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2006 (8) TMI 320
Issues:
1. Application under sections 391 and 394 of the Companies Act, 1956 for a direction regarding the scheme of arrangement with secured creditors.
2. Change in company name and details of incorporation.
3. Company's financial position and capital structure.
4. Background of financial assistance and losses incurred by the company.
5. Legal proceedings with BIFR and settlement negotiations with secured creditors.
6. Direction for convening and conducting a meeting of secured creditors.
7. Advertising and notice requirements for the meetings.
8. Appointment of Chairman for the meeting and related expenses.
9. Quorum, proxy voting, and valuation of secured creditors.
10. Reporting requirements after the meeting.
Analysis:
1. The applicant, Lords Chloro Alkali Limited, filed an application under sections 391 and 394 of the Companies Act, 1956, seeking directions for convening a meeting of secured creditors to consider and approve a scheme of arrangement between the company and its secured creditors. The purpose was to address the company's financial situation and liabilities towards its creditors.
2. The company, originally known as Modi Alkalies & Chemicals Limited, changed its name to Lords Chloro Alkalies Limited in 2003. It was incorporated in Punjab in 1979 and later shifted its registered office to Alwar, Rajasthan. Details of the company's capital structure and objects were provided in the application.
3. The application outlined the financial position of the company, including its authorized, issued, subscribed, and paid-up capital. The company's Memorandum of Association specified its main objects, and the latest audited annual accounts were submitted as part of the application.
4. The company had availed financial assistance from various institutions but faced financial losses leading to erosion of its net worth. Legal proceedings with the BIFR were initiated, and negotiations with secured creditors were undertaken for settlement of dues, with some creditors already settling at a reduced percentage of the principal amount.
5. The BIFR declared the company as a sick industrial company, and subsequent legal actions were taken regarding winding up, which were later appealed and remanded. The company expressed interest in settling liabilities with secured creditors, and major creditors showed willingness to settle at a reduced percentage of the principal amount.
6. The court ordered the convening and conducting of a meeting of secured creditors on a specified date, time, and location to consider and approve the proposed scheme of arrangement. The schedule and procedures for the meeting were detailed in the judgment.
7. Advertising and notice requirements for the meetings were specified, including the publication of advertisements in newspapers and sending notices to secured creditors at least 21 days before the scheduled meetings. Forms of proxy were to be made available to the creditors.
8. The judgment appointed a Chairman for the meeting, outlined related expenses to be borne by the company, and directed the Chairman to issue advertisements and notices for the meeting.
9. Provisions were made for quorum, proxy voting, and valuation of secured creditors, with the Chairman authorized to determine the value if entries in the company's books were disputed.
10. Reporting requirements were established for the Chairman to submit a report to the Court within seven days of the meeting's conclusion, verified by affidavit, to provide an update on the meeting's outcome. The judgment concluded by disposing of the application with the specified directions.
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2006 (8) TMI 319
Issues:
Petition for winding up under Companies Act, 1956 due to non-payment of consultation fee.
Analysis:
The petitioner, a technical consultant, sought winding up of the respondent company due to non-payment of fees. The petitioner claimed that an agreement was made for technical consultation services for a project, with a specific payment schedule. The company only made a partial payment, leaving a substantial amount outstanding. In response, the company disputed the debt, alleging that the petitioner's services were subpar, leading to financial losses due to product quality issues. The company contended that the petitioner's claim was a guise to conceal their own breaches. The court considered various documents and arguments from both sides.
The court referred to legal precedents to determine the criteria for ordering winding up. Citing the Supreme Court's rulings, the court emphasized that a debt must be definite and payable immediately or in the future, and the company must genuinely be unable to pay. The court highlighted the need for a bona fide dispute in cases of winding up petitions. It was noted that if a debt is genuinely disputed, the court should not grant a winding up order. The court analyzed the facts of the case and concluded that the debt was genuinely disputed based on the interpretation of the agreement, which could be resolved in a civil suit. Therefore, the court found that the company had bona fide disputed the debt, and the petition for winding up was not a valid method to enforce payment of the disputed amount.
Ultimately, the court dismissed the petition, ruling in favor of the respondent company. The court held that there was no merit in the petition as the debt was genuinely disputed, and the company's actions did not constitute neglect to pay within the legal framework. Consequently, the petition for winding up was rejected, and no costs were awarded.
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2006 (8) TMI 318
Issues:
Whether a winding-up petition is a legitimate means to enforce payment of a disputed debt.
Analysis:
The petitioner filed a winding-up petition under section 459 of the Companies Act, 1956, seeking payment of outstanding dues from the respondent company. The respondent raised contentions that the dispute was contractual and civil in nature, the petition was misconceived, and the debt was bona fide disputed. The respondent claimed that the petitioner tried to take unfair advantage and that the bills were cleared up to a certain point, but subsequent goods were of inferior quality. The respondent also argued that shares were allotted as per agreed terms. The court considered the rival submissions and referred to legal precedents to determine the principles guiding winding-up petitions.
The court referred to the case of Mediquip Systems (P.) Ltd. v. Proxima Medical System GMBH and highlighted that a debt must be determined or definite for a winding-up order to be justified. Additionally, the court cited Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. to establish that if a debt is bona fide disputed and the defense is substantial, the court will not wind up the company. The court outlined principles for disposing of winding-up petitions, emphasizing that if a debt is bona fide disputed, the petition may not be maintainable.
Upon examining the facts of the case, the court found that the debt was bona fide disputed. The respondent company's actions, including the allotment of shares to settle outstanding accounts, indicated a genuine dispute over the debt. The court noted that documents supporting the respondent's contentions were not controverted, leading to the conclusion that the debt was genuinely disputed. Therefore, the court held that the winding-up petition was not a legitimate means to enforce payment of a disputed debt. Consequently, the petition was dismissed, with no order as to costs.
In conclusion, the judgment emphasized the importance of establishing a genuine debt for a winding-up order to be justified. The court's analysis of the disputed debt in this case led to the dismissal of the petition, highlighting the need for a clear and undisputed debt for winding-up proceedings to proceed.
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2006 (8) TMI 317
Whether the decision dated 7-1-2006 of the Central Government imposing moratorium and to appoint two directors was mala fide, ultra vires the powers of the Central Government and the RBI, bad in law and void and unjustified on facts?
Whether the notification dated 9-1-2006 containing the proposed scheme of amalgamation and the decision to sanction the amalgamation dated 24-1-2006 were mala fide, ultra vires the powers of the Central Government and the RBI and unjustified on facts?
Held that:- Appeal dismissed. To characterize a decision of the administrator as "irrational" the Court has to hold, on material, that it is a decision "so outrageous" as to be in total defiance of logic or moral standards. Adoption of "proportionality" into administrative law was left for the future.In essence, the test is to see whether there is any infirmity in the decision-making process and not in the decision itself.
Thus the judgment of the High Court does not suffer from any infirmity to warrant interference.
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2006 (8) TMI 316
Issues:
1. Mis-joinder and non-joinder of necessary parties
2. Entitlement of the Complainant for compensation from the Opposite Party
Analysis:
Issue 1: Mis-joinder and non-joinder of necessary parties
The Complainant, a Registered Stock Broker, sought compensation from the Opposite Party (OP) for the loss incurred due to a series of events involving the transfer and subsequent return of shares. The OP denied liability, contending that the Complainant is not entitled to claim compensation as the shares were sold through another entity, M/s. Innova Securities & Investment Limited. The OP argued that necessary parties, including M/s. Innova Securities & Investment Limited, NSE, and the alleged real owner of the shares, Mr. Shaji, were not impleaded in the Complaint. The Commission held that these parties are essential for a fair resolution of the dispute. Without their presence, it was deemed impossible to determine the actual ownership of the shares and assess the alleged loss suffered by the Complainant. The Commission emphasized the need for a detailed trial to establish the facts, concluding that the Consumer Protection Act remedy was not suitable in this complex case. Therefore, the Complaint was dismissed due to mis-joinder and non-joinder of necessary parties.
Issue 2: Entitlement of the Complainant for compensation
Given the dismissal of the Complaint due to the absence of crucial parties, the Commission refrained from expressing a view on the Complainant's entitlement to compensation from the OP. The decision on this issue was deferred, as the lack of necessary parties prevented a comprehensive assessment of the Complainant's claim. The Commission highlighted that the Complainant may explore alternative legal avenues to seek appropriate relief, leaving the door open for pursuing other remedies outside the scope of the present Complaint. Ultimately, each party was directed to bear their own costs, signaling the end of the proceedings under the Consumer Protection Act, 1986.
In conclusion, the judgment centered on the necessity of involving all relevant parties in a dispute to ensure a fair and thorough examination of the facts and claims presented. The decision to dismiss the Complaint underscored the importance of comprehensive legal proceedings and the limitations of consumer protection laws in addressing complex matters requiring detailed evidentiary analysis and involvement of all concerned parties.
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2006 (8) TMI 315
Issues Involved:
1. Admissibility of the affidavit of evidence.
2. Admissibility and evidentiary value of documents referred to in the cross-examination.
3. Procedure for determining the admissibility of evidence.
4. Allegations of delaying tactics by the petitioner.
5. Request for time-bound disposal of the enquiry.
Issue-wise Detailed Analysis:
1. Admissibility of the affidavit of evidence:
The petitioner challenged the admissibility of the affidavit of evidence filed by the complainants on the grounds that the verification of the affidavit was not in accordance with Order 19 Rule 3 of CPC, and that the originals of certain documents were not tendered along with the affidavit, rendering it hearsay and inadmissible. The MRTP Commission rejected this application, stating that the procedure outlined in Regulation 68 required admission and denial of documents by the parties before the designated officer of the MRTP Commission. The Commission held that admissibility would be considered during the cross-examination of the complainant's witness and that the application was premature.
2. Admissibility and evidentiary value of documents referred to in the cross-examination:
During the cross-examination of the complainant's witness, the petitioner raised objections regarding the admissibility of certain documents, including an unsigned Minute dated 5-7-2000. The MRTP Commission recorded the objections and stated that the admissibility and evidentiary value of the documents would be considered at the final hearing, in light of the answers given by the witness during cross-examination.
3. Procedure for determining the admissibility of evidence:
The petitioner argued that the MRTP Commission was bound to decide the preliminary issue of admissibility of evidence before proceeding with the enquiry. They cited the Supreme Court judgment in R.V.E. Venkatachala Gounder v. Arulmigu Viswesaraswami & V.P. Temple to support their contention. However, the MRTP Commission and the High Court held that the question of admissibility could be considered after the cross-examination of the witnesses. The High Court emphasized that the presiding officer has the discretion to decide the timing of ruling on the admissibility of evidence based on the facts and circumstances of the case.
4. Allegations of delaying tactics by the petitioner:
The complainants accused the petitioner and other cement companies of delaying the proceedings by repeatedly raising objections regarding the admissibility of evidence. The cross-examination of the complainant's witness had been prolonged for over 17 months. The High Court noted that the extensive cross-examination would have addressed the veracity of the complainant's evidence and found no justification to interfere with the MRTP Commission's orders.
5. Request for time-bound disposal of the enquiry:
Respondent No. 5's counsel assured the court of their cooperation in the expeditious disposal of the enquiry and requested a time-bound completion. The High Court, while dismissing the writ petition, requested the MRTP Commission to complete the enquiry within six months from the receipt of a certified copy of the order.
Conclusion:
The High Court upheld the MRTP Commission's decision to consider the admissibility of evidence during the final hearing and dismissed the writ petition. The court emphasized the need for a flexible approach in determining the admissibility of evidence and requested the MRTP Commission to expedite the enquiry process.
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2006 (8) TMI 314
Issues:
- Interpretation of section 22 of the Act in relation to repayment of deposits by the appellant-company to depositors.
- Validity of the order of the Company Law Board directing the appellant to repay the deposits of 202 depositors.
- Consideration of the interest of depositors and protection thereof in light of the peculiar facts and circumstances of the case.
- Application of legal precedent regarding the nature of deposits and claims for return of deposits after maturity.
Analysis:
The High Court of Karnataka considered the appeal of M/s. Electrex (India) Ltd., which challenged the order of the Company Law Board directing the repayment of deposits made by 202 depositors. The appellant-company had received deposits amounting to Rs. 8.88 lakhs from depositors for working capital requirements, but due to financial difficulties, it became sick and was referred to the Board for Industrial and Financial Reconstruction (BIFR). The appellant argued that section 22 of the Act should apply, staying the proceedings under section 58A(9) of the Companies Act for deposit repayment. The Court examined the order of the BIFR, the findings of the Company Law Board, and the interests of the depositors in the case.
The appellant contended that section 22 of the Act should protect them from the repayment demands, citing judgments supporting their position. The Court reviewed the Company Law Board's order, noting the BIFR's directions for repayment to 75 depositors and the absence of a stay in the matter. The Court emphasized the need to protect the interest of depositors based on the specific circumstances of the case and relevant material facts. Referring to a previous judgment, the Court highlighted that deposits are held in trust by the company and not considered loans, thus not falling under the prohibition of section 22 for suits for recovery of money.
In light of the legal precedent and the nature of deposit claims after maturity, the Court concluded that the appeal by the appellant should be rejected. The Court upheld the Company Law Board's decision for the repayment of deposits to the depositors, emphasizing the protection of the depositors' interests in the case. The judgment highlighted the distinction between deposits and loans, clarifying that claims for deposit return after maturity do not fall under the restrictions of section 22 of the Act. Ultimately, the Court ruled in favor of the depositors, ensuring the repayment of deposits by the appellant-company.
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2006 (8) TMI 313
Whether the petition filed by Dr. Kamal Kumar Dutta would justify the order passed by the CLB or not?
Whether a case of oppression in the interest of the members is made out or not?
Held that:- Appeal allowed. Since the issue of granting of equity shares against the medical equipments supplied by the appellant No. 1 to the tune of Rs. 3.5 crore is pending before the Calcutta High Court in a writ petition, therefore the CLB has not passed any final order but passed a limited order as mentioned above. However, as examined the matter in detail and we are satisfied that there is full proof case of oppression. But at the same time we do not feel inclined to pass an order for winding up of the company because it will not be in the interest of the company nor to the interest of the parties. Therefore, we allow the appeals and set aside the impugned order dated 31-3-2005 passed by the learned Single Judge of the High Court and pass limited direction that all the resolutions which have been passed by the Board of Directors, or in the Annual General Meeting or Extraordinary General Meeting with regard to the raising of funds of Rs. 40 lakhs in the meeting of 19-4-1995 and the meeting dated 16-2-1996 whereby the appellant No. 1 was stripped off of his powers as Managing Director, the resolution by which Dr. Binod Prasad Sinha was removed from the office of Director and other resolutions by which the shares were allotted to the subsidiary company of Sajal Dutta or other persons are bad and we restore the position ante 19-4-1995 and direct that let a fresh meeting be convened and proper decision be taken in the matter in the interest of the company. We confirm the order and direction of the CLB.
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2006 (8) TMI 312
Issues:
- Dispute over shareholding percentage due to issuance of additional shares.
- Allegations of oppression and mismanagement under sections 397/398 of the Companies Act.
- Disagreement on the valuation of shares and arrears of salary.
- Allegations of diversion of company funds.
- Appeal under section 10F of the Companies Act challenging the CLB's order.
Analysis:
1. Dispute over Shareholding Percentage:
The appellant, a director of the respondent-company, held 16.66% of the paid-up capital, which decreased significantly to 0.004% after the issuance of additional shares to other shareholders. The issuance of new shares was necessary to meet the minimum paid-up share capital requirement set by the Ministry of Company Affairs. The appellant alleged that the issuance of shares without his consent led to a substantial reduction in his shareholding percentage.
2. Allegations of Oppression and Mismanagement:
The appellant filed a petition under sections 397/398 of the Companies Act for oppression and mismanagement due to disputes with other directors. The CLB disposed of the petition, leading to the appellant challenging the order as perverse. The appellant disputed the findings related to a loan given to him and alleged diversion of company funds by the respondent-directors.
3. Valuation of Shares and Arrears of Salary:
The CLB directed the valuation of the appellant's shares and payment of arrears of salary. The appellant contested the valuation method and the treatment of the advance given to him as a loan. The respondent argued that the directions were fair and just, emphasizing the need for proper accounting of the advance provided to the appellant.
4. Allegations of Fund Diversion:
The appellant alleged diversion of company funds amounting to Rs. 51.76 lakhs, which the respondent denied. The High Court noted that such allegations were not part of the original petition under sections 397/398 and could not be raised for the first time in the appeal under section 10F.
5. Appeal under Section 10F:
The High Court clarified that an appeal under section 10F is limited to questions of law arising from the impugned order. It emphasized that issues not raised before the CLB cannot be introduced for the first time in the High Court appeal. The Court dismissed the appeal, upholding the CLB's order while clarifying the basis for valuing the appellant's shares as per the concession made by the respondent's counsel.
In conclusion, the judgment addressed the various issues raised by the appellant regarding shareholding, oppression, mismanagement, valuation of shares, salary arrears, fund diversion, and the scope of appeal under section 10F. The Court provided detailed reasoning for dismissing the appeal while emphasizing the importance of adhering to legal procedures and presenting all relevant claims before the appropriate forums.
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2006 (8) TMI 311
Whether the company judge was justified in setting aside his own order of confirmation of sale merely on account of inadequacy of price after the possession was handed over to the appellant auction purchaser, and if so, then under what circumstances ?
Whether the workmen/employees of the company (in liquidation) have to be treated at par with secured creditors so as to be associated by the Official Liquidator in the process of sale of company ?
Held that:- Appeal allowed. No doubt the learned company judge has made an endeavour commensurate with the object desired to be achieved, viz., to fetch the maximum price for the assets of the company in liquidation but there appears to be no concrete material for disturbing the sale already conformed. The net result is that the impugned order dated 30-3-2005, is hereby set aside and the earlier order dated 10-12-2004, which is further clarified on 13-1-2005, confirming the sale is restored.
Vide order dated 28-1-2005, the Official Liquidator was restrained from taking any further action with regard to the sale, he may now proceed in completing all the requisite formalities in favour of the auction purchaser.
A sum of Rs. 2 crores which was ordered to be deposited by respondent No. 10 with the Official Liquidator shall now be returned to it on an application to be moved in this regard. Any interest if accrued thereupon, shall also be paid to respondent No. 10 along with the aforesaid amount.
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2006 (8) TMI 310
Issues:
1. Confirmation of scheme of amalgamation under rule 79 of the Companies (Court) Rules, 1959.
2. Rejection of application by a person claiming to be a workman.
3. Details of the companies involved in the amalgamation.
4. Share exchange ratio and proposed pooling of resources.
5. Conduct and results of meetings of equity shareholders and creditors.
6. Verification reports by chairmen of meetings.
7. Official Liquidator's report.
8. Objections raised by Regional Director, Company Affairs.
9. Precedents cited to address objections.
10. Final decision and sanction of the scheme of amalgamation.
Detailed Analysis:
1. The judgment pertains to the confirmation of a scheme of amalgamation under rule 79 of the Companies (Court) Rules, 1959, involving two companies - Jaypee Greens Ltd. as the transferor-company and Jaiprakash Associates Ltd. as the transferee company.
2. An application by a person claiming to be a workman was rejected, indicating a formal process followed by the court in addressing various applications related to the scheme of amalgamation.
3. Detailed descriptions of the companies involved were provided, including their issued, subscribed, and paid-up share capital, business activities, and assets, essential for assessing the merger.
4. The scheme proposed pooling of resources and synergizing activities for effective management and growth, with a specific share exchange ratio of one equity share of the transferee-company for two equity shares of the transferor-company.
5. The conduct and results of meetings of equity shareholders and creditors were meticulously recorded, including attendance, voting percentages, and approval of the scheme without modifications.
6. Verification reports by chairmen of meetings, such as Shri S.D. Singh and Shri Vivek Chaudhary, affirmed the proper conduct and outcomes of the meetings, ensuring compliance with legal requirements.
7. The Official Liquidator's report verified that the affairs of the transferor-company were not conducted in a prejudicial manner, supporting the consideration of the merger petition under relevant sections of the Companies Act, 1956.
8. Objections raised by the Regional Director, Company Affairs, regarding the transfer of authorized share capital were addressed, citing legal precedents and judgments to overrule the objections.
9. Precedents such as judgments in Jaypee Cement Ltd. and other cases were cited to support the decision to dismiss objections and confirm the scheme of amalgamation.
10. Finally, the court allowed the company petition, sanctioned the scheme of amalgamation, specified the appointed day for the merger to come into effect, and outlined the dissolution process for the transferor-company upon filing necessary documents with the Registrar of Companies.
This detailed analysis showcases the thorough legal process followed in confirming the scheme of amalgamation and addressing various issues raised during the proceedings.
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2006 (8) TMI 309
Whether the appellant is entitled to the benefit of Clause 28.1 of the Commercial Tax Reforms?
Held that:- Appeal dismissed. Since the appellant was availing the facility of Taxdeferment on 15.11.2000 he was not entitled to the benefit under Clause 28.1. Hence we agree with the view taken by the High Court.
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2006 (8) TMI 308
Situational change how far could give rise to a new interpretation of a statutory provision - Held that:- Although we are of the opinion that fulfilment of the conditions laid down in the proviso contained in clause (b) of sub-section (3) of section 14 of the Act is imperative in character, the authorities may take recourse to the aforementioned procedure in respect of seizure of a hard disk. It is necessary to explain the legal position so that the complications arising out of seizure of hard disk may be avoided in future.
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2006 (8) TMI 307
Constitutional validity of the Andhra Pradesh Rural Development Act, 1996 - Challenged the levy of Cess in addition to the purchase or sales tax - Nature of the cess - Whether it is a tax or a fee - Difference between a tax and a fee
HELD THAT:- It is well-settled that the basic difference between a tax and a fee is that a tax is a compulsory exaction of money by the State or a public authority for public purposes, and is not a payment for some specific services rendered. On the other hand, a fee is generally defined to be a charge for a special service rendered by some governmental agency. In other words there has to be quid pro quo in a fee vide Kewal Krishan Puri v. State of Punjab [1979 (5) TMI 136 - SUPREME COURT].
In our opinion the cess in question is in substance a fee as it is being levied for rendering to the rural public the service of rural development for the purposes stated in para 9 of the Act. Clearly roads, bridges and storage facilities have to be built in rural areas for progress, and naturally this will require generating funds. Thus, even if no specific service is rendered to any particular individual from whom the fee has been realised, the cess in question is nevertheless a fee, for the reasons already mentioned above. Services are being rendered to the people in the rural areas as mentioned in section 9 of the Act.
No doubt, as stated above, there has to be a broad correlation between the total amount of fees generated by the impugned cess and the total value of the services rendered, but there is no specific averment in the writ petition that there is no such broad correlation. It is true that if, say, ₹ 100 crores revenue is generated every year by this cess, it is not necessary that this entire amount of ₹ 100 crores must be spent for the purposes mentioned in section 9, and it will suffice if a substantial part of this ₹ 100 crores is spent for such purposes. At the same time we would like to clarify that if, say, ₹ 100 crores is generated by the cess in question and only ₹ 1 crore or ₹ 50 lacs is spent for the purpose mentioned in section 9, obviously there would not be in such a case a broad correlation between the fees being realised and the service rendered.
Hence, while we uphold the validity of the Act.
With the aforesaid observations these appeals are dismissed. No costs.
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2006 (8) TMI 306
Whether the assessee is entitled to avail of the exemption on the basis of the turnover of sale of goods in an assessment year minus the base production or on the sale of goods after achieving the base production?
Held that:- Appeal dismissed. Intention of the Legislature is clear and unambiguous. Exemption is to be given on the turnover of sale of goods in an assessment year in excess of the base production. We do not find any substance in the submission advanced on behalf of the appellants.
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2006 (8) TMI 304
Whether coal briquettes are as same as coal and hence no liability of tax can be fastened on the sale of coal briquettes?
Held that:- Appeal dismissed. The process as mentioned here is clearly processing, treating or adapting the coal. Hence, it is a "manufacture". Appellant's submission that coal briquettes are produced merely by using a binding material such as clay or molasses along with the coal, and hence the identity does not change cannot agreed as the coal briquettes are the same commercial commodity as coal. The appellant manufactures coal briquettes by compiling the hard coke breeze mechanically with the help of cinders which is usually 5 per cent of the total hard coke breeze. In the compilation of the hard coke breeze, 95 per cent of the hard coke breeze, which is known as coal-dust or breeze coke is taken which is compiled with the help of clay and molasses. Hence, coal briquettes is a different commercial commodity from coal. Moreover, even if it is not a different commercial commodity, the process of making coal briquettes will amount to a "manufacture" as it is processing, treating or adapting coal.
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2006 (8) TMI 302
Whether it is an intra-State sale or purchase or not affect validity of section 8-E?
Held that:- Appeal allowed. The reply filed by the appellant on July 11, 2001 shall be dealt with by the respondent No. 3 in accordance with law. The said authority shall decide as to the nature of the transaction, i.e., whether it is of intra-State or inter-State character. If it is of inter-State character, the decisions in Steel Authority of India Ltd.'s case [2000 (2) TMI 729 - SUPREME COURT OF INDIA] and Nathpa Jhakri's case [2000 (3) TMI 949 - SUPREME COURT OF INDIA] shall apply. Section 8-E, therefore, cannot be held applicable to inter-State transactions.
The question whether the appellant has any liability to pay purchase tax shall not be dealt with in the proceedings relating to which the notice was issued on July 8, 2001 and the reply was filed on July 11, 2001. It will be for the appellant to establish that the transaction in question was of inter-State character. The appellant shall be given opportunity to file further reply and place such materials as according to it are relevant before the concerned authority within four weeks from today.
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2006 (8) TMI 286
Let out the property i.e. warehouse - activity of leasing/hiring/letting of its land and building - business activity - whether the warehousing charges received by the assessee should be assessed as 'income from house property' or as 'business income' - lease agreement between the assessee company and Lipton India and with Hindustan Lever - HELD THAT:- This is not a case where the leasing of the property was incidental or subservient to the main business of the assessee. The assessee, was engaged in the activity of leasing/hiring/letting of its land and building and in our opinion, this activity was not a 'business activity'. The lease rent received by the assessee was because of the bare letting of the property. The said character cannot change and the income does not become income from trade or business merely because letting out included certain additional services such as security, issuing the goods on the directions of the client lighting, cleaning, and sanitation, etc., which are only incidental to the use and occupation of the premises. Therefore, we hold that the lease rent received by the assessee from Lipton India and from Hindustan Lever was rightly assessed as 'income from house property'. The ground Nos. 3 and 4 are accordingly rejected.
Whether the warehousing charges received by the assessee should be assessed as 'income from house property' or as 'business income' - The income from warehousing is derived from house property by the exercise of the property rights, properly so-called, and the said character is not changed and the income does not become 'income from business' merely because the hiring is inclusive of certain services, such as security, labour for loading and unloading, lighting, cleaning etc., which are incidental to the use and the occupation of the premises. In warehousing the dominant object is exploitation of house property and the other services that go with it are only incidental. In it no complex commercial activity is involved.
Thus, we agree with the conclusions reached by the CIT(A). The grounds Nos. 1 to 4 are accordingly rejected.
Disallowance of interest on account of interest free advances - HELD THAT:- In our considered opinion the assessee needs to be given one more opportunity to substantiate its claim and it will be in the interest of natural justice to do so. We, therefore, remit this issue back to the file of the CIT(A) with a direction that he should re-examine the claim and pass a fresh order on this point, after giving adequate opportunity of being heard to the assessee. The ground No. 6 is decided accordingly.
Disallowance out of service charges u/s 40A(2)(b) - HELD THAT:- We have no doubt in our mind that the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers was not the basis for paying Rs. 27,02,000. The assessee company failed to discharge the burden of proving that the impugned payment of Rs. 27,02,000, represented the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers and that the expenditure of Rs. 27,02,000 was incurred for legitimate needs of its business. The new plea of a 'give and take arrangement' was a self-serving argument and had no merit. The CIT(A), after taking into consideration the facts of the case, restricted the claim to Rs. 3,74,408. Shri. Pranay, the ld DR, explained that the method adopted by the CIT(A) for estimating the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers was akin to the Cost Plus Method which was a recognized method. In view of above discussions we are of the considered opinion, that the order of the CIT(A) does not call for any interference and is accordingly upheld. The grounds Nos. 7 and 8 are accordingly rejected.
In the result the appeal filed by the assessee is partly allowed.
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2006 (8) TMI 283
Issues Involved:
1. Taxation of additional/enhanced compensation as professional income.
2. Taxation of interest on additional/enhanced compensation.
3. Disallowance of expenditure incurred on litigation.
4. Initiation of proceedings under section 147/148.
5. Addition of Rs. 25,00,000 as professional fee.
Detailed Analysis:
1. Taxation of Additional/Enhanced Compensation as Professional Income:
The department assessed the professional income of the assessees, who are advocates, by adopting a certain percentage of additional/enhanced compensation in various years. The CIT (Appeals) affirmed this addition. However, the Tribunal held that the additional/enhanced compensation awarded to landowners for land acquisition cannot be considered the income of the advocates who represented them. The Tribunal referenced the Calcutta Bench decision in Tribhuvan Mahato v. Dy. CIT, which established that such compensation and interest accrued thereon are not the income of the advocates but of the landowners. The Tribunal reiterated that the advocates acted as custodians, and the income belongs to the landowners.
2. Taxation of Interest on Additional/Enhanced Compensation:
The department also assessed the interest on additional/enhanced compensation as the income of the assessees. The Tribunal held that the interest earned on deposits made from additional/enhanced compensation funds belongs to the landowners, not the advocates. The interest income should be taxed in the hands of the landowners, as the advocates merely held the funds in trust as per court orders.
3. Disallowance of Expenditure Incurred on Litigation:
The CIT (Appeals) sustained the disallowance of 50% of the expenditure incurred on litigation. The Tribunal found that the expenditure related to the litigation process was not the expenditure of the advocates but of the landowners. Therefore, such disallowance in the hands of the advocates was unjustified. The Tribunal ordered the deletion of the disallowance.
4. Initiation of Proceedings Under Section 147/148:
The assessees contested the initiation of proceedings under section 147/148 for the assessment years 1986-87 and 1992-93. The CIT (Appeals) affirmed the initiation, but the assessees did not press this ground further. The Tribunal did not address this issue in detail as it was not pursued by the assessees.
5. Addition of Rs. 25,00,000 as Professional Fee:
The CIT (Appeals) added Rs. 25,00,000 (split equally between the two assessees) as professional fees received from another advocate, Mr. R.D. Gupta. The Tribunal found that this amount represented a decretal amount of award and not professional fees. Mr. Gupta had stated that the amount was paid to keep it in fixed deposits with a condition of refund upon an adverse court decision. Hence, the Tribunal ordered the deletion of this addition as well.
Conclusion:
The Tribunal concluded that the additional/enhanced compensation, interest accrued thereon, and related expenditures could not be taxed in the hands of the advocates. The income belonged to the landowners, and the advocates were merely custodians as per court directives. The Tribunal allowed the appeals of the assessees in full, directing the Assessing Officer to modify the orders accordingly and provide consequential relief.
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2006 (8) TMI 280
Issues Involved:1. Taxability of salary and bonus received outside India by an assessee with Not Ordinarily Resident (NOR) status. 2. Determination of the residential status of an assessee. 3. Applicability of section 5(1)(c) and section 9(1)(ii) of the Income-tax Act. Issue-wise Detailed Analysis:1. Taxability of Salary and Bonus Received Outside India by an Assessee with NOR Status:In the case of Shri Hiromi Hirose, the revenue contended that the salary and bonus received by the assessee outside India should be taxable in India under section 5(1)(c) of the Income-tax Act. The Assessing Officer held that since the assessee's employment terms obligated him to look after activities from his base in New Delhi, the salary received outside India was taxable in India. However, the CIT(A) concluded that the salary for the period during which the assessee worked outside India was not taxable in India, as the services were rendered outside India and there was no territorial nexus with India. The Tribunal, after considering the arguments and evidence, concluded that the whole of the salary and bonus accrued to the assessee in India. The Tribunal held that the travel abroad was inextricably linked with the assessee's functions as Chief of News Bureau Office, New Delhi, and thus, the entire salary was taxable in India. 2. Determination of the Residential Status of an Assessee:In the case of Shri Hamada Haryuki, the revenue initially contested the residential status of the assessee. However, the learned DR conceded that the correct residential status of the assessee was Non-Resident (NR). Therefore, the issue of residential status did not survive, and the Tribunal did not need to address this issue further. 3. Applicability of Section 5(1)(c) and Section 9(1)(ii) of the Income-tax Act:The Tribunal examined whether the provisions of section 9(1)(ii) or section 5(1)(b) were applicable in the case of Shri Hiromi Hirose. The Tribunal referred to various legal precedents and concluded that the salary for services rendered outside India was inextricably linked to the assessee's employment in India. The Tribunal also noted that the salary structure did not change during the periods of travel, and the assessee continued to occupy rent-free accommodation in India throughout the year. Therefore, the entire salary was considered to have accrued in India. In the case of Shri Hamada Haryuki, the Tribunal found the facts to be similar to the case of Shri Hiromi Hirose and applied the same reasoning to conclude that the entire salary and bonus were taxable in India under section 5(2)(b), which is identical to section 5(1)(b) for a NOR. Conclusion:In both cases, the Tribunal concluded that the entire salary and bonus received by the assessees were taxable in India, as the services rendered outside India were inextricably linked to their employment in India. The appeals of the revenue were allowed, and the orders of the Assessing Officer were restored.
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