TMI Tax Updates - e-Newsletter
April 30, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
Income Tax
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Jurisdictional pre-conditions for reopening under Section 147 – What is meant by the term “change of opinion? - matter referred to LB - HC
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Deduction u/s 80I - interest income on short term bank deposits and tank hire charges - income earned or derived from manufacturing activity - HC
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Reasonable cause for the delay in filing the revision application before the CIT under Section 264 - HC
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Agriculture Produce Market Committee (AMC) not entitled to exemption under section 10(20) - HC
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Deemed income – Section-41(1)(a) -expiry of period of limitation did not extinguish the debt but only prevented the creditor from enforcing the debt - HC
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Set off of brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under Section 10A of the Act - HC
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Notice to re-open the assessment u/s 148 - providing accommodation entries for commission. - the material gathered by the Investigation Wing provides required nexus - HC
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Revenue expenditure or capital expenditure - Claim of interest paid to the Noida Authority on account of purchase of land - HC
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TDS u/s 194C on running a study centre through various licensees or franchisees - HC
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Proceedings against CIT - alleged lapses/irregularities in eight cases - extension of favor to assessee - HC
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STCG or STCG - Determination of period of holding of 12 or 36 months - inclusion or exclusion of first day of acquisition - HC
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Interest under section 234C - cheques were realized after the due dates for payment of advance tax even though the assessee had deposited the cheques in the bank within time - AT
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MAT - Rectification of mistake - Deduction of prior period items from book profit - section 115JA - HC
Indian Laws
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GOODS UNDER SERVICE TAX - Article
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Slump Sale: Transfer under a scheme under the Companies Act can also attract Section 50B. - Article
Service Tax
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Services provided by the Agricultural Produce Marketing Committee (APMC) /Board-- regarding. - Cir. No. 157/8 /2012-ST Dated: April 27, 2012
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Liability of service recipient to pay (reimburse) service tax to the server provider - SC
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Separate and distinct contracts or composite contract - abatement under Notification No.19/2003-ST dated 21/8/2003 - AT
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Once it is held that electrical installation is a part of the composite contract for erection, commissioning or installation of WTGs, the appellant's claim for the benefit of Notification No. 19/2003 ST for electrical installation cannot be accepted only on the basis that it had supplied some electrical materials for electrical installation. - AT
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Service tax on laying of commissioning of sewage pipeline and other civil works for Nashik Municipal Corporation - ‘works contract service’ – AT
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CENVAT credit on service tax paid on insurance services relating to Group Medical Claim and Group Personal Accident Policies - AT
Central Excise
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Hydraulic Oil and Hadilin which is a releasing agent used in the Die cannot be considered as part or accessory of the capital goods. - AT
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Cash Discount - Deduction from Central Excise Valuation - for the period prior to 01/07/2000 and for the period post 01/07/2000. - AT
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Transaction value based valuation or MRP based valuation - Section 4 or section 4A - Supply of mango avakai pickles to M/s Nestle - AT
VAT
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Purchase of packing material against Form-H - Tax credit is available in the case of goods purchased and used by a dealer, directly or indirectly, for the purpose of making sale of goods in the course of export of the goods out of India. - HC
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whether supply of goods to other units of the Department of Atomic Energy would constitute stock transfer or are inter-State sales liable to tax under the CST Act - HC
Articles
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2012 (4) TMI 455
Jurisdictional pre-conditions for reopening under Section 147 – ITAT held that conditions were not satisfied in the present case - Revenue submitted that if the by mistake or lapse he does not examine a particular entry or a note in the return and overlooks it, there is no application of mind and thus it is not a case of mere change of opinion – Held that:- The matter should be examined by a larger Bench for elucidation and examination as the proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on "information" in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of - it is a case where the Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable - referred to a larger Bench.
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2012 (4) TMI 454
Deduction u/s 80I - Invoking and exercise jurisdiction under Section 263 interest income on short term bank deposits and tank hire charges - ITAT confirmed CIT order Held that:- Immediate and first source of receipt of interest income is the deposit of money and not the industrial activity. Manufacturing activity, or profit earned therefrom, is not the proximate source of the interest earned. The said interest income, therefore, cannot be treated as income earned or derived from manufacturing activity undertaken by the industrial unit. Tank hire charges were received by the appellant-assessee from the consumers to whom Ammonia was supplied. It represents payment for transportation. On query, it is accepted/stated by the appellant that these tank hire charges were separately billed and these tanks were the carriage wagons owned by the Railways. Transportation charges when separately billed and charged cannot be included in the profit and gain from manufacturing activity undertaken by an industrial unit. against assessee.
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2012 (4) TMI 453
Writ of certiorari - assessee contested that the AO completed the assessment ex-parte under Section 144 – delay in filing the revision petition before the CIT- Held that:- Assessment order dated 28.2.2003 was never served on the petitioner firm or any of its partners and that it was for the first time that the petitioner firm came to know of the passing of the assessment order when the application filed by the income tax department before the Debt Recovery Tribunal came up for hearing - there existed reasonable cause for the delay in filing the revision petition before the CIT under Section 264 - CIT is directed to take up the revision petition and decide the same on merits in accordant with law after giving due opportunity to the petitioner firm of being heard – in favour of assessee.
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2012 (4) TMI 452
Whether the assessee is entitled to the exemption under Section 10(20)- Held that:- Since the AMC(s) is neither a Municipal Committee nor a District Board under the said Explanation to section 10(20)of the 1961 Act no question arises whether the AMC(s) is legally entitled to the control of the local fund i.e.Market Fund - AMC(s) is therefore not entitled to exemption under section 10(20) after the insertion of the said Explanation, vide the Finance Act, 2002, with effect from April 1, 2003 - against assessee.
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2012 (4) TMI 451
Deemed income – addition made on account of sundry creditors under Section-41(1)(a) - Appellate Tribunal deleted addition – Held that:- Decision in CIT, Calcutta vs. Sugauli Sugar Works (P) Ltd (1999 (2) TMI 5 - SUPREME Court) taken that only if the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that S. 41 would apply and the amount should be included in the total income of the assessee - expiry of period of limitation did not extinguish the debt but only prevented the creditor from enforcing the debt – in favour of assessee.
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2012 (4) TMI 450
Set off of brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under Section 10A of the Act – Held that:- Section 10A is a provision which is in the nature of a deduction and not an exemption - the deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business - Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter – against revenue.
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2012 (4) TMI 449
Disallowance of ₹ 58,05,328/- u/s 40(a)(ia) – Held that:- Decided by the Hon’ble Calcutta High Court in the case of CIT vs. Virgin Creators (2011 - TMI - 210395 - CALCUTTA HIGH COURT) confirming retrospective effect of section 40(a)(ia) on tax deducted at source and paid before the due date of filing of the return of income – in favour of assessee.
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2012 (4) TMI 448
Disallowance of expenses for the period prior to date of Set up of business by AO – Held that:- It cannot be said that the business had commenced only from 1st June, 2001, when the assessee acquired the rights under the agreement dated 21st May, 2001 - Tribunal has rightly kept in mind the difference between setting up of business and commencement of business - the assessee is in a complete state of readiness to undertake its activity, it can be said that it has set up its business, the actual commencement of business may be at a later date – in favour of assessee. Capitalization of expenses and consultancy paid to the architects by AO – Tribunal treated expenditure incurred in respect of leasehold premises on account of electrical work, wooden partitions, laying down of cables, false flooring etc and consultancy to architect makes no addition of extension of the premises taken by the assessee on lease as nothing was added to the profit making apparatus hence no merit in the treating all such expenditure as capital in nature - Held that:- Break up and particulars regarding the expenditure is not available and referred to and no information about the said expenditure was towards purchase and installation of air conditioners/air conditioning plant, furniture etc- Since the factual details have not been considered by the tribunal - set aside the findings recorded by the tribunal and pass an order of remand for fresh decision after ascertaining the factual aspects. Legal and professional charges treated as revenue in nature by ITAT - Held that:- This expenditure was in connection with the transfer of assets and liabilities therefore, should be treated as a part of cost of acquisition of the business/asset - an order of remit with a direction to first examine and decide the factual aspects.
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2012 (4) TMI 442
Valuation of property - ITAT considered AO was not justified in making the addition of Rs 75 lakhs being the difference between the apparent consideration and the real value of the assets of Company formed by HUF – Held that:- Agreement dated 30.11.2002 executed between Khandelwals and Shri Sunil Bedi all the requisite clearances were obtained by the seller - vide second MoU M/s Fashion Flair International Private Limited agreed to pay Rs.6.35 crore to M/s Span Properties Private Limited for purchase of its entire shareholding subject to obtaining necessary approval for construction of a commercial building on the land in question, and that there was no material produced by the assessee to indicate that the market value of the land had gone down between December, 2000 and November, 2002 - Since the entire share holding of Khandelwas in Span Properties Private Limited was transferred to Shri Sunil Bedi, he, on account of his ownership of the entire share holding of Span Properties Private Limited, also acquired ownership of the land in question. Hence, it would be difficult for us to accept that the value of the entire share holdings of Khandelwas in Span Properties Private Limited could have been less than Rs 6.35 crore minus the liabilities of the company - AO was justified in making the addition being the difference between the apparent consideration and real value of the assets – against assessee.
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2012 (4) TMI 441
Notice to re-open the assessment as income chargeable to tax has escaped assessment - Writ petition by assessee on validity of the re-opening of the assessment – Held that:- the material gathered by the Investigation Wing provides required nexus by the reference to the names of at least three companies in which Mukesh Gupta was a Director, through which, inter alia, he was admittedly carrying on the business of providing accommodation entries for commission. These companies had subscribed for the shares issued by the assessee - assessee is linked to the business of Mukesh Gupta which leads to conclusion that income chargeable to tax had escaped assessment because of the failure of the petitioner company to furnish fully and truly all material particulars necessary for its assessment – against assessee.
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2012 (4) TMI 440
Addition to income on account of non-deduction of TDS in terms of section 40(a)(ia) – Held that:- The tenor and purport of the terms of the agreement were that it was not a case where the licensee was doing any work for the assessee even within the wider meaning of the term “any work” as defined in Section 194C - assessee running a study centre through various licensees or franchisees and the agreement is not for making any payment to the licensee for any work done for the assessee and that it was a case of sharing of fees for carrying out respective obligations under a contract – in favour of assessee. Claim of interest paid to the Noida Authority on account of purchase of land -allowable as revenue expenditure u/s 36(1)(iii) of the Act – Held that:- In order to claim allowance in respect of interest, there should be borrowing of capital and that unpaid purchase price of an asset does not amount to borrowing of capital, though a debt may be created - the interest was paid to Noida Authority not in respect of any capital borrowed from that Authority, but on the price of the plot remaining unpaid as per the provisions of the lease deed - there being no “capital borrowed”, the interest is not allowable as a deduction u/s 37(1) – against assessee. ITAT deleted addition made by the AO on account of disallowance of bonus paid to the Directors in terms of Section 36(1)(ii) – Held that:- It was observed in the Bombay High Court case Metplast Pvt. Ltd vs DCIT (2011 (12) TMI 320 - Delhi High Court ) that so long as the bonus or commission is paid to the directors for services rendered and as part of their terms of employment it has to be allowed and sec.36(1)(ii) does not apply – in favour of assessee. Claim of Non-compete fee payable as revenue expenditure solely on the basis of agreement period and the mode of payment – Held that:- The period for which the assessee sought to eliminate competition was only 12 months which was too short a period to be considered as conferring an enduring benefit to the assessee and the non-compete fee was to be paid to the two persons in equal installments over a period of time – in favour of assessee.
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2012 (4) TMI 438
Long term capital gains on Sale of two mutual fund - the expression “not less than” - AO treated the two gains as short term capital gains as the instruments had not been held for a period of more than 12 months immediately preceding the date of transfer – Held that:- To qualify as a short term capital asset, the capital asset should be held by the assessee for 12 or 36 months, but the moment the said time limit is crossed the assessee continues to be the holder/owner of the said asset, the same is to be treated as a long term capital asset - the date on which the asset is acquired is not to be excluded because the holding starts from the said date. There is nothing in the said Section to show and hold that the time period would not include fraction of a day. The expression “not more than” clearly in this case would refer and include the date on which the asset is first held or acquired. Thus, an asset acquired on the 1st of January would complete 12 months at the end of the said year, i.e., on 31st of December and if it is sold next year and if the proviso to Section 2(42A) applies, it would be treated as a long term capital gains. - in favour of assessee.
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Customs
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2012 (4) TMI 447
Commissioner (Appeals) dismissed his Appeal dismissed on ground of limitation – Assessee contested that no show-cause notice and order-in-original received – Held that:- The department issued show-cause notice to the appellant on 25.10.1990 and order-in-original dated 15.10.1991 through registered post, the same was returned un-served with remarks “unclaimed” - it is an admitted fact that the appellant is residing on the address mentioned in the show-cause notice/order-in-original – against assessee.
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2012 (4) TMI 446
Confiscation of lieu of redemption fine - Alloy or non alloy steel - definition of alloy steel - testing of samples - held that:- What is surprising in this case is that the concerned Scientist from NML has indicated an error margin which is as high as 200%. - It is a pity that the Board has directed the field officials to apply the borrowed definition of alloy steel from the Import Schedule of the Customs Tariff for the purpose of applying export duty in its letter dt. 3.6.2008, but has not made arrangements for proper testing of boron content as is glaringly observed in this case. A test method giving results which are uncertain to the extent of 200% is of no value for the purpose of tariff determination. The test results obtained by the customs authorities in this case indicate that 42 samples satisfied the tariff breakpoint of 0.0008%. Other 31 samples would also cross the tariff breakpoint when the positive error margin of 0.0006% indicated by NML Scientist is applied. We also note that some of these 31 had crossed the tariff breakpoint earlier in the testing done by NML the first time. Under the circumstances, it cannot be held that the appellants have misdeclared the impugned goods in regard to the declared boron content. The arguments made on behalf of the department suggesting that the appellants should show that they had plant and machinery to produce boron steel and that they have not shown any proof that they have manufactured any standard grades of alloy steel etc. cannot be pressed against the appellants when the department has failed to discharge its initial burden to prove the alleged misdeclartion on the basis of chemical test undertaken at the NML. No reason to uphold the confiscation of the impugned goods, imposition of redemption fine and imposition of penalties on the appellant-company and the appellant-Managing Director.
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2012 (4) TMI 437
No MRP declared on Import of Energy Efficient Lighting Fixtures - differential duty as per MRP declared by main customer of applicant on the final product which is sold in the open market - goods confiscated – Held that:- On the condition that the applicant shall execute a bond of full value of the goods and a bank guarantee of 25% of the differential duty release the goods on compliance of the above conditions within 7 days.
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Corporate Laws
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2012 (4) TMI 445
Application filed by the Official Liquidator alleging that the Directors of the respondent company have not filed the Statement of Affairs – Held that:-It is evident that possession was taken over on 24-7-2000 of the premise and a theft had occurred in the premises on 17-10-2000 and the respondents had thereafter made efforts to approach the office of the Official Liquidator to secure the details from the records - such permission was granted on 16.02.2004 and on the examination of the available records, the Statement of Affairs was filed on 10.01.2005 - all this would indicate that the action of the respondents was not deliberate and they had reasonable cause for the delay in filing the statement of affairs – against Official Liquidator.
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2012 (4) TMI 436
Instant application filed by the Official Liquidator under Section 537 to declare the sale held during the petition period as null and void - out of the sale proceeds of Rs. 2,55,000/- a sum of Rs. 1,70,000/- is stated to have been paid by respondent Nos. 1 and 2 to the 4th respondent, who was a secured creditor of the Company-in-liquidation and the balance sum of Rs. 85,000/- has been paid to one of the employees who was working as a Manager prior to the closure of the company – Held that:- Keeping in view and considering the fact that respondent Nos. 1 and 2 have paid amounts from their personal account even subsequent to the date of winding up order and the said amount is much more than the amount for which a direction has been sought for the direction as against respondent Nos. 1 and 2 to refund the same would not arise - the entire amount of Rs. 1,70,000/- in any event cannot be appropriated by the respondent. No. 4 alone to the detriment of any other claims of the secured creditors or employees which would have to be considered on a pari passu basis - a direction is issued to the fourth respondent to bear the advertisement expenses (not exceeding Rs. 10,000/-) for the Official Liquidator to invite claims from any persons who may have claims against the Company-in-liquidation.
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Service Tax
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2012 (4) TMI 457
Liability of service recipient to pay (reimburse) service tax to the server provider - the appellant deducted the service tax from the bills of the respondent - the appellant deducted 5% tax on the bills of the respondent for the period 30.11.1997 to 6.8.1999 – respondent refused to accept the deductions as they are not "Assessee" under the Service Tax Act- the Appellants are being recipients resisted and have filed the return, thus the appellant's obligation to pay the Service Tax and not that of the Respondents – Held that:- Since clause 9.3 of the contract refers to the liabilities of the contractor in connection with discharge of his obligations, one will have to refer to clause 6 of the "Terms and Conditions for Handling of Iron and Steel Materials of RINL, VSP" which was an integral part of the contract between the petitioner and the respondent, and which was titled "Obligations of the Contractor" - the said paragraph 6 deals in great details with the work which was required to be done by the respondent as clearing and forwarding agent. It is therefore absolutely clear that the term "his obligations under this order" in clause 9.3 of the contract denoted the contractor's responsibilities under clause 6 in relation to the work which he was required to carry out as handling contractor - the respondent as the contractor had to bear the service tax under clause 9.3 as the liability in connection with the discharge of his obligations under the contract and there was no reason for the High Court to interfere in the view taken by the arbitrator.
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2012 (4) TMI 456
Separate and distinct contracts or composite contract - the activity of civil work and electrical work - Erection, Commissioning or Installation service - abatement under Notification No.19/2003-ST dated 21/8/2003 - services of erection, commissioning or installation of WTG and establishment of Wind Farm Project - civil foundation is an integral part of erection and installation of the wind mill and the control room and electrical yard etc. also form an integral part for commissioning of the wind mill without which the commissioning of wind mill or WTG is not complete. - Held that:- Once it is held that electrical installation is a part of the composite contract for erection, commissioning or installation of WTGs, the appellant's claim for the benefit of Notification No. 19/2003 ST for electrical installation cannot be accepted only on the basis that it had supplied some electrical materials for electrical installation. - Decided against the assessee. Extended period of limitation - held that:- no basis or foundation established of bona fide belief. - nothing on record to suggest that the appellant had ever approached the Service Tax authorities to ascertain the details of their liability to pay service tax. - the department has rightly invoked the extended period of limitation.
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2012 (4) TMI 443
Demand of Service Tax on ‘works contract service’ – applicants are engaged in the activity of laying of commissioning of sewage pipeline and other civil works for Nashik Municipal Corporation - Held that: - The activity undertaken by the applicant is not for commerce and industry, therefore service tax cannot be demanded - activity undertaken by the applicant is for Nashik Municipal Corporation and as held by this Tribunal in the case of Nagarjuna Construction Co.( 2011 -TMI - 203241 - CESTAT, BANGALORE) that activities, which are concerned with welfare activity for the citizens of this country has been excluded from the liability of Service tax – in favour of assessee.
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Central Excise
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2012 (4) TMI 444
Refund of duty on finalization of Provisional assessment - Unjust enrichment - held that:- the present case is rather old and there are several rounds of litigation. The petitioner had succeeded before the tribunal, who had passed a detailed order dated 27th March, 2002. The respondents thereafter did not adjudicate and passed the consequential orders till 2007. This is in spite of the fact that the petitioner had filed an application on 18th February, 2003 before the respondents to process their claim for refund. There is no explanation for delay of five years. The order dated 20th July, 2007, in fact, makes reference to another refund claim application dated 24th February, 2004. Respondents directed to refund the duty amount along with interest as per rules.
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CST, VAT & Sales Tax
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2012 (4) TMI 458
Purchase of packing material against Form-H - Export of goods out of India - DVAT - assessee claimed input tax credit and asked for refund of the input tax on the ground that the packing material was used to pack rice which was exported out of India. - Section 9(1)(b) of DVAT - held that:- Section 9(7)(b) of the Act, when it says that no tax credit shall be allowed for the purchase of goods which are used exclusively for the manufacture, processing or packing of goods specified in the First Schedule, refers only to the sale of exempted goods within the meaning of Section 6(1) of the Act and does not refer to sales which are not liable to tax at all by virtue of the provisions of Section 7. Tax credit under Section 9(1)(b) is available in the case of goods purchased and used by a dealer, directly or indirectly, for the purpose of making sale of goods in the course of export of the goods out of India. Article 286 of constitution of India - The appellant dealer is not liable to pay VAT on the sale of rice because the sale is in the course of export out of India. The same rice, if it is sold within the State, would become liable to tax, though no tax would be payable because of the exemption granted under Section 6(1) of the Act. It is competent for the State Legislature to make amendment or modify the entries in the First Schedule to the Act to either withdraw the exemption granted to the goods or add more items that would be exempt from tax or change the conditions and exceptions set out therein, subject to which the exemption is granted. Such modifications or amendments cannot, however, be made to Section 7(c) of the Act by the State Government to provide for levy of tax on the sale of the goods, even though they are mentioned in the First Schedule to the Act, if they are made in the course of export of the goods out of the territory of India, because of Article 286(1). - Decided in favor of the assessee
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Indian Laws
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2012 (4) TMI 439
Proceedings against CIT - alleged lapses/irregularities in eight cases - extension of favor to assessee - Charge-memo, the dissenting note recorded by the Disciplinary Authority and the final order imposing the punishment of compulsory retirement - SCN seeking an explanation regarding alleged lapses/irregularities in eight cases completed by him were pertaining to the period of his service - Held that:- The disciplinary authority had not considered the representation of the Respondent No.1 against the disagreement note - the petitioners is unable to point out any single factor or reason which would show that the dissenting note was tentative nor has been able to show why the representation of the Respondent No.1 was not considered by the Disciplinary Authority before imposing the disproportionate punishment of compulsory retirement in the facts and circumstances - On the seven articles of charges framed against Respondent No.1, the Enquiry Officer came to the conclusion that Articles I, II, IV, and VII not proved while Articles III, V and VI partly proved but the Disciplinary Authority ultimately concluded that the "IO's finding has not been found acceptable and the charge has been viewed as 'proved' or 'fully proved' except for Article VI which was held to be substantially proved while only part (a) of the charge was held to be "not proved" – the charges did not contain any allegations that while passing the various orders or conducting the proceedings the Respondent No.1 had malafide intentions or had passed the order on extraneous considerations - decided in favour of respondent with cost of Rs. 30,000.
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