TMI Tax Updates - e-Newsletter
March 22, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Highlights / Catch Notes
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Income Tax:
Payment of Market Fees - The argument that 'market fee' is also a tax and only nomenclature has been changed is also not liable to be accepted - Section 43B not applicable - HC
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Income Tax:
Taxability of shares issued by amalgamated comapny - the amalgamation is not an adventure in the nature of trade and that this transaction is clearly a capital account transaction - Not taxable - AT
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2013 (3) TMI 397
Income from undisclosed sources - suppression of sales on account of under valuation of sales of waste detected by the Intelligence Wing of the excise department - Held that:- The assessee accepted that as per the assessee's own admission there was difference in the sales figure of waste amounting to Rs. 91,84,006/- pertaining to asstt. year 2001-02 to 2005-06. Assessee has accepted the order of the Settlement Commission in this regard and has duly paid excise duty of Rs. 143,73,644/- on the alleged sales amount of Rs. 91,84,006/- for the financial year 2001-02 to 2004-05. In light of the above, now the submission of the assessee is that it has accepted the verdict of Settlement Commission and the orders of the authorities in Excise Department only to buy peace of mind. This contention does not have any cogency & submissions of the assessee that no addition in the income tax assessment can be made in this regard as nothing has been found by the income tax authorities in this regard is also not tenable - against the assessee. Disallowance on account of foreign exchange fluctuation loss which remained included in the WDV in the plant and machinery which was covered under the provisions of sub-section 43A - CIT(A) deleted the disallowance - Held that:- Finding agreement with the CIT(A) that before the amendment to section 43A any loss suffered by assessee on account of foreign exchange fluctuation has to be capitalized in the year of such fluctuations if the asstt. order is prior to asstt. year 2003-04. The amendment to section 43A has rightly been considered as prospective in nature. Accordingly, no infirmity in the order of the CIT hence, we uphold the same - against revenue. Disallowance of set off of unabsorbed depreciation on the ground that no adjustment is possible in view of business losses being NIL - Held that:- CIT(A) observed that in view of the decision of the Met mine Investment & Trading Pvt. Ltd. vs. I.T.O.[2008 (12) TMI 631 - ITAT MUMBAI] the assessee was not entitled for set off of unabsorbed depreciation - against assessee.
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2013 (3) TMI 396
Non supply of copies of special leave petitions to the respondent despite several opportunities - Held that:- By way of one last opportunity of four weeks' is granted to the petitioner subject to the deposit of cost of Rs.1000/- with the Supreme Court Legal Services Committee. Cost be deposited within two weeks. After supply of correct copies of the petitions, the respondent may file counter affidavit within six weeks.
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2013 (3) TMI 395
Time seeked to filing counter affidavit - Held that:- As some of the duly represented respondents have already filed counter affidavit on record and the remaining though granted three weeks' time, as a final chance, for filing counter affidavit but have not come on record on their behalf within the time granted by the Court. No further steps required to be taken in these batch of matters. Registry to take necessary steps for listing before the Hon'ble Court as and when the other connected matters would become ready. Sole respondent is reported to be duly and properly served through post but none appeared nor any steps have been taken on his behalf. List again on 12.4.2013.
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2013 (3) TMI 394
Payment of Market Fees - Applicability of Section 43B - scope of the term 'Paid' - amendment was made with effect from 01.04.1989 - retrospective or prospective - held that:- Although Section 43B explains the mode of calculation of profits and gains under Section 145, in view of the definition of the word "paid' as defined under Section 43 of the Act, neither the original Section 43B nor the amended Section 43B can be said to have retrospective application as legislation itself applied them prospectively i.e. Sections 43B was specifically applied with effect from 01.04.1984 and amendment made by Finance Act, 1988 was applied with effect from 01.04.1989. The argument that "market fee" is also a tax and only nomenclature has been changed is also not liable to be accepted. Supreme Court in CIT Vs. Mcdowell & Company Ltd, [2009 (5) TMI 28 - SUPREME COURT] has held that 'bottling fee' realized under the Rules framed under the Excise Act is neither tax not duty as such Section 43B of the Act is not applicable on it. In View of the above we respectfully agree with the view of Andhra Pradesh High Court in Srikakollu Subba Rao and M.L. Agroproducts (Pvt) Ltd, [1990 (12) TMI 15 - ANDHRA PRADESH HIGH COURT] and Madhya Pradesh High Court in Mansukhlal Pranjibhai, and Dinesh Kumar Gordhan Lal (1996 (7) TMI 77 - MADHYA PRADESH HIGH COURT) - Decided in favor of assessee.
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2013 (3) TMI 393
Disallowance u/s 14 A r.w.r. 8D - as per CIT(A) the provisions of rule 8D donot come into play in this case as the shares are not held as 'investments' - Held that:- The provisions of rule 8D can never be applied in a case where exempt income yield assets are not held as investments, and that the related assets, i.e. shares, having been held as stock in trade all along, there is no occasion to invoke rule 8 D. There is no infirmity in this approach, nor do revenue authorities stand to lose anything by this approach canvassed by the assessee. Quite to the contrary of what DR perceives to be advantageous to the AO, in case the application of rule 8 D was to be upheld, there would have been no disallowance at all since not only that no investments were held by the assessee, admittedly there are no direct expenses are incurred on earning of the dividends and as such in all the three segments of disallowance under rule 8D(2) i.e. 8D (2) (i), (ii) and (iii), there will be zero disallowance. As against this zero disallowance under rule 8D, the CIT(A) has upheld disallowance to the extent of ₹ 1,57,227 in respect of indirect expenses attributed to the earning of dividends, and it has even the case of revenue that this disallowance for indirect expenses is unfair or unreasonable - confirm the conclusions of CIT(A) and decline to interfere in the matter.
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2013 (3) TMI 392
Invoking the provisions of sec 28 - Issue of shares by amalgamated company to the its shareholders in lieu of transfer of undertaking of the amalgamating company - whether are all transfers within the meaning of section 2(47)(i) - whether CIT(A) erred in considering the provisions of Section 47(vii) when it has not been relied upon by the assessee during the course of assessment proceedings under section 143(3) - Held that:- Section 28 sets out two conditions precedents for such taxability i.e. (i) that there should be benefits or perquisites and that (ii) that such benefits or perquisites should arise from the business or exercise of the profession. In the case of Mahindra & Mahindra Limited v. CIT (2003 (1) TMI 71 - BOMBAY HIGH COURT) in a significant distinction between revenue and capital receipts, held that waiver of principal amount in respect of imports of plant and machinery could, by no stretch of logic, be treated as 'business income', and, therefore, as an income taxable under section 28(iv). One must bear in mind the fact that when a particular advantage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the same to tax under section 28(iv). In the case of Padmaraje R Kadambande v. CIT (1992 (4) TMI 215 - SUPREME COURT) observed the amounts received by the assessee during the financial year in question have to be regarded as capital receipts, and, therefore, are not income within meaning of section 2(24) of the Income Tax Act. This clearly shows, as is the settled law, that a capital receipt, in principle, is outside the scope of income chargeable to tax. Howsoever liberal or narrow be the interpretation of expression 'income', it cannot alter character of a receipt, i.e. convert a capital receipt into revenue receipt or vice versa. The crucial distinction between capital and revenue cannot be blurred or nullified by even the most liberal interpretation of expression 'income'. Also see Dr K George Thomas v. CIT (1985 (9) TMI 2 - SUPREME COURT) wherein held that the burden is on the revenue to establish that the receipt is of a revenue nature" though "once a receipt is found to be of revenue character, whether it comes under exemption or not, it is for the revenue to establish". To sum up, unless it is a revenue receipt, it cannot be in the nature of income [except in a situations in which capital receipts are specifically included in the definition of income such as under section 2(24)(vi)], and unless it is in nature of income, it cannot be considered for taxation under section 28(iv). The reference to benefits which can be brought to tax under section 28(iv) for benefits 'arising from the business' also indicates that such benefit must be a business receipt, or revenue receipt, in nature. This was a case of amalgamation in the nature of merger, an exercise in that of pooling of resources, as also pooling of assets, into the company in which two or more companies are blended. It is a process of corporate reconstruction and it is only with the approval of Hon'ble jurisdictional High Court that this exercise is carried out. As a result of amalgamation, the assessee, being the transferee company, will increase its assets and liabilities, and, even if there be any benefit in the process, such a benefit can only be in the capital field because it is relatable to the non trading assets and capital. What it affects is the capital structure of the assessee company and the manner in which business is consolidated. Applying the test laid down by in the case of Seshasayee Brothers (supra) the benefit is referable to the capital, and is thus not of an income nature. Even if, as the Assessing Officer observes, "it can be surmised that the assessee is benefited in a myriad ways by way of amalgamation", it does not lead to the conclusion that the benefit is in revenue field which alone can be treated as income and thus be considered for taxability under section 28(iv) of the Act. The onus is on the AO to demonstrate that the receipt is of the revenue nature.There is no material whatsoever before us to indicate that the benefit, even if accruing to the assessee, was in revenue field, in the course of assessee's business dealings or of trading nature. Thus there was no occasion to invoke Section 28(iv) - CIT(A) was quite justified in his observations that "the amalgamation is not an adventure in the nature of trade" and that "this transaction is clearly a capital account transaction" - in favour of assessee.
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Customs
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2013 (3) TMI 391
Condonation of delay of 110 days in seeking leave to file appeal against a Judgment of acquittal - Held that:- As informed that the Special PP who was responsible for not filing the appeal within the stipulated time is being debarred from appearing on behalf of the Union of India in any Court and that the Bar Council is also being moved. In view of this, since the lapse was on the part of the Special PP against whom the Department is taking action and since the Department should not suffer on account of lapse of the Special PP, the application is allowed and the delay is condoned. List the application for leave to file appeal for admission on 13-3-2013.
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Corporate Laws
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2013 (3) TMI 390
Collective investment scheme as defined under Section 2(ba) read along with Section 11AA of the SEBI Act - vires of Section 11AA of the SEBI Act challenged - PGF Limited contested that since indisputably the business of the PGF Limited was sale and development of agricultural land, the same would be governed by Entry 18 of List II, namely the State subject and, therefore, the Central Legislation brought about by the Parliament in introducing Section 11AA of the SEBI Act cannot be sustained - Held that:- Sub-section (2) of Section 11 AA defines a collective investment scheme disclose that it is not restricted to any particular commercial activity such as in a shop or any other commercial establishment or even agricultural operation or transportation or shipping or entertainment industry etc. The definition only seeks to ascertain and identify any scheme or arrangement, irrespective of the nature of business, which attracts investors to invest their funds at the instance of someone else who comes forward to promote such scheme or arrangement in any field and such scheme or arrangement provides for the various consequences to result there from. As a matter of fact the provision does not make any reference to agricultural or any other specific activity and, therefore, at the very outset it will have to be held that the submission based on Entry 18 of List II, while challenging the vires of Section 11AA, is wholly misconceived. The fallacy in the submission of the PGF Limited is that it proceeds on the footing as though the said provision, namely, Section 11AA was also intended to cover an activity relating to agriculture and its development and, therefore, the provision conflicts with Entry 18 of List II of the State List to be struck down on that score. Inasmuch as the said Section 11AA seeks to cover, in general, any scheme or arrangement providing for certain consequences specified therein vis-a-vis the investors and the promoters, there is no question of testing the validity of Section 11AA in the anvil of Entry 18 of List II. The said submission made on behalf of the appellants is, therefore, liable to be rejected on that sole ground. Seeking to cover any scheme or arrangement by way of collective investment scheme either in the field of agricultural or any other commercial activity, the purpose is only to ensure that the scheme providing for investment in the form of rupee, anna or paise gets registered with the authority concerned and that by operating such scheme or arrangement the person who makes the investment is able to really reap the benefit and that he is not defrauded. Those schemes, which would fall under sub-section (2) of section 11AA would consist of a marketing strategy adopted by those promoters, by reason of which, the common man who is eager to make an investment falls an easy prey by the sweet coated words and attractive persuasions of such marketing experts who ensure that those who succumb to such persuasions never care to examine the hidden pitfalls under the scheme, which are totally against the interests of the investors, apart from various other stipulations, which would ultimately deprive the investors of their entire entitlement, including their investments. Thus by no stretch of imagination the above factors, which weighed with the Parliament to introduce section 11AA can be held to be done with a view to affect any particular category of business activity much less the activity of agriculture. Therefore, one cannot countenance the stand of the PGF Limited that what it sought to carry out under its scheme was merely sale and development simplicitor of agricultural land and not a collective investment scheme. In the light of our above conclusions on this ground it will have to be held that section 11AA is a valid provision, not suffering from any infirmity, as it does not intrude into the specific activities of sale of agricultural land and its development. There is no scope to apply Entry 18 of List II of Seventh Schedule in order to strike down the said provision on the ground of legislative competence. A conspectus consideration of the scheme of development of the land purchased by the customers at the instance of the PGF Limited and the promised development under the agreement disclose that there was wholesale uncertainty in the transactions to the disadvantage of the investors' concerned. The factors, which weighed with the Division Bench in this respect definitely disclose that PGF Limited under the guise of sale and development of agricultural land in units of 150 sq. yrds. i.e. 1350 sq. ft. and its multiples offered to develop the land by planting plant, trees etc., and thereby the customers were assured of a high amount of appreciation in the value of the land after its development and attracted by such anticipated appreciation in land value, which is nothing but a return to be acquired by the customers after making the purchase of the land based on the development assured by the PGF Limited, part with their monies in the fond hope that such a promise would be fulfilled after successful development of the bits of land purchased by them. The above conclusion can be culled out from the sample documents placed by the appellants before the Court. The appellants, however, failed to supply any material till date to demonstrate as to how and in what manner any of the lands said to have been sold to its customers were developed and thereby any of the customer was or would be benefited by such development. It is quite apparent that the customers who were attracted by such schemes/arrangement invested their monies by way of contribution with the fond hope that the various promises of the PGF Limited that the development of the land pooled together would entail high amount of profits in the sense that the value of developed land would get appreciated to an enormous extent and thereby the customer would be greatly benefited monetarily at the time of its sale at a later point of time. In these circumstances, the conclusion of the Division Bench in holding that the nature of activity of the PGF Limited under the guise of sale and development of agricultural land did fall under the definition of collective investment scheme under Section 2(ba) read along with Section 11AA of the SEBI Act was perfectly justified and hence, no flaw in the said conclusion. Such frivolous challenges always result in prolongation of the litigation, which enables such unscrupulous elements who always thrive on other peoples money to take advantage of the pendency of such litigation preferred by them and thereby gain, on the one side, unlawful advantage on the monitory aspect and to the disadvantage of innocent victims, and ultimately, gain unlawful enrichment of such ill-gotten money by defrauding others.In effect, such attempts made by invoking the extraordinary jurisdiction of the writ Courts of many such challenges, mostly result in rejection of such challenges.It is, therefore, imperative and worthwhile to examine at the threshold as to whether such challenges made are bona fide and do require a consideration at all by the writ courts by applying the principle of 'lifting the veil' and as to whether there is any hidden agenda in perpetrating such litigation. The Writ Court should examine such other grounds on the above lines for consideration while considering a challenge on the ground of vires to a Statute or provision of law made before it for the purpose of entertaining the same as well as for granting any interim relief during the pendency of such writ petitions. Appeal stands dismissed with cost of ₹ 50,00,000/- (Rupees fifty lacs only) to be deposited by the PGF Limited with the Registry of the Supreme Court within eight weeks from the date of receipt of copy of this judgment.
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Service Tax
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2013 (3) TMI 399
Appeal was made before tribunal challenging that terminal handling charges, port service and CHA services although admissible to grant Cenvat credit to the appellant, that was denied. - Submission of the appellant is that port services and terminal handling charges being inter connected with each other for the purpose of export, the service tax paid thereon shall be admissible to be set-off against duty/tax liability. - On the other hand ld. DR says that when there is no proper evidence, the appellant shall not get the benefit of cenvat credit. Held that:- Tribunal has taken a view that port services and handling service charges are incurred in the course of export and shall be eligible for cenvat credit benefit under law. Therefore, the appellant shall get relief in respect of these 2 services availed and refund shall be admissible. So far as CHA service is concerned, once the appellant has not come out with clean hands evidencing the relation of service provider and service recipient, Revenue is correct to deny refund on this count. Therefore, appeal on this ground is dismissed and accordingly appeal is partly allowed.
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Central Excise
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2013 (3) TMI 389
Cadre of Superintendents of Central Excise - three cadres were then having the ratio of 6:1:2 for promotion to Group A posts which have been subsequently revised and the new quota is in the ratio of 13:1:2. The new quota is made applicable prospectively - petitioners contend that this direction implies a retrospective application of the revised formula on the quota for each cadre, since the promotions effected in the meanwhile were on an ad hoc basis - Held that:- The submission made on behalf of the petitioners is erroneous as the order did not state anywhere that the quota when changed will apply retrospectively. At best it could be said that according to the petitioners the implementation was not in conformity with the directions of this Court passed on 3.8.2011, but there is no disobedience, whatsoever, of the directions in making the newly formed quota applicable prospectively. All that the order dated 3.8.2011 says is that the ad hoc promotions made in the meanwhile will abide by the final decision to be taken by the Department in terms of Office Order.There is no direction to apply the new quota retrospectively. The contempt petitions are accordingly dismissed.
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2013 (3) TMI 388
Wrong availment of Cenvat credit as the activity undertaken does not amount to manufacture - assessee seeks waiver of pre-deposit of duty, interest and penalty - Held that:- As the applicant has paid the duty more than the credit now being denied and the duty has been accepted by the Revenue, therefore the credit cannot be denied on the ground that the activity undertaken by the applicant does not amount to manufacture. As applicant has made out a strong case in their favour, pre-deposit of the dues is waived and recovery of the same is stayed during the pendency of the appeal. The stay petition allowed.
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2013 (3) TMI 387
Pre-delivery inspection and free after sale charges added to the transaction value of the motor vehicles manufactured - assessee seeking waiver of pre-deposit of duty and interest - Held that:- As the demand is confirmed on the same grounds as in the case of Skoda Auto India Pvt. Ltd.[2013 (3) TMI 85 - BOMBAY HIGH COURT] therefore, in view of the order passed by the Hon'ble Bombay High Court dated 12.9.2012, the pre-deposit of dues is waived for hearing of the appeal and recovery of the same is stayed during the pendency of the appeal.
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2013 (3) TMI 386
Delay in payment of excise duty - duty for March 2010 required to be paid by 31-3-2010 was finally paid on 18-5-2010 - assessee contested against penalty levy on non-mention of the specific clause of Rule 25(1) - Held that:- As during the forfeiture period the appellant did not pay the duty consignment wise and only through PLA, clearances would be treated having been made without payment of duty and hence the provisions Rule 25(1) would be attracted which provides for imposition of penalty for clearances of the goods in contravention of the provisions of the Rules. The judgment of Hon’ble Gujarat High Court cited by the Appellant does not discuss the implication of the wordings of Rule 8(3A). As regards non-mention of the specific clause of Rule 25, on going through the show cause notice it is found that nature of contravention has been specifically mentioned. Therefore, non-mention of exact clause of sub-rule (1) of Rule 25 in the show cause notice would not vitiate the same. Therefore penalty has been correctly imposed under Rule 25. Taking into account the fact that default attracting the provisions of Rule 8(3A) was only for 17 days, the duty involved on the goods cleared during this period which was required to be paid consignment-wise, is only Rs. 1,07,067/- and this duty had been paid next month, penalty of Rs. 25,000/- for the clearances of the goods deemed to have been cleared without payment of duty is on much higher side, thus while imposition of penalty on the appellant under Rule 25(1) is upheld, the quantum of penalty is reduced to Rs. 5000/-.
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CST, VAT & Sales Tax
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2013 (3) TMI 400
Non registration under sales tax - Plant and machinery imported by the assessee though under Form ‘C’ but without registration - penalty levied - Held that:- As the assessee had registration under the Central Sales Tax Act for importation of the subject plant and machinery. Assessee, therefore, committed no offence while importing the subject plant and machinery. If the assessee did not commit any offence while importing the subject plant and machinery, merely because the assessee held out that it has not applied for registration of plant of machinery under the Central Sales Tax Act, no prudent person can proceed on the basis that the assessee committed any offence and, accordingly, is liable to be penalized.
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