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Showing 341 to 360 of 650 Records
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2007 (5) TMI 355
Deduction of tax at source u/s 194J - telecom operators - Payments of port charges ("Interconnect charges") - Nature of Technical services Or Payment made against work ? - Payments to M/s. BSNL under (i)Lease Line rental charges; (ii)Port charges; (iii)Access charges - HELD THAT:- From the procedure of tranmission and the services rendered by M/s. BSNL to the assessee, it is quite evident that apart from lease line rent charges the other services provided by M/s. BSNL to the assessee are based on technology and the assessee without the technical services by M/s. BSNL in not able to continue its business to transmit call/voice and signals to the recipients. Therefore, in our considered opinion, payment with regard to port charges and Inter connectivity charges to M/s. BSNL are in the nature of technical services and are not payment made against work as observed by the ld. CIT(A) and thereby asking the Assessing Officer to levy TDS u/s 194C. Apart from the above fact the instruction from the CBDT vide letter to M/s. BSNL also makes it clear that the assessee is liable to deduct TDS on such payments.
We therefore set aside the order of the ld. CIT(A) holding that port charges are not subject to provision u/s 194J and are rather in the nature of work u/s 194C and therefore restore the order of the Assessing Officer. Based on the same analogy we hold that Access charges also comes under the purview of section 194J and therefore restore the order of Assessing Officer by setting aside the order of the ld. CIT(A) in this regard.
Payment on account of lease rental charges, such payment is neither in the nature of work nor in the nature of agreement and therefore cannot be considered u/s 194J and therefore we uphold the order of the ld. CIT(A) and accordingly dispose of the grounds raised by the revenue in both the appeals by partly allowing the grounds raised by it and dismissing the ground No. 2 of the assessee.
TDS u/s 194C on inter connect charges - HELD THAT:- We find that the provision of TDS has been made and to recover the tax in due time and as scheduled occasion and the above contention of the assessee that this amount will to double taxation, cannot be accepted. However it is also a fact that payment has been made by recipient and such TDS will tantamount to tax which has already been paid by BSNL. We therefore are of the view that the matter should be restored back to the file of the Assessing Officer to decide the issue afresh and compute the TDS and interest thereon after deducting the tax already offered by M/s. BSNL on such receipts. We hold and direct accordingly accept the Ground raised by the assessee for statistical purposes.
Levy of interest u/s 201(1A) - bona fide belief - HELD THAT:- We after hearing both the parties are of the opinion that interest under section 201(1A) has to be levied in view of the provision contained therein. However, while disposing the ground No. 3 we have directed the Assessing Officer to deduct the amount of tax paid by the recipient on such income and therefore the same should be considered and thereafter interest u/s 201(1A) is to be determined, we hold and direct accordingly and accept the ground for statistical purpose.
In the result both the appeals filed by the revenue and by the assessee and the cross objection filed by the assessee are partly allowed as indicated above.
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2007 (5) TMI 354
Issues Involved:1. Deletion of disallowance of interest claim amounting to Rs. 36,03,466. 2. Deletion of disallowance made u/s 14A of the IT Act of proportionate administrative expenses amounting to Rs. 10,000. Summary:Issue 1: Deletion of Disallowance of Interest ClaimThe Department challenged the CIT(A)'s decision to delete the disallowance of an interest claim amounting to Rs. 36,03,466, payable to M/s. Euro Alloys Ltd. The Department argued that the assessee was in dispute regarding the liability of the interest and had not made any provision for it in the books of account. The Tribunal referred to its previous order dated 19-12-2006 for the assessment year 1998-99, where an identical issue was decided against the Department. The Tribunal observed that the CIT(A) had followed the Tribunal's order for the assessment year 1997-98, which held that interest on the principal amount is admissible to the assessee as per the decree of the Bombay High Court, even if no provision for interest was made in the accounts. The Department could not provide any reason to take a contrary view for the current year. Therefore, the Tribunal dismissed Ground No. 1 taken by the Department. Issue 2: Deletion of Disallowance u/s 14A of Proportionate Administrative ExpensesThe Department contested the CIT(A)'s decision to delete the disallowance of Rs. 10,000 made u/s 14A of the IT Act for proportionate administrative expenses attributable to earning dividend income. The assessee claimed dividend income of Rs. 1,20,805 as exempt u/s 10(33) of the IT Act and argued that no expenditure was incurred for earning this income. The Assessing Officer, relying on CBDT Circular No. 780, estimated Rs. 10,000 as expenditure incurred for earning the dividend and disallowed it. The CIT(A) deleted this addition. The Tribunal noted that several orders had considered identical issues and held that proportionate disallowance of expenses allocable to earning exempt income was permissible. The Tribunal referred to the decision in Kalpataru Construction v. Dy. CIT, which discussed the procedural and computational provisions of sub-sections (2) and (3) of section 14A. The Tribunal concluded that the provisions of sub-sections (2) and (3) of section 14A apply to all pending matters and restored the issue to the Assessing Officer for a fresh decision in light of these provisions. Ground No. 2 was treated as allowed for statistical purposes. Conclusion:The appeal filed by the Department is partly allowed. Ground No. 1 is dismissed, and Ground No. 2 is restored to the file of the Assessing Officer for a fresh decision.
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2007 (5) TMI 353
Issues Involved:
1. Confirmation of income determination u/s 115JA.
2. Eligibility for deduction u/s 80-IA.
3. Computation of book profit u/s 115JA.
Summary:
Issue 1: Confirmation of income determination u/s 115JA
The learned CIT(A) confirmed the determination of income of Rs. 4,38,762 being 30% of book profit of Rs. 14,62,541 u/s 115JA, resulting in a tax liability of Rs. 2,13,875. The assessee contested this, arguing that the book profit should be worked out at Nil as per the provisions of section 115JA.
Issue 2: Eligibility for deduction u/s 80-IA
The CIT(A) accepted that the appellant company, engaged in manufacturing pharmaceutical products in a Backward Industrial Zone, was eligible for deduction u/s 80-IA. However, the CIT(A) did not allow any deduction of section 80-IA for computing book profit u/s 115JA, stating that the admissible deduction under section 80-IA was nil.
Issue 3: Computation of book profit u/s 115JA
The core issue was the amount to be reduced from the net profit shown in the profit and loss account to compute book profit for section 115JA. The assessee relied on the Special Bench decision in Dy. CIT v. Syncome Formulations (I) Ltd., which held that deduction u/s 80HHC in a MAT scheme is from the adjusted book profit. However, the Tribunal noted that this decision did not discuss clause V of Explanation below section 115JA(2), which deals with profits derived by an industrial undertaking eligible for deduction u/s 80-IA.
The Tribunal clarified that for section 115JA, the amount to be reduced from net profit is the profit derived by an industrial undertaking eligible for deduction u/s 80-IA, not necessarily the profit eligible for deduction. The Tribunal emphasized examining the definition of 'derived' in light of judicial pronouncements such as CIT v. Sterling Foods and Pandian Chemicals v. CIT.
The Tribunal found that the lower authorities did not properly examine whether the profits derived from the industrial undertaking were computed for reduction from the net profit. Consequently, the matter was remanded to the Assessing Officer for re-computation of book profit and total income of the assessee, considering the judgments of the Apex Court in Pandian Chemicals and Sterling Foods.
Conclusion:
The appeal of the assessee was allowed for statistical purposes, with the matter remanded to the Assessing Officer for proper computation of book profit u/s 115JA.
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2007 (5) TMI 352
Disallowance of Bad Debts - Pendency of the recovery proceedings - CIT(A) held that the appellant has not carried out any business activity and income earned out of interest is assessable under the head ‘Income from other sources’ and, therefore bad dept in respect of K.M. Nemani is not allowable u/s 36(1)(vii) - HELD THAT:- In the present case the assessee has entered into number of transactions over the years whereby it has earned interest on loans and advances given in the ordinary course of its activities. Assessment year 1997-98 was only the second year, however this is the 5th year of the engagement of the assessee in the same kind of transactions, hence, having regard to the nature of transactions undertaken by the assessee, it can be held that the assessee is engaged in the business of money lending. We are also of the view that absence of money lending licence is not so crucial for the purpose of Income-tax Act, 1961, if the nature of activity undertaken by the assessee can be decided on the basis of other facts.
As stated, the assessee is engaged in granting of loans on regular basis and interest income has also been shown as business income which also reflects the intention of the assessee. We are also of the view that pendency of recovery proceedings cannot come into the way of allowing of bad debts, if other facts clearly establish that there are no chances of any recovery of the money even if a decree in favour of the assessee is pronounced by the Court. The bad debt of Mr. K.M. Nemani stand on the same footing. However, in the absence of details regarding loan transactions with M/s. Videocon Holding (P.) Ltd. the same cannot be allowed.
Thus, we are of the view that the decision of the Tribunal in the earlier assessment year is not applicable and assessee’s claim in respect of bad debts of Mr. K.M. Nemani is justified. Accordingly, order of the ld. CIT(A) stands modified and we direct the Assessing Officer to allow the claim of bad debt in respect of this account. Thus ground No. 1 stands partly allowed and ground Nos. 2 and 3 stand accepted.
In the result, the appeal filed by the assessee stands partly allowed.
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2007 (5) TMI 351
Issues involved:
1. Deduction under section 80HHC for export of rough diamonds.
2. Treatment of interest income for the purpose of computing deduction under section 80HHC.
3. Depreciation on immovable properties not claimed by the appellant.
Issue-wise detailed analysis:
1. Deduction under section 80HHC for export of rough diamonds:
The primary issue was whether the export of rough diamonds qualifies for deduction under section 80HHC of the Income Tax Act. The assessee argued that rough diamonds are not minerals as per the exclusion in section 80HHC and should be considered processed minerals. The Assessing Officer and CIT(A) disagreed, treating rough diamonds as minerals not eligible for deduction, citing the decision in Classic Diamonds (I) Ltd. The Tribunal examined the definitions and legislative intent, concluding that rough diamonds are indeed minerals. The Twelfth Schedule specifies "Cut and polished minerals and rocks" as processed minerals, which does not include rough diamonds. Therefore, the Tribunal upheld the CIT(A)'s decision, confirming that rough diamonds do not qualify for deduction under section 80HHC.
2. Treatment of interest income for the purpose of computing deduction under section 80HHC:
The second issue was whether interest income received by the assessee should be treated as income from other sources or business income. The assessee contended that interest received from temporary loans should offset the interest paid on borrowings, reducing the overall interest burden. The Assessing Officer and CIT(A) treated the interest income as income from other sources. The Tribunal referred to the Bombay High Court's decision in Indo Swiss Jewels Ltd., which held that interest earned on short-term deposits made for business purposes is assessable as business income. The Tribunal remanded the case to the Assessing Officer to determine if the advances were made from interest-bearing loans set apart for business purposes. If so, the interest should be treated as business income and set off against interest payments. Otherwise, it should be taxed as income from other sources without set-off.
3. Depreciation on immovable properties not claimed by the appellant:
The final issue was whether depreciation on immovable properties should be deducted from business income even if not claimed by the assessee. The assessee argued against the reduction, but the Tribunal referred to the Special Bench decision in Vahid Paper Converters and the jurisdictional High Court's decision in Scoop Industries (P.) Ltd., which held that depreciation must be deducted regardless of the claim. Consequently, the Tribunal dismissed the assessee's appeal on this ground.
Conclusion:
The Tribunal dismissed the appeals regarding the deduction under section 80HHC for rough diamonds and the depreciation on immovable properties. However, it remanded the issue of interest income treatment to the Assessing Officer for further examination. Thus, the appeals were partly allowed.
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2007 (5) TMI 350
Issues Involved:
1. Jurisdiction and validity of the CIT's order under section 263.
2. Excessive allowance of deduction under section 80HHC.
3. Examination of the CIT's jurisdiction in revising the assessment order.
4. CIT's authority in making inquiries beyond the show-cause notice.
5. Deduction admissibility under section 80-IB.
6. Deduction admissibility under section 80HHC.
7. Treatment of duty drawback and subsidy from DIC.
8. Treatment of interest on FDRs.
Detailed Analysis:
1. Jurisdiction and Validity of the CIT's Order under Section 263:
The assessee contended that the CIT's order dated 30th March 2005 was beyond jurisdiction, bad in law, and void ab initio. The CIT exercised revisionary powers under section 263, holding that the assessment order dated 31-3-2003 was erroneous and prejudicial to the interests of the Revenue. The CIT's action was challenged on the grounds that the prerequisite conditions for invoking section 263 were not satisfied.
2. Excessive Allowance of Deduction under Section 80HHC:
The CIT found that the Assessing Officer (AO) had incorrectly allowed the deduction under section 80HHC without reducing the amount of deduction allowable under section 80-IB. The CIT directed that the deduction under section 80HHC should only be computed on the reduced profit after deducting the amount allowable under section 80-IB. This was in line with the decision of the ITAT Special Bench in the case of Rogini Garments.
3. Examination of the CIT's Jurisdiction in Revising the Assessment Order:
The CIT was criticized for substituting his opinion with that of the AO, which is not permissible in law. The CIT's action was deemed to have exceeded his jurisdiction by revising the assessment order dated 31-3-2003, which was passed after detailed examination and proper application of mind by the AO.
4. CIT's Authority in Making Inquiries Beyond the Show-Cause Notice:
The CIT was alleged to have made fishing and roaming inquiries subsequent to the notice under section 263, which is not permissible in law. The CIT's action in exercising revisionary powers under section 263 on issues other than those stated in the show-cause notice dated 18-1-2005 was also challenged.
5. Deduction Admissibility under Section 80-IB:
The CIT determined that the Duty Drawback and Subsidy from DIC were not eligible for deduction under section 80-IB. The CIT also held that the deduction under section 80-IB was not admissible on FDR interest amounting to Rs. 18,784. The assessee argued that these items were eligible for deduction under section 80-IB, citing various judicial decisions in support.
6. Deduction Admissibility under Section 80HHC:
The CIT determined that the deduction admissible under section 80HHC was Nil against the claimed deduction of Rs. 13,12,805. The CIT held that the appellant was not entitled to deduction under section 80HHC in view of the loss under clause (a) of sub-section (3) of that section. The CIT also held that the subsidy from DIC and interest on FDRs should be excluded while computing 'profit of the business' in terms of Explanation (baa) to section 80HHC.
7. Treatment of Duty Drawback and Subsidy from DIC:
The CIT held that duty drawback and subsidy from DIC were not eligible for deduction under sections 80-IB and 80HHC. The assessee argued that these items were eligible for deduction, citing judicial precedents. The Tribunal noted the conflicting views on this issue and directed the AO to recompute the deduction under section 80HHC in accordance with the amended provisions introduced by the Taxation Laws (Amendment) Act, 2005.
8. Treatment of Interest on FDRs:
The CIT held that interest on FDRs should be excluded while computing 'profit of the business' in terms of Explanation (baa) to section 80HHC. The Tribunal referred to the decision of the Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip., which laid down principles for determining the nature of interest income. The Tribunal directed the AO to follow these principles and recompute the deduction under section 80HHC and 80-IB accordingly.
Conclusion:
The Tribunal upheld the CIT's direction to recompute the deductions under sections 80HHC and 80-IB, considering the amended provisions and judicial precedents. The appeal of the assessee was allowed in part, with specific directions to the AO to recompute the deductions in accordance with the Tribunal's observations.
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2007 (5) TMI 349
Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961.
2. Disallowance of commission paid to M/s. Hallmark Health Care Ltd.
3. Charging of interest under Section 234D.
Detailed Analysis:
1. Validity of Reassessment Proceedings under Section 147/148:
The primary issue was whether the reassessment proceedings initiated beyond four years from the end of the relevant assessment year were valid. The assessee argued that there was no failure to disclose fully and truly all material facts necessary for the assessment. The original assessment was reopened based on a survey conducted on Shri Sanjay Rastogi, who admitted to providing bogus entries through various concerns, including M/s. Hallmark Health Care Ltd. However, the tribunal found that the original assessment proceedings had already examined the commission payments, and the necessary details and documents were submitted by the assessee. The tribunal concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts, and thus, the reassessment proceedings were invalid.
2. Disallowance of Commission Paid to M/s. Hallmark Health Care Ltd.:
On the merits of the disallowance of the commission, the assessee contended that the commission was paid based on an agreement and supported by debit notes. The payments were made through account payee cheques and credited to the bank account of M/s. Hallmark Health Care Ltd. The Assessing Officer, however, added the commission back to the income, citing the statement of Shri Sanjay Rastogi and the lack of business activities at the address of M/s. Hallmark Health Care Ltd. The tribunal noted that the commission had been allowed in earlier years and that there was no evidence to show that the commission payments had traveled back to the assessee. The tribunal did not delve into the merits further, as it had already quashed the reassessment proceedings.
3. Charging of Interest under Section 234D:
The assessee challenged the charging of interest under Section 234D, arguing that no interest could be charged when the assessment made under Section 147/148 was not the first regular assessment. Since the reassessment proceedings were quashed, the tribunal did not address this issue in detail.
Conclusion:
The tribunal quashed the reassessment proceedings as invalid due to the lack of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Consequently, the tribunal did not consider it necessary to go into the merits of the claim of the assessee regarding the disallowance of commission and the charging of interest under Section 234D. The appeal filed by the assessee was allowed.
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2007 (5) TMI 348
Computation of Income from house property - Determination of annual letting value (ALV) - scope of clause (c) of sub-section 23(1) - Deemed rental income - vacant property - Interpretation of the words ‘property is let’ - whether actual letting out is must for a property to fall within the purview of this clause (c) by satisfying the requirement of words ‘property is let’ present in this clause - CIT(A) restricted the ALV to 8.5 per cent of the investment cost - HELD THAT:- Section 23(1) was amended and substituted by new provision with effect from 1-4-2002 by Finance Act, 2001. The impugned assessment year is 2003-04 and therefore the amended section of 23 is applicable to the present case and the amended section 23(1) contains three clauses dealing with different situations to compute the annual value of any property. These three clauses are independent clauses and deals three type of situations.
Having applied these three situations to the facts of the case, we are of the view that assessee’s case falls within third situation and annual value of the property is to be computed as per sub-clause (c) of the Act because the property remained vacant for the whole year.
We feel that the words ‘property is let’ are used in this clause to take out those properties from the ambit of the clause in which property are held by the owner for self-occupation i.e., self-occupied property (i.e. SOP) because even income on account of SOP, excluding one such SOP of which annual value is to be adopted at nil, is also to be computed under this head as per clause (a) of section 23(1) if we see the combined reading of sub-sections (2) and (4) of section 23.
We find from the memorandum of association that the assessee is entitled to purchase the property for its let out and to earn rental income. Copies of resolutions of Board of Directors are also placed before us in both the cases where from it is evident that one of the Director was authorized to take necessary steps to let out the property in question. They have also fixed the monthly rent and the security deposits of both the properties. Consequent to the resolutions, the assessee has approached to various Estate and Finance Consultants for letting out the properties and the request was also duly acknowledged by the Estate and Finance Consultants. The series of correspondence are placed before us to demonstrate the efforts made by the assessee for letting out of its properties, but, unfortunately during the year under appeal, assessee could not get the suitable tenant on account of hefty rent and security deposits. The correspondence exchanged between the assessee and the different property consultants are placed on record.
From this correspondence, it is, noticed that the assessee has approached various property consultants to let out its properties and during the year, it could not get a suitable tenant. From a careful perusal of these documents, it has become evident that during the whole year, assessee made its continuous efforts to let out the properties and under these circumstances, this property can be called to be let out property in terms of our observations.
Since the property has been held to be let out property, its annual letting value can only be worked out as per sub-clause (c) of section 23(1) of the I.T. Act and according to this clause, the rent received or receivable during the year is NIL and as such the same be taken as the annual value of the property in order to compute the income from house property. We, therefore, order accordingly.
In the result, appeals of the assessee are allowed.
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2007 (5) TMI 347
Writ petition - petitioner had sought documents relied upon in the show cause notice and details of the grounds mentioned in the show cause notice. That has not been supplied to the petitioner - order is set aside. It would be open to the respondents to issue a fresh show cause notice, along with documents upon which they rely, giving the petitioner full opportunity of submitting a written representation as well as of being personally heard, writ petition stands disposed of
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2007 (5) TMI 345
Penalty under section 271B of the Income-tax Act, 1961 - society is registered with an object of not to derive either directly or indirectly any kind of benefit, profit, gain - show-cause notices to the assessee requiring it to explain as to why penalty under section 271B should not be imposed - Indian Hockey Federation is a society registered under the Societies Registration Act, 1860. with an object of not to derive either directly or indirectly any kind of benefit, profit, gain from any activity of business and profession - Hockey Federation is in a bona fide belief that the provision of section 44AB apply to the organisation engaged in the business and profession which object is running the purpose of profit and gain - section 271B is to apply only if activity of the assessee, nature of income to be assessed under Chapter IV, Head D, which categorically prescribed for the nature of income falling only if under the profit and gains from business or profession - Decided that it does not come under the purview of section 44AB - not getting the accounts audited and in not filing the audit report by a specified date, the penal provisions under section 271B are not attracted in this case merely because the assessee has itself been showing its income/loss under the head 'Income from business' inadvertently - Held against the favour of revenue - Appeal dismissed.
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2007 (5) TMI 343
Issues Involved:
1. Initiation of proceedings u/s 45, 45H(2), and 45L(4) of the Banking Regulation Act, 1949 read with section 543 of the Companies Act, 1956.
2. Allegations of negligence, misfeasance, and breach of trust against the respondent.
3. Specific transactions leading to alleged losses.
4. Legal precedents and arguments presented by both parties.
5. Final judgment on the liability of the respondent.
Summary:
1. Initiation of Proceedings:
The proceedings were initiated u/s 45, 45H(2), and 45L(4) of the Banking Regulation Act, 1949 read with section 543 of the Companies Act, 1956 for recovery of Rs. 253.54 lakhs along with interest from the respondent, S.P. Mathur, the Ex-Director of Kashinath Seth Bank, for negligence, misfeasance, and breach of trust causing mismanagement and losses to the bank.
2. Allegations of Negligence, Misfeasance, and Breach of Trust:
The petitioner alleged that the respondent, along with other directors, was jointly and severally liable for the loss of Rs. 253.54 lakhs due to negligence and misfeasance, which the respondent must pay to the bank as damages along with interest at the rate of 18% per annum. The allegations included several acts of misappropriation and misfeasance by the Board of Directors leading to the bank's losses.
3. Specific Transactions Leading to Alleged Losses:
- Dinesh Cold Storage: A term loan of Rs. 28 lakhs was sanctioned despite the unit's valuation being significantly lower.
- General and Motor Finance Co.: The limit was enhanced from Rs. 5 lakhs to Rs. 15 lakhs within five months, involving a partner who was also a board member.
- Viraj Cold Storage and Allied Industries: A term loan of Rs. 30 lakhs was sanctioned despite previous loans being in arrears.
- Lala Kashinath Seth Jewellers: A Cash Credit Limit of Rs. 25 lakhs was sanctioned without proper appraisal and collateral security.
4. Legal Precedents and Arguments:
The petitioner relied on several judgments to support the claim that directors acting recklessly without statutory care constitute misfeasance. The respondent's counsel argued that there was no personal gain or retention of funds by the respondent, and the directors' lack of prudence alone does not amount to misfeasance or breach of trust.
5. Final Judgment:
The court found no evidence that the respondent had misapplied, misappropriated, or committed any misfeasance and breach of trust. The respondent's participation in collective decisions of the Board of Directors, which led to bad commercial decisions, did not establish individual gain or retention of funds. The court dismissed the Company Petition against the respondent, S.P. Mathur, concluding that the directors who sanctioned the loans cannot be held responsible for damages in the misfeasance proceedings.
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2007 (5) TMI 342
Issues Involved:
1. Validity of the charges framed under Section 56 of the Foreign Exchange Regulation Act, 1973 (FERA).
2. Compliance with summons issued under Section 40 of FERA.
3. Application of Section 219(1) of the Code of Criminal Procedure (CrPC).
4. Prejudice and miscarriage of justice due to framing of composite charges.
Detailed Analysis:
1. Validity of the Charges Framed under Section 56 of FERA:
The petitioner was charged with offences under Section 56 of FERA for failing to comply with summons issued under Section 40. The trial court found prima facie evidence for framing charges based on the petitioner's non-compliance with multiple summonses issued for his appearance and production of documents. The court noted that the petitioner willfully failed to comply with the summonses without any plausible reason or lawful excuse.
2. Compliance with Summons Issued under Section 40 of FERA:
The petitioner argued that he could not comply with the summons dated 15-9-1999 as it was received on 27-9-1999 at 2:00 p.m., which required his appearance on the same day at 11:00 a.m. The trial court acknowledged this impossibility but proceeded to frame a charge on that count, which was deemed erroneous. The petitioner also provided valid reasons for non-compliance with other summonses, citing his absence from India, which were accepted by the complainant, leading to the issuance of fresh summonses.
3. Application of Section 219(1) of the Code of Criminal Procedure (CrPC):
The petitioner contended that the trial court violated Section 219(1) of CrPC by framing four charges instead of three, as mandated for separate offences. The petitioner argued that each incident should have been framed as a separate charge to avoid prejudice. The court found merit in the argument regarding the first summons and decided to delete the reference to the summons dated 15-9-1999 from the charge. However, the court held that the remaining charges, even if framed in a composite manner, did not result in prejudice to the petitioner.
4. Prejudice and Miscarriage of Justice Due to Framing of Composite Charges:
The petitioner argued that the composite charges would cause prejudice and miscarriage of justice. The court referred to Sections 461 and 464 of CrPC, which distinguish between irregularities that vitiate proceedings and those that do not. The court emphasized that an omission or technical violation does not constitute a fatal infirmity unless it results in a failure of justice. The court concluded that no such failure of justice occurred in this case and upheld the charges, except for the deletion of the reference to the first summons.
Conclusion:
The petition was allowed to the limited extent of deleting the reference to the summons dated 15-9-1999 from the charge. The charges related to the summonses dated 7-10-1999, 8-11-1999, and 21-12-1999 remained undisturbed. The court found no miscarriage of justice or prejudice due to the framing of composite charges and upheld the trial court's order on the remaining charges.
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2007 (5) TMI 341
Issues Involved:
1. Acceptance and cancellation of the highest bid for Barachakia Unit.
2. Impact of stay orders on the payment obligations.
3. Legality of re-advertisement and revaluation of the property.
4. Requirement and fairness of earnest money deposit.
5. Effect of price rise during litigation on the accepted bid.
6. Applicability of the Supreme Court's decision in Divya Manufacturing Co. (P.) Ltd. v. Union Bank of India.
Detailed Analysis:
Acceptance and Cancellation of the Highest Bid:
The appellant's highest bid of Rs. 5 crore for the Barachakia Unit was accepted by the Company Judge on 31-1-2001. The acceptance order stipulated that the appellant would be entitled to possession of the factory upon payment of the first installment and furnishing a bank guarantee for the remaining amount. However, due to stay orders in special appeals, the appellant did not adhere to the original payment schedule. The Company Judge later ordered revaluation and re-advertisement of the property, citing higher bids received subsequently.
Impact of Stay Orders on Payment Obligations:
The appellant argued that the stay orders nullified the obligations under the acceptance order, suspending the requirement to make payments. The court agreed, stating that it would be unreasonable to expect the appellant to deposit the entire sale consideration when the court could not convey either title or possession due to the stay orders. The court held that the appellant could not be considered a defaulter for not adhering to the original payment schedule.
Legality of Re-advertisement and Revaluation:
The Company Judge ordered revaluation and re-advertisement of the property based on higher bids received. The appellant contended that no re-advertisement could take place without first canceling the accepted bid. The court agreed, stating that the acceptance of a bid is equivalent to an agreement for sale, and re-advertisement without canceling the bid was unjustified.
Requirement and Fairness of Earnest Money Deposit:
The impugned order required each bidder to deposit Rs. 5 crore as earnest money, which was almost equal to the entire sale consideration. The court found this requirement unusual and lacking exceptional reasons. It noted that such a high deposit could deter serious bidders and impose undue financial burdens due to interest liabilities.
Effect of Price Rise During Litigation:
The court referenced the Supreme Court's decision in S.V.R. Mudaliar v. Mrs. Rajabu F. Buhari, which held that a mere rise in property prices during litigation is not a ground to deny relief if otherwise due. The court found no reason to deviate from this principle and ruled that the rise in property value did not justify canceling the appellant's accepted bid.
Applicability of Supreme Court's Decision in Divya Manufacturing Co. (P.) Ltd. v. Union Bank of India:
The respondents relied on this decision to justify the impugned order. However, the court distinguished the present case on several grounds:
1. The High Court had not reserved the right to set aside the sale in the terms and conditions.
2. The higher offers in Divya Manufacturing were received within nine days of the sale, whereas in the present case, they came after six years.
3. There was no finding of fraud or grossly inadequate price at the time of the appellant's bid acceptance.
Conclusion:
The court concluded that the impugned order dated 12-2-2007 could not be sustained. There was no valid ground for canceling the appellant's accepted bid. The court set aside the impugned order and directed the matter to be placed before the Company Judge for appropriate orders. The appellant was ordered to pay interest at 10% per annum on the delayed payments from the date of dismissal of the special appeals until the date of the next order permitting the deposit of the balance.
Order:
The appeal was allowed, and the impugned order dated 12-2-2007 was set aside. The matter was directed to be placed before the Company Judge on 23-5-2007 or the next available date for further orders.
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2007 (5) TMI 340
Issues Involved:
1. Factum and Quantum of Indebtedness
2. Commission and Counter-Claim
3. Applicability of Sections 433, 434, and 439 of the Companies Act
4. Prima Facie View of Quantum of Indebtedness
5. Statutory Notice and Limitation
6. Admission and Security for Debt
Summary:
1. Factum and Quantum of Indebtedness:
The company does not dispute the factum of indebtedness but contests the quantum to resist the creditor's petition for winding up. The company suggests that accounts need to be taken in a regular action, and winding-up proceedings should await such action.
2. Commission and Counter-Claim:
The manufacturer seeks to realize the price of cars sold to its distributor, who argues that the claim must wait until the company is credited for the commission due. The company raises the issue of commission without quantifying it, suggesting that a counter-claim is enough to resist a winding-up petition.
3. Applicability of Sections 433, 434, and 439 of the Companies Act:
The company refers to an old English judgment to argue that these provisions are meant to wind up insolvent companies and not to take accounts between solvent parties as in a regular civil suit. The company relies on the principle established in Brighton Club & Norfolk Hotel Co. Ltd., In re 55 ER 873, and a more recent pronouncement in Mediquip Systems (P.) Ltd. v. Proxima Medical System GmbH [2005] 59 SCL 255 (SC).
4. Prima Facie View of Quantum of Indebtedness:
The statutory notice for a principal claim of Rs. 2,32,90,136.63 was met with a denial. The petitioner refers to various letters and meetings to establish the amount due. The company acknowledges a net debt of over Rs. 60 lakhs but disputes the total claim, suggesting further adjustments.
5. Statutory Notice and Limitation:
The company's response to the statutory notice includes a robust denial and suggests that the major portion of the claim is barred by limitation. However, the petitioner provides evidence of ongoing discussions and acknowledgments of debt, which reset the limitation period u/s 18 of the Limitation Act, 1963.
6. Admission and Security for Debt:
The company is required to secure a sum of Rs. 1.5 crore in addition to paying Rs. 60 lakhs to avoid the petitioner from inviting other creditors. The petition is admitted for Rs. 2.10 crores with interest. If the company pays Rs. 60 lakhs with interest and furnishes cash security of Rs. 1.5 crore within the specified time, the petition will be stayed. Otherwise, the petition will be advertised, and the company may seek discharge of the security if the petitioner fails to file a suit within the indicated time.
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2007 (5) TMI 339
Issues Involved:
1. Default in repayment of matured deposits by the company.
2. Appointment of Government Directors under Section 408 of the Companies Act.
3. Compliance with the Company Law Board (CLB) orders.
4. Allegations of fund diversion and improper maintenance of accounts.
5. Arguments regarding the impact of appointing Government Directors on the company's credibility.
Issue-wise Detailed Analysis:
1. Default in repayment of matured deposits by the company:
The company, incorporated in 1984 and reconstituted as a Public Limited Company in 1992, faced issues repaying public deposits invited in 1993. The CLB concluded on 8-8-2003 that the company defaulted in payments from October 2002, with Rs. 16,183.76 lakhs owed to 85,921 depositors. Despite various options presented by the company to discharge its liabilities, the CLB ordered a structured repayment plan, which the company failed to comply with.
2. Appointment of Government Directors under Section 408 of the Companies Act:
The Central Government filed a petition under Section 408, read with Sections 397 and 398, seeking the appointment of six Government Directors due to the company's failure to repay deposits and alleged fund diversion. The CLB, after considering the case, ordered the appointment of two Government Directors to monitor and assist the company for three years. The company contested this, while the Union of India sought the appointment of six Directors.
3. Compliance with the Company Law Board (CLB) orders:
The company failed to comply with the CLB's order dated 8-8-2003, which had attained finality. The company's explanations for non-compliance, including issues with exporting 'Loratadine' and restrictions on utilizing global depository receipts, were rejected as these circumstances existed when the CLB order was passed. The company was found to have diverted funds instead of repaying public debts.
4. Allegations of fund diversion and improper maintenance of accounts:
The company was alleged to have diverted over Rs. 65 crores to associate companies and made unexplained provisions for writing off Rs. 126 crores in outstanding debts. The company's accounts were not properly maintained, as noted by its Chartered Accountants. The court found these actions prejudicial to public interest, justifying the appointment of Government Directors under Section 408.
5. Arguments regarding the impact of appointing Government Directors on the company's credibility:
The company argued that appointing Government Directors would affect its credibility. However, the court held that public interest must prevail over the company's concerns. The appointment of Government Directors was deemed necessary to prevent future mismanagement and ensure proper conduct of the company's affairs.
Conclusion:
The court dismissed both appeals, upholding the CLB's order to appoint two Government Directors. It directed the company to hold a Board of Directors meeting within two months, associating the appointed Directors, with their three-year term starting from the first meeting. The purpose of Section 408 was emphasized as ensuring proper management rather than giving the Government majority control.
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2007 (5) TMI 338
Issues Involved:
1. Actions and conduct of the official liquidator.
2. Sale and valuation of the company's assets.
3. Advertisement and sale notice.
4. Rights and claims of the West Bengal Small Industries Development Corporation Ltd. (WBSIDC).
5. Purchaser's position and claims.
6. Court's directive to the official liquidator for further inquiry.
Detailed Analysis:
1. Actions and Conduct of the Official Liquidator:
The court scrutinized the actions of the official liquidator, highlighting that his conduct required strict scrutiny. The liquidator's decision to sell the company's assets based on a valuer's report, which explicitly excluded certain sheds, was questioned. The court emphasized that the liquidator should have noted the valuer's exclusion of the sheds and explained any oversight.
2. Sale and Valuation of the Company's Assets:
The company in liquidation had use of land at the Kalyani Industrial Estate. The valuer's report indicated that sheds S2 to S6 were let out by the Government of West Bengal and not owned by the company. Despite this, the official liquidator proceeded to include these sheds in the sale of the company's assets. The court noted that the valuer's report clearly stated that the valuation of the land did not arise as it was government property.
3. Advertisement and Sale Notice:
The sale notice issued by the official liquidator contained terms and conditions that protected him from any mistakes. The advertisement invited offers for the sale of movable and immovable assets, including the sheds S2 to S6, without any reservation indicating that these sheds could not be sold. The court observed that the advertisement misled the purchaser into believing that the entirety of the immovable assets, including the sheds, was being offered for sale.
4. Rights and Claims of the West Bengal Small Industries Development Corporation Ltd. (WBSIDC):
WBSIDC, claiming ownership of the Kalyani Industrial Estate, applied under section 535 of the Companies Act for a direction to the official liquidator to disclaim the sheds. The application was rejected, but the appellate court recognized WBSIDC's right to recover its land. The court noted that WBSIDC could take steps to recover possession of the land in accordance with the law.
5. Purchaser's Position and Claims:
The purchaser claimed that it made an offer based on the advertisement and expected to receive the entirety of the land described. The purchaser argued that if it had known that part of the land or sheds would not be allotted, it might not have bid the amount it did. The court acknowledged that the purchaser's understanding was based on the misleading advertisement.
6. Court's Directive to the Official Liquidator for Further Inquiry:
The court directed the official liquidator to explain how the sheds were included in the sale description and advertisement despite the valuer's report excluding them. The liquidator was instructed to submit a report within six weeks, detailing how possession of the sheds was made over and why the court was not specifically informed about the exclusion of the sheds in the valuer's report.
Conclusion:
The application by the official liquidator was dismissed, and the receiver was discharged. The court emphasized the need for the official liquidator to clarify the discrepancies in the sale process and submit a detailed report. The court's decision aimed to ensure accountability and transparency in the actions of the official liquidator.
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2007 (5) TMI 337
Issues Involved:
1. Legality of amendments to the company's articles of association.
2. Forfeiture of shares based on amended articles.
3. Allegations of oppression and mismanagement.
4. Validity of the Company Law Board's findings and conclusions.
Detailed Analysis:
1. Legality of Amendments to the Company's Articles of Association:
The principal challenge in this appeal under section 10F of the Companies Act concerns the legality of amendments to the company's articles which allowed for the forfeiture of shares on grounds other than unpaid calls. The appellants argue that the Company Law Board's view contradicts the Supreme Court's decision in *Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd.* [1971] 41 Comp. Cas. 51; [1971] 1 SCC 50.
The amendments in question were:
- Clause (e): Forfeiture of shares if a member fails to fulfill any financial engagement within 15 days after being declared a defaulter.
- Clause (f): Expulsion and forfeiture of shares if a member deserts the company and ceases to be a business associate/partner.
The Board found these amendments illegal, stating they were alien to corporate jurisprudence. However, the judgment emphasizes that the legality of such amendments should not be doubted merely based on their potential for misuse. The legality must be assessed independently of the manner of their application.
2. Forfeiture of Shares Based on Amended Articles:
The Board concluded that forfeiture of shares could only be for unpaid calls, and the forfeiture in this case was based on the management's unilateral determination of indebtedness. The appellants contested this, citing the Supreme Court's decision which upheld similar forfeiture provisions in corporate articles.
The judgment acknowledges that forfeiture for reasons such as non-payment of dues or cessation of business is not inherently illegal. The articles can confer such authority, provided the exercise of this authority is reasonable and not oppressive. The judgment references *Sidebottom v. Kershaw, Leese and Co. Ltd.* [1920] 1 Ch. D 154 and *Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd.* to support the legality of such provisions.
3. Allegations of Oppression and Mismanagement:
The respondents alleged mismanagement and claimed the amendments were a retaliatory act to silence dissenting members. The Board found the amendments oppressive, burdensome, harsh, and wrongful, leading to a justifiable lack of confidence among the members.
However, the judgment critiques the Board's approach, stating that it improperly conflated the legality of the amendments with their oppressive application. The judgment suggests that the Board should have separately assessed whether the amendments, though legal, were introduced with an improper motive to oppress certain members.
4. Validity of the Company Law Board's Findings and Conclusions:
The Board's conclusions were influenced by its finding of illegality, which the judgment finds flawed. The judgment asserts that the Board should have applied a simpler test: whether the management's actions, though legal, were used to oppress the respondents. The judgment emphasizes that the Board's finding of illegality set an unduly high justification standard for the appellants.
The judgment remands the matter to the Board for reconsideration, instructing it to assess the amendments' propriety without presuming their illegality. The Board is directed to consider whether the amendments were introduced with a proper motive and whether their application was reasonable.
Conclusion:
The judgment sets aside the Company Law Board's order and remands the matter for fresh consideration. It clarifies that while the amendments to the articles are not per se illegal, their application must be reasonable and not oppressive. The judgment also underscores the necessity of giving fair value for forfeited shares, aligning with established legal principles. There is no order as to costs, and all other issues remain open for reconsideration by the Board.
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2007 (5) TMI 335
Whether in absence of any averments in the complaint to the effect that the accused had a role to play in the matter of non-receipt of legal notice or that the accused deliberately avoided service of notice, the same could have been entertained?
Whether the service of notice has been fraudulently refused by unscrupulous means?
Held that:- Appeal dismissed. The averment made in the complaint in this regard is that though the complainant issued lawyer’s notice intimating the dishonour of cheque and demanded payment on 4-8-2001, the same was returned on 10-8-2001 saying that the accused was ‘out of station’." True, there was no averment to the effect that the notice was sent at the correct address of the drawer of the cheque by ‘registered post acknowledgement due’. But the returned envelope was annexed to the complaint and it, thus, formed a part of the complaint which showed that the notice was sent by registered post acknowledgement due to the correct address and was returned with an endorsement that ‘the addressee was abroad.’ We are of the view that on facts in hand the requirements of section 138 of the Act had been sufficiently complied with and the decision of the High Court does not call for interference.
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2007 (5) TMI 334
Whether the shares had been valued by the valuers keeping in view the other parameters enumerated in clause (c) of Regulation 20(5) of the Takeover Code?
Held that:- Appeal dismissed. As satisfied that the valuer, Patni & Company have not committed any such error which may justify our interference. They have considered all the factors relevant under Regulation 20(5)(c) of the Takeover Code and have adopted a reasonable approach which does not call for interference. The Board has acted in a reasonable manner and made its best efforts to secure a reasonable price for the shares of the shareholders. It has exercised its discretion wisely and we find no reason to interfere.
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2007 (5) TMI 333
Issues Involved:
1. Petition for winding up of the respondent company under section 433(e) of the Companies Act, 1956.
2. Appointment of Official Liquidator as the provisional liquidator.
3. Alleged debt owed by the respondent company to the petitioner.
4. Dispute over the agreed commission rate and interest.
5. Bona fide dispute regarding the debt.
6. Financial solvency of the respondent company.
7. Legal principles governing winding-up petitions based on disputed claims.
Issue-wise Detailed Analysis:
1. Petition for Winding Up of the Respondent Company:
The petitioner sought the winding up of the respondent company under section 433(e), read with sections 434 and 439 of the Companies Act, 1956, alleging the respondent's inability to pay a debt of Rs. 3,66,416 with interest. The petitioner argued that the respondent company was commercially insolvent and unable to pay its debts, thus justifying the winding-up petition.
2. Appointment of Official Liquidator:
The petitioner also requested the appointment of an Official Liquidator as the provisional liquidator to manage the respondent company's affairs and assets, and to prevent the respondent from disposing of its assets.
3. Alleged Debt Owed by the Respondent Company:
The petitioner claimed that the respondent owed Rs. 3,66,416 plus interest for recruitment services provided. Invoices were sent to the respondent, who allegedly did not dispute them, implying acceptance. However, the respondent refuted this, stating there was no agreement on the commission rate or interest.
4. Dispute Over Agreed Commission Rate and Interest:
The petitioner claimed a commission rate of 12.5% on annual gross, which the respondent argued was arbitrary and higher than rates paid to other service providers. The respondent contended that an oral agreement for an 8.33% commission existed and that the invoices were sent at a higher rate without agreement. The respondent also disputed the claim for interest, stating no agreement on the rate existed.
5. Bona Fide Dispute Regarding the Debt:
The court examined whether the dispute over the debt was bona fide. The respondent provided evidence of a genuine dispute over the commission rate and the quality of services provided. The court noted that a winding-up petition is not a legitimate means to enforce payment of a disputed debt. The petitioner's shifting stance-from deemed acceptance of invoices to an oral agreement-further complicated the matter.
6. Financial Solvency of the Respondent Company:
The respondent provided its audited balance sheet for 2005-06, which did not indicate insolvency. The court found no evidence from the petitioner to suggest the respondent was financially incapable of paying its debts.
7. Legal Principles Governing Winding-Up Petitions Based on Disputed Claims:
The court reiterated that for a winding-up petition to succeed, the debt must be clear, definite, and undisputed. The court emphasized that a bona fide dispute over the debt precludes the use of winding-up proceedings as a debt recovery mechanism. The court referred to several precedents, including "Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd." and "Pradeshiya Industrial & Investment Corpn. of U.P. v. North India Petrochemicals Ltd.," which establish that winding-up petitions should not be used to resolve disputed debts.
Conclusion:
The court concluded that the disputes raised by the respondent were bona fide and substantial, indicating no consensus ad idem on the commission rate or interest. The respondent's financial statements did not support claims of insolvency. Consequently, the petition for winding up the respondent company was dismissed, with both parties bearing their own costs.
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