Hiralal Grover should be treated as business income since it was part of a composite commercial activity. However, the income from the property let out to Lear Seating (P.) Ltd. was classified as income from house property, as it did not meet the criteria for complex commercial activity. The issue regarding Roamware (India) (P.) Ltd. was remanded to the Assessing Officer for fresh consideration.
Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-examination of certain aspects by the Assessing Officer. Ground No. 2 was dismissed as not pressed.
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2009 (10) TMI 649
Exemption under Tonnage Tax Scheme - drilling rig as Qualifying ship - "offshore installation"- licence u/s 407 of Merchant Shipping Act - at the time of disposal of assessee’s application in Form No. 65, the assessee’s ship was not registered under the Merchant Shipping Act - AO held that assessee is not eligible for Tonnage Tax Scheme. Thereafter, the assessee received the above registration/licence - same was filed before CIT(A) as additional evidence, which was admitted and was sent to the AO for remand report. In the remand report, AO raised an objection that in the definition provided in section 115VD for qualifying ship, offshore installation has been specifically excluded.
Word ‘offshore installation’ has not been explained or defined in the Income-tax Act. As per the English dictionaries, it is found that the word ‘offshore’ has not been defined anywhere but the words ‘offshore’ and ‘installation’ have been separately defined in the dictionary. As per the New Lexicon Webster’s Dictionary, ‘offshore’ means ‘moving away from the shore and towards sea’. The word ‘installation’ has been defined an installing or being installed/an apparatus set in a position for use such as lighting installation/a military establishment including the base and all its equipment.
HELD THAT:- The Chapter of Merchant Shipping Act is named as "Control of Indian ships and ships engaged in coasting trade". This clearly shows that it applies to only ships and not to the offshore installation. Section 405 specifically explained about application of part - it clearly states as under:—
"Application of part - This Part applies only to sea-going ships fitted with mechanical means of propulsion of not less than one hundred and fifty tons gross, but the Central Government may, by notification in the Official Gazette, fix any lower tonnage for the purposes of this part." Thus ‘ship’ required to be licensed is sea-going ship fitted with mechanical means of propulsion which is not provided in any of the "offshore installation".
We have perused the registration of the assessee’s vessel u/s 407 of the Merchant Shipping Act, which are in respect of the ship, which has been referred to by the CIT(A). Hon’ble Delhi High Court in assessee’s own case for assessment years 1996-97, 1997-98, 1998-99 and 1999-2000, CIT v. Jagson International Ltd. [2007 (11) TMI 610 - DELHI HIGH COURT] and ITAT held that assessee’s vessel to be a ship and not a rig. In view thereof, the assessee’s application u/s115VD/115VR is to be allowed for the purpose of option of tonnage tax scheme. Order of CIT(A) is upheld and appeal is dismissed
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2009 (10) TMI 648
Disallowance of advertisements and sales promotion expenditure - Nature of expenditure - ''Capital or Revenue'' - assessee is in the business of providing cellular mobile services under its own self-generated brand "Spice" since 1997 - The AO allowed 90 per cent of the expenses as revenue expenditure and allocated 10 per cent towards capital by observing that 10 per cent of expenses have been incurred towards brand building - CIT(A) deleted the addition.
HELD THAT:- AO has not been able to justify as to how the 10 per cent of the total advertisement and sales promotion expenses can be allocated towards capital expenditure when the assessee has not acquired any brand from any outside party. The expenditure on advertisement and sales promotion constituted expenditure incurred on press advertisement, hoardings,neon signs, brochures, etc
The press advertisements could not be considered as capital asset acquired by the assessee. Similarly, putting hoardings and neon signs could not also be considered on capital field. These expenditures do not lead to create any capital asset to the assessee. Even there is no benefit of enduring nature so to treat the expenses as capital expenditure. Since by incurring expenditure on advertisement and sales promotion, the assessee has not acquired any fixed capital asset, but these expenditures were incurred for earning better profits, and for facilitating assessee’s operation of providing cellular mobile services, there exist direct nexus between the advertisement and sales promotion expenses and the carrying out of the business activity of the assessee.
We, therefore, do not find any justification in interfering with the order of the CIT(A) in deleting the disallowance of 10 per cent of expenses towards advertisements and sales promotion incurred by the assessee for smooth functioning and carrying on assessee’s business effectively, proficiently and profitability. The order of the CIT(A) is, thus, upheld on this issue.
Software expenses - Nature of expenditure as ''Capital or Revenue'' - The expenditure incurred by the assessee on software development were, allowed as deduction u/s 37 by the CIT(A) and consequently, the depreciation allowed by the AO by treating the expenses to be of capital in nature was withdrawn by the CIT(A).
HELD THAT:- The software for which expenditure was incurred was Acrobat reading PDF files and M.S. Office and Windows 98 and 2000 and it is admitted position that these software need regular up-gradation. Further, in the assessment year 2003-04, the assessee has paid rental charges towards rent for use of software Simgo Platform for the prepaid customers. These facts have not been disputed by the AO while making a reference to the assessee’s reply dated 24-3-2006 wherein it was stated that the expenditure were related to the purchase/rental charges, certain application software for use by the assessee at different location.
In the light of the nature of the expenses incurred by the assessee, we, therefore, do not find any reason to take any view other than the view taken by the CIT(A) in treating the software expenses as of revenue in nature. In the assessment years 2004-05 and 2005-06, the amount of expenses involved is very nominal as compared to the assessment year 2003-04, and the amount were spent towards application software and not for the acquisition of any asset of capital in nature or asset giving any enduring benefit to the assessee. Thus, this ground raised by the revenue in all the years is rejected.
Payment of management service charges - Nature of Expenditure - whether payments made for transfer/sharing of technical know-how and Intellectual Properly Rights resulted in acquisition of intangible assets and, hence, were capital expenditure? - HELD THAT:- Law is well-settled that the question whether an expenditure is on account of revenue or capital is to be decided by looking at the facts and circumstance of the case. In order to arrive at just and proper conclusion, one must look at the nature and character of the advantage in a commercial sense in the light of the surrounding circumstances.
In the present case, there exist no embargo on the assessee in carrying on business of providing telecommunication services even after expiry of agreement entered into with DCIL/Distacom and Modicorp. Thus, the payment of lump sum Base fee specified in the agreement payable in instalments is to be allocated partly towards capital expenditure and partly towards revenue expenditure.
The AO has treated whole of the payment to be of capital in nature as against which the CIT(A) has treated the whole of the payment as revenue expenditure. The present case is a case whether entire payment made by the assessee could not either be held to be of revenue expenditure or, on the other hand as capital expenditure. The entire payment made by the assessee is to be considered as paid towards set-up of the business as well as for efficiently carrying on the business after the same was being set-up, and, thus, the payment is to be allocated towards capital as well as revenue expenditure.
We would like to say that the decision of Hon’ble Bombay High Court in the case of CIT v. Kiloskar Tractors Ltd.[1998 (2) TMI 117 - BOMBAY HIGH COURT], treating the whole of the payment as revenue in nature is of no help to the assessee as in that case, the payment was made towards right to use know-how for efficiently running of business and better profitability, and no part of the payment was at all related to the initial set-up of that assessee’s business.
The Hon’ble Supreme Court in the case of Jonus Woodhead & Sons Ltd. [1997 (2) TMI 4 - SUPREME COURT] has treated 25 per cent of the total payment on capital side. The said criterion of allocating 25 per cent of payment towards capital has also been applied by the Hon’ble Madras High Court in the case of CIT v. Southern Switchgear Ltd [1983 (3) TMI 18 - MADRAS HIGH COURT] which had been affirmed by the Hon’ble Supreme Court in Southern Switechgear Ltd. v. CIT [1997 (12) TMI 105 - SC ORDER], Applying the same criterion, We, therefore, hold that 25 per cent of the payment by way of instalments spread over a period of time and paid in the years under consideration shall be allocated towards capital expenditure and the balance 75 per cent of the payment is to be allowed as a revenue expenditure. Needless to say that the assessee shall be entitled to depreciation on the amount allocated towards capital field. The AO shall modify the assessment order accordingly.
On the facts, in the case of Kiloskar Tractors Ltd.is not squarely applicable to the assessee’s case, and it renders help to the assessee only with regard to the portion of the payment made by the assessee for efficient running and operating of the assessee’s business of providing cellular telecommunication services, and that is the reason that 75 per cent of the payment has been held by us to be revenue in character.
In the result, all these appeals filed by the revenue are partly allowed in the manner as indicated above.
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2009 (10) TMI 647
Issues involved: Determination of the head under which impugned income is assessable to tax.
Summary:
The appeal was filed by the assessee-firm against the Order dated 11-2-2008 passed by the CIT (A)XXII, Mumbai, pertaining to the assessment year 2005-06. The main issue revolved around the head under which the impugned income is assessable to tax. The assessee-firm acquired tenancy rights on a commercial complex and permitted its use by another party on a leave and license basis. The Assessing Officer contended that the income should be assessed under the head "Income from other sources" as the assessee was not the owner of the property. The assessee argued that it should be considered a deemed owner under specific provisions of the Income-tax Act.
The Assessing Officer treated the compensation and service charges received by the assessee-firm as "income from other sources" due to a perceived colorable transaction to reduce tax liability. The Assessing Officer disallowed the claim of deduction of 30% from the compensation/service charges. The CIT(A) affirmed this decision. The assessee then appealed to the Appellate Tribunal, arguing for deemed ownership status and specific deductions in the calculation of rental income.
The Tribunal considered the validity of the unregistered lease deed in detail. It noted that the Assessing Officer did not verify the lease agreement's authenticity or call upon the original owner during assessment proceedings. The Tribunal cited legal precedents to support the view that registration is not mandatory to establish ownership for tax purposes. It emphasized that legitimate tax planning within the law should be recognized. The Tribunal directed the Assessing Officer to re-consider the claim of deduction and assess the income earned under the head "Income from house property."
In conclusion, the appeal filed by the assessee was treated as allowed for statistical purposes.
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2009 (10) TMI 646
Computation of capital gains - acquired the asset transferred under gift - whether indexed cost of acquisition was to be computed with reference to the year in which the previous owner first held the asset or the year in which the assessee became the owner of the asset - HELD THAT:- In the case where capital asset has become a property of the assessee under a gift prior to the cut-off date of 1-4-1981 but the same is transferred by him only after 1-4-1981; say in financial year 1987-88, the year to be adopted for indexation as per the contention of the learned D.R., would be financial year 1987-88. However, the cost of acquisition of capital asset in such case would be taken as Fair Market Value of 1-4-1981 being the cut-off date embedded in the indexation scheme as agreed even by the learned D.R. The situation will thus arise where the cost of acquisition of capital asset would be taken as of 1-4-1981 whereas the cost inflation index for the year 1987-88 would be applied to the said cost to work out the indexed cost of acquisition. Such a working will not stand to any reasonability or logic and will certainly defeat the very purpose of indexation scheme as explained in the aforesaid Circular No. 636, dated 31-8-1990.
Considering the facts of the case and relevant material on record, We are of the view that for the purpose of computing long-term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. In that view of the matter, we hold that the indexed cost of acquisition of such capital asset has to be computed with reference to the year in which the previous owner first held the asset. Accordingly, we answer the question referred to us in favour of the assessee and uphold the impugned order of the learned CIT(A) on this issue.
In the result the appeal of the revenue is dismissed.
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2009 (10) TMI 645
Issues Involved:
1. Addition of Rs. 43,40,000 as deemed dividend under section 2(22)(e).
Issue-wise Detailed Analysis:
1. Addition of Rs. 43,40,000 as deemed dividend under section 2(22)(e):
The assessee-company, engaged in the business of manufacturing, exporting, and trading of readymade garments, filed its return of income declaring a total income of Rs. 6,90,990. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had taken a loan of Rs. 65,14,062 from M/s. Saemah Fashion Export (P.) Ltd., in which the assessee held more than 10% shares. The AO observed an opening balance of Rs. 41,17,621 as on 1-4-2003, which increased by an additional loan of Rs. 42,85,000 up to 5-12-2003, with a repayment of Rs. 40,000 in December 2003 and a fresh loan of Rs. 95,000, making the peak loan amount Rs. 43,40,000. The AO treated this amount as deemed dividend under section 2(22)(e) due to the substantial reserves and surplus available in M/s. Saemah Fashion Export (P.) Ltd.'s balance sheet and added it to the total income of the assessee.
The assessee appealed against this order, arguing that the amount was taken as a deposit against job work and adjusted in subsequent years, thus being a business transaction outside the purview of section 2(22)(e). The assessee cited several judicial precedents, including the Mumbai Bench of ITAT in N.H. Securities Ltd. v. Dy. CIT, the Chandigarh Bench of ITAT in Dy. CIT v. Lakra Bros., and the Delhi Bench of ITAT in Ardee Finvest (P.) Ltd. v. Dy. CIT, to support their claim.
The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the assessee's arguments, noting the contradictory nature of the assessee's statements and the classification of the amount as a loan in the assessee's books. CIT(A) emphasized that section 2(22)(e) clearly covers any payment by a company as an advance or loan to a shareholder holding not less than 10% of voting power, or to any concern in which such shareholder has a substantial interest, to the extent of accumulated profits. The CIT(A) found that the judgments cited by the assessee were distinguishable on facts and upheld the AO's addition of Rs. 43,40,000 as deemed dividend.
The Tribunal, upon hearing the arguments and reviewing the material, upheld the CIT(A)'s decision. The Tribunal found no merit in the assessee's contention that the amount was outside the purview of section 2(22)(e), noting the lack of any nexus between the amounts received and the job work or letting out of premises. The Tribunal observed that the amounts were treated as loans in the assessee's books, and the subsequent adjustment against job work was done by journal entry only on 31-3-2005, with no prior understanding of such adjustment. The Tribunal also rejected the argument of the transactions being on a running account, noting the substantial amount of loan outstanding for more than nine months.
The Tribunal distinguished the cited judicial precedents on facts, emphasizing that the amount in question was a loan and not a business transaction or current account. Consequently, the Tribunal upheld the addition of Rs. 43,40,000 as deemed dividend under section 2(22)(e) and dismissed the assessee's appeal.
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