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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter June 21, 2012 Case Laws in this Newsletter: Income Tax Customs Corporate Laws FEMA Service Tax Central Excise Wealth tax Indian Laws Articles 1. Whether F form is required if goods are sent inter-state for job work or repairs? By: AMIT BAJAJ ADVOCATE Summary: Section 6A of the CST Act, 1956 mandates that if a dealer claims non-liability for CST on interstate goods movement, asserting it is not a sale but a transfer to another business location, agent, or principal, they must provide Form F. This form, signed by the principal officer or agent, proves the transfer was not a sale. The Allahabad High Court ruled that Form F is necessary even for goods sent interstate for job work or repairs, despite the principal-to-principal relationship. This interpretation poses practical challenges, potentially hindering interstate trade and conflicting with constitutional trade freedoms. 2. Deemed sale v/s Declared Service - Controversy C/F to Negative List By: Pradeep Jain Summary: The article discusses the complexities and controversies surrounding the concepts of "deemed sale" and "declared service" within the context of service tax law in India. The introduction of the negative list scheme excludes deemed sales from service tax but includes declared services, leading to potential dual taxation on certain transactions. The definition of service under the Finance Act and the constitutional concept of deemed sale create overlaps, causing ambiguities and double taxation issues. The article highlights the challenges faced by taxpayers, such as suppliers of SIM cards and software services, due to conflicting interpretations by sales and service tax authorities, and calls for clearer guidelines to resolve these issues. 3. AN ESTABLISHMENT, SEEKING VOLUNTARY COVERAGE UNDER SECTION 1(4) OF EPF ACT, 1952 IS HAVING RIGHT TO WITHDRAW FROM SUCH COVERAGE. By: DR.MARIAPPAN GOVINDARAJAN Summary: An establishment opting for voluntary coverage under Section 1(4) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, has the right to withdraw from such coverage. A cooperative society sought voluntary coverage, which was initially granted, but defaulted on contributions. Legal proceedings ensued, leading to a High Court case. The court ruled in favor of the establishment, allowing withdrawal from coverage based on a precedent where an establishment with few employees successfully withdrew after reconstitution. The court emphasized that voluntary coverage implies the option to withdraw, and the authorities must honor such requests. 4. Minor child is separately eligible for incentive for investment of capital gains. By: DEVKUMAR KOTHARI Summary: The article discusses the eligibility of minor children for tax incentives related to capital gains investments under Indian tax law. It highlights that a minor child, considered a separate assessee, can independently claim deductions for investments made in capital gains bonds, despite their income being clubbed with a parent's income under Section 64(1A) of the Income-tax Act. The Tribunal's decision in a recent case affirmed that minors are entitled to separate investment and deduction limits, allowing up to Rs. 50 lakhs per individual under Section 54EC. The author argues for removing clubbing provisions to encourage capital accumulation for minors. 5. No Cenvat credit on Input services after 1st July, 2012 ... ??? By: JAMES PG Summary: Notification No. 18/2012-ST, effective from July 1, 2012, deletes Sections 65, 65A, 66, and 66A from the Finance Act, impacting Cenvat Credit Rules and Service Tax Rules. With the introduction of Sections 66B, 66C, 66D, 66E, and 66F, Cenvat credit on input services based on invoices issued after July 1, 2012, is not eligible due to the new levy under Section 66B. Definitions and provisions within Cenvat Credit Rules require revamping to align with these changes. Amendments to Service Tax Rules and registration processes are necessary to reflect the updated tax structure and avoid litigation. 6. Works Contract viz-a-viz Commercial or Industrial Construction Services – Valuation & Abatement Issues -Budget 2012 By: Bimal jain Summary: The article discusses changes in service tax rules related to works contracts and commercial or industrial construction services, following the 2012 budget. It highlights the amendments made by Notification No. 24/2012-ST and the issues arising from them, such as the lack of abatement for certain services and the valuation methods applicable under the new tax regime effective from July 1, 2012. The article calls for clarification from the Central Board of Excise and Customs (CBEC) to avoid confusion and potential litigation, particularly regarding the exclusion of certain services from the valuation rules and the calculation of fair market value. News 1. FM releases Guidance Paper on service tax: new approach intended to take country and economy a step closer to GST Summary: The Union Finance Minister released a Guidance Paper introducing a negative list-based approach to service tax, moving the country closer to implementing the Goods and Services Tax (GST). This new system taxes all services except those on the negative list or exempted, aiming to simplify tax administration and reduce litigation. Recent changes include exemptions for educational support services, certain legal services, construction works, and public conveniences. The number of exemptions has increased from 34 to 38. The Place of Provision Rules, 2012, have also been finalized to aid discussions on inter-state service taxation under GST. 2. Import of Sensitive Items During April-March 2012. Summary: The total import of sensitive items in India for April-March 2012 reached Rs.100911 crores, marking a 42.8% increase from the previous year. These imports accounted for 4.3% of the gross imports, which totaled Rs.2342217 crores. While food grain imports declined, imports of items such as edible oil, automobiles, and fruits increased. Edible oil imports rose significantly, driven by a rise in crude palm oil imports. Imports from countries like Indonesia, China, and Malaysia increased, while imports from Brazil decreased. 3. Jurisdictional commissioner should not be part of DRP to avoid likelihood of bias Summary: The jurisdictional commissioner should not be part of the Dispute Resolution Panel (DRP) to prevent potential bias, especially when the commissioner exercises supervisory functions over the Assessing Officer. Even in the absence of personal bias or malice, the perception of bias could arise, compromising the integrity of the adjudication process. To uphold the principle that justice must not only be done but also seen to be done, the Central Board of Direct Taxes (CBDT) is instructed to ensure that jurisdictional commissioners are not appointed to the DRP, as per Rule 3(2) of the Rules. 4. 144C : Assessment - Dispute resolution panel Summary: The Dispute Resolution Panel dismissed the submissions of a company challenging a draft assessment order without addressing the company's objections, issuing a brief and non-detailed order. Consequently, the case has been sent back to the Dispute Resolution Panel to issue a detailed and reasoned order. 5. New LLP Portal – Guidelines for Stake holder. Summary: The Ministry of Corporate Affairs in India has released new guidelines for stakeholders on its LLP Portal. Users must register on the MCA21 system to access LLP services, categorized as either Registered or Business Users. Authentication differs, with password-based for Registered Users and DSC-based for Business Users. Existing MCA21 users can use their current credentials but must update their passwords. LLPs incorporated before June 11, 2012, must verify and update partner details, with at least one Designated Partner residing in India. Changes include updates to Service Request Numbers and Charge IDs, requiring users to access new identifiers through the portal. 6. Auction for Sale of Government Stocks. Summary: The Government of India announced the re-issue of four government stocks through a price-based auction, totaling Rs. 15,000 crore. The stocks include 8.19% Government Stock 2020, 9.15% Government Stock 2024, 8.28% Government Stock 2027, and 8.83% Government Stock 2041. The Reserve Bank of India will conduct the auction on June 22, 2012, using the uniform price method. Up to 5% of the stock will be available to eligible individuals and institutions through non-competitive bidding. Results will be announced on the same day, with payments due on June 25, 2012. Notifications Central Excise 1. 27/2012 - dated 18-6-2012 - CE (NT) Refund of CENVAT Credit under rule 5 of the CENVAT Credit Rules, 2004 Summary: The notification by the Central Board of Excise and Customs outlines the procedure for claiming a refund of CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004. It specifies that manufacturers or service providers can submit one refund claim per quarter, or two if exporting both goods and services. The claim must be filed using Form A, accompanied by relevant documents and a certification of correctness. The refund amount is limited to the balance available at the end of the quarter. The Assistant or Deputy Commissioner will verify the claim's accuracy before sanctioning the refund. Customs 2. 33/2012 - dated 20-6-2012 - ADD Originating in, or exported from European Union (excluding Sweden)(hereinafter referred to as the subject countries) and imported into India. Summary: The Government of India has imposed an anti-dumping duty on imports of Pentaerythritol from the European Union, excluding Sweden. This decision follows findings that these imports were entering the Indian market at prices below normal values, causing material injury to the domestic industry. The duty will apply to goods produced and exported by specified entities, with rates detailed in a table within the notification. This measure will be effective for five years and is payable in Indian currency. The applicable exchange rate will be determined by notifications from the Ministry of Finance, based on the date of bill of entry presentation. Service Tax 3. 40/2012 - dated 20-6-2012 - ST Exemption on services provided to SEZ authorised operations Summary: The Government of India issued a notification exempting services provided to Special Economic Zones (SEZ) from service tax, education cess, and secondary and higher education cess, effective July 1, 2012. The exemption applies to services used for authorized operations within SEZs. The exemption can be claimed via refund of service tax paid, with specific conditions and procedures outlined, including the submission of declarations and maintaining proper accounts. Refunds are determined based on the ratio of export turnover to total turnover. The notification also details the process for obtaining a service tax code and filing refund claims. 4. 39/2012 - dated 20-6-2012 - ST Notification under rule 6A of Service Tax Rules - rebate of the duty paid on excisable inputs or service tax and cess paid on all input services used in providing service exported Summary: The notification issued by the Government of India under the Service Tax Rules, 1994, outlines the provisions for granting rebates on duties paid on excisable inputs and service tax, including cess on input services used in exporting services. The rebate applies to services exported to countries other than Nepal and Bhutan, subject to specific conditions such as prior payment of duties and taxes, no availing of CENVAT credit, and a minimum rebate claim of one thousand rupees. The procedure involves filing a declaration with relevant authorities, verifying the declaration, procuring input materials, and presenting a rebate claim with supporting documents. The notification is effective from July 1, 2012. 5. 38/2012 - dated 20-6-2012 - ST Amendment of Notification 28/2011-ST Summary: The Government of India, through the Ministry of Finance's Department of Revenue, issued Notification No. 38/2012 to amend Notification No. 28/2011 concerning service tax. Effective from July 1, 2012, the amendment replaces references to specific clauses of section 65(105) of the Finance Act with the terms "telecommunication service and service portion in execution of a works contract." This change reflects a shift in the categorization of services subject to service tax, aiming to clarify and update the tax framework in line with public interest considerations. 6. 37/2012 - dated 20-6-2012 - ST Seeks to amend point of Taxation Rules Summary: The Government of India, through the Ministry of Finance's Department of Revenue, issued Notification No. 37/2012 to amend the Point of Taxation Rules, 2011. Effective from July 1, 2012, the amendments involve omitting sub-rules (b) and (f) from rule 2 and replacing the phrase "provided or to be provided" with "provided or agreed to be provided" throughout the document. This notification builds on the principal notification published in March 2011 and its subsequent amendment in March 2012. 7. 36/2012 - dated 20-6-2012 - ST Seeks to amend Service Tax Rules Summary: The Government of India, through the Ministry of Finance, issued Notification No. 36/2012 to amend the Service Tax Rules, 1994. Effective from July 1, 2012, the amendments introduce new definitions for terms like "banking company," "body corporate," and "legal service," among others. The notification details the entities responsible for paying service tax across various services, including insurance, goods transport, sponsorship, and legal services. It also outlines provisions for service tax on renting immovable property and exporting services. Adjustments for excess service tax payments and specific invoicing requirements for financial institutions are included. 8. 35/2012 - dated 20-6-2012 - ST Rescinding of notification no. 32/2007 Summary: The Government of India, through the Ministry of Finance's Department of Revenue, has issued Notification No. 35/2012, announcing the rescission of Notification No. 32/2007 related to Service Tax, initially published on May 22, 2007. This action is taken under the authority granted by sections 93 and 94 of the Finance Act, 1994. The rescission will take effect from July 1, 2012, but does not affect any actions taken or omitted under the previous notification before this date. 9. 34/2012 - dated 20-6-2012 - ST Rescinding of certain notifications Summary: The Government of India, through the Ministry of Finance, Department of Revenue, has rescinded several service tax notifications as listed in the document. This action is taken under the authority of section 93(1) of the Finance Act, 1994, and is deemed necessary in the public interest. The rescinded notifications span various dates from 1994 to 2012. This change is effective from July 1, 2012. The decision aims to streamline or update the service tax regulations, impacting previous provisions except for actions already undertaken under those notifications. 10. 33/2012 - dated 20-6-2012 - ST Exemption to Small service providers Summary: The Government of India, through Notification No. 33/2012, exempts small service providers from paying service tax on services with an aggregate value not exceeding ten lakh rupees in a financial year. This exemption does not apply to services provided under another's brand name or where service tax is paid under specific provisions. Providers can opt out of the exemption but cannot avail CENVAT credit on input services or capital goods during the exemption period. The exemption applies to the aggregate value of services from all premises, provided the previous year's services did not exceed ten lakh rupees. The notification is effective from July 1, 2012. 11. 32/2012 - dated 20-6-2012 - ST Exemption of services provided by TBI/STEP Summary: The Government of India has issued Notification No. 32/2012, dated June 20, 2012, exempting services provided by Technology Business Incubators (TBI) and Science and Technology Entrepreneurship Parks (STEP), recognized by the National Science and Technology Entrepreneurship Development Board, from service tax under the Finance Act, 1994. This exemption also applies to bio-incubators recognized by the Biotechnology Industry Research Assistance Council. To avail the exemption, these entities must submit specific information to the relevant tax authorities before June 30 each year. The notification takes effect on July 1, 2012. 12. 31/2012 - dated 20-6-2012 - ST Exemption to specified services received by exporter of goods Summary: The Indian government issued Notification No. 31/2012 - Service Tax, effective from July 1, 2012, exempting service tax on specified services received by exporters of goods. This exemption applies to services related to the transportation of goods by a goods transport agency from a container freight station or inland container depot to a port, airport, or land customs station for export. Exporters must meet conditions such as registration with an export promotion council, holding an Import-Export Code, and filing returns in Form EXP2 every six months. The exemption is contingent on compliance with specified documentation and certification requirements. 13. 30/2012 - dated 20-6-2012 - ST Notification under sub-section (2) of section 68 - Reverse Charge Summary: The Government of India issued Notification No. 30/2012-Service Tax under section 68(2) of the Finance Act, 1994, detailing reverse charge mechanisms for various services. It supersedes previous notifications and specifies services and the extent of service tax payable by the service recipient. Key services include those provided by insurance agents, goods transport agencies, arbitral tribunals, advocates, and directors, among others. The notification outlines that service tax is fully payable by the recipient for most services, with specific provisions for services involving motor vehicle rentals and works contracts. The notification took effect on July 1, 2012. 14. 29/2012 - dated 20-6-2012 - ST Exemption on property tax paid on immovable property Summary: The Government of India, through the Ministry of Finance, issued Notification No. 29/2012 on June 20, 2012, exempting the taxable service of renting immovable property from certain service tax obligations. This exemption applies to the portion of service tax exceeding the amount calculated on the gross rent minus property taxes levied by local bodies. It specifies that interest or penalties paid to local authorities do not qualify for this deduction. The notification also outlines that property tax deductions should be proportionate to the service tax period. This notification takes effect from July 1, 2012. 15. 28/2012 - dated 20-6-2012 - ST Place of Provision of Services Rules,2012 Summary: The Place of Provision of Services Rules, 2012, issued by the Government of India, outlines the criteria for determining the location of service provision for service tax purposes. Effective from July 1, 2012, these rules define key terms and specify the location of service provision based on various scenarios, such as the location of the service recipient, performance-based services, services related to immovable property, and events. It addresses services provided at multiple locations, within taxable territories, and by specific service providers like banks and financial institutions. The rules aim to prevent double taxation and ensure uniform application. 16. 27/2012 - dated 20-6-2012 - ST Exemption to services for the official use of foreign Diplomatic Mission Summary: The Government of India exempts taxable services for the official use of foreign diplomatic missions or consular posts, as well as for personal use by diplomatic agents, consular officers, or their families in India, from service tax under the Finance Act, 1994. This exemption is contingent upon conditions such as the issuance of a certificate by the Ministry of External Affairs' Protocol Division, the provision of an identification card, and the maintenance of detailed records. The exemption is subject to revocation if the certificate or identification card is withdrawn, effective from July 1, 2012. 17. 26/2012 - dated 20-6-2012 - ST Abatement notification Summary: The Government of India, through the Ministry of Finance, issued Notification No. 26/2012 on June 20, 2012, under the Finance Act, 1994, to provide exemptions on certain taxable services from service tax. The notification specifies various services, such as financial leasing, transport of goods and passengers by rail or air, renting of premises for functions, and services by tour operators, among others. Each service is subject to specific conditions and percentages for tax calculations, primarily involving restrictions on CENVAT credit claims. The notification supersedes a previous one and took effect on July 1, 2012. 18. 25/2012 - dated 20-6-2012 - ST Mega exemption notification Summary: This notification exempts specific services from service tax under the Finance Act, 1994. It provides comprehensive exemptions for various sectors including healthcare, education, religious services, transportation, and government services. The exemptions cover services provided to UN organizations, clinical establishments, charitable organizations, legal services to specific clients, educational institutions, and agricultural activities. The notification includes detailed definitions of terms like "charitable activities," "educational institution," and "healthcare services" to clarify eligibility criteria for exemptions. It supersedes previous exemption notifications and was effective from July 1, 2012, with multiple amendments over subsequent years. Circulars / Instructions / Orders Service Tax 1. 159/10/2012 - dated 19-6-2012 Audit fees collected by the Comptroller and Auditor General (CAG) – regarding. Summary: The circular addresses whether service tax applies to audit fees collected by the Comptroller and Auditor General (CAG) for auditing corporations. It clarifies that CAG, as a constitutional authority, does not qualify as a "practicing chartered accountant" or a "concern" under the Finance Act, 1994. The services provided by CAG are distinct from those of chartered accountants and do not fall under "Business Support Services" as defined in the Act. Therefore, the audit fees collected by CAG are not subject to service tax. The circular instructs that this clarification be communicated to relevant parties. DGFT 2. 01 (RE- 2012) /2009-14 - dated 18-6-2012 Introduction of electronic Bank Realization Certificate (e-BRC) system. Summary: The circular introduces the electronic Bank Realization Certificate (e-BRC) system, effective from June 5, 2012, eliminating the need for physical BRC submissions to claim Foreign Trade Policy benefits. Banks are required to upload BRC data electronically daily and convert manually issued BRCs into digital format by July 31, 2012. Exporters must provide commission details separately when filing applications. Regional Authorities (RAs) will use net foreign exchange earnings from e-BRCs to grant Chapter 3 benefits, with pro-rata distribution applied in cases of foreign exchange realization shortfalls. The circular includes detailed illustrations for benefit calculations. Highlights / Catch Notes Income Tax India-USA DTAA exempts professional consultancy services provided outside India from TDS deduction requirements. No TDS liability under DTAA. Case-Laws - AT : DTAA between India and USA - professional service for consultancy rendered outside India and not for supply of scientific, technical, industrial or commercial knowledge or information. - there was no liability to deduct TDS - AT Visit to Get Source Transfer Pricing Officer's Authority to Independently Determine Arm's Length Price for Unreferred International Transactions. Case-Laws - AT : Transfer pricing - Power of the TPO for suo-moto determination of ALP in respect of international transaction which were not referred to him by the AO - AT Visit to Get Source High Court Confirms Software Usage Rights as 'Royalty' Under Income Tax Law, Affecting Taxation of Such Transactions. Case-Laws - HC : Royalty - transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' - HC Visit to Get Source Taxpayer Share Valuation: End-of-Year Shares Assessed by Lower of Cost or Market Value Principle. Case-Laws - HC : Valuation of Shares – shares held by the assessee at the end of the year - The valuation of stock is cost or market value whichever is lower is settled position of law - HC Visit to Get Source Bad or doubtful debts deduction on balance sheet exempts from Section 115JA or 115JB applicability of the Income Tax Act. Case-Laws - AT : MAT - if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets aside of the balance sheet, the Explanation to Section 115JA or JB is not at all attracted. - AT Visit to Get Source "More than Ordinary Profits" in Section 80IA(10) Differs from "Arm's Length Price" in Section 92C: Key Tax Distinction. Case-Laws - AT : Phrase ‘more than ordinary profits’ referred in section 80IA(10) is different from ‘arm’s length price’ as referred u/s 92C. - AT Visit to Get Source Court Rules Contingency Deposit as Trading Receipt in Disputed Transactions During Appeal. Case-Laws - HC : Trading receipt - refundable contingency deposit representing sales tax collected in respect of disputed transactions during pendency of appeal before court - held as Trading receipt - HC Visit to Get Source Non-existent firm transactions recorded as bogus; Section 145 of Income Tax Act not applicable for fraudulent entries. Case-Laws - HC : Purchases from non-existent firms – bogus transactions in the books of accounts – Section 145 have no application to such a situation as the provision deals with cases where AO is not satisfied about 'correctness' and 'completeness' of the accounts of the assessee and not fraudulent or fabricated entry - HC Visit to Get Source Commissioner of Income Tax (Appeals) Justifies Quashing Reassessment Order u/ss 153C and 147/148. Case-Laws - AT : Assessment of income of any other person u/s 153C versus income escaping assessment u/s 147/148 - CIT(A) was fully justified in quashing the reassessment order. - AT Visit to Get Source Customs Department's Rejection of Duty Drawback Application u/r 6 Without Verification Deemed Unacceptable. Case-Laws - AT : Duty draw back - The appellant made an application for draw back under Rule 6 - the department’s out-right rejection without verification is unacceptable. - AT Visit to Get Source DGFT New e-BRC System Introduced to Digitize and Streamline Export Transaction Verification, Reducing Paperwork and Enhancing Transparency. Circulars : Introduction of electronic Bank Realization Certificate (e-BRC) system. - Circular Visit to Get Source Indian Laws Finance Ministry Unveils Guidance Paper to Align Service Tax with GST for Streamlined, Efficient Tax System. News : FM releases Guidance Paper on service tax: new approach intended to take country and economy a step closer to GST Visit to Get Source President's Donations Not Personal Info; Disclosure Doesn't Invade Privacy of President or Recipients. Case-Laws - HC : The donations made by the President of India cannot said to relate to personal information of the President. It cannot be said that the disclosure of the information would cause unwarranted invasion of the privacy of, either the President of India, or the recipient of the donation. - HC Visit to Get Source Service Tax Exemption Granted: No Service Tax on Services for SEZ Authorized Operations to Boost Economic Activity and Competitiveness. Notifications : Exemption on services provided to SEZ authorised operations - Notification Visit to Get Source Rule 6A Notification: Rebate on Duty and Service Tax for Exported Services to Ease Exporters' Tax Burden. Notifications : Notification under rule 6A of Service Tax Rules - rebate of the duty paid on excisable inputs or service tax and cess paid on all input services used in providing service exported - Notification Visit to Get Source New Guidelines in Point of Taxation Rules Clarify Service Tax Liability Timing for Better Compliance and Reduced Disputes Notifications : Seeks to amend point of Taxation Rules - Notification Visit to Get Source Service Tax Rules Amended: Key Changes in Compliance and Procedures for Businesses and Individuals to Ensure Regulatory Adherence. Notifications : Seeks to amend Service Tax Rules - Notification Visit to Get Source Service Tax Notifications Rescinded to Simplify Framework and Remove Outdated Provisions for a More Efficient System. Notifications : Rescinding of certain notifications - Notification Visit to Get Source Service tax exemption granted to small service providers to ease compliance and boost economic growth. Notifications : Exemption to Small service providers - Notification Visit to Get Source Services by Technology Incubators and Entrepreneurship Parks Exempt from Service Tax to Boost Innovation and Growth. Notifications : Exemption of services provided by TBI/STEP - Notification Visit to Get Source Service Tax Exemption Granted for Specified Services to Exporters, Aiming to Ease International Trade Operations. Notifications : Exemption to specified services received by exporter of goods - Notification Visit to Get Source Reverse Charge Mechanism Update: Service Tax Liability Now Shifts to Recipient u/s 68(2. Notifications : Notification under sub-section (2) of section 68 - Reverse Charge - Notification Visit to Get Source New Notification Issued on Service Tax Exemption for Property Tax on Immovable Property: Key Details for Taxpayers. Notifications : Exemption on property tax paid on immovable property - Notification Visit to Get Source Understanding Service Tax: Place of Provision of Services Rules, 2012 Clarifies Cross-Border Transactions and Tax Liabilities. Notifications : Place of Provision of Services Rules,2012 - Notification Visit to Get Source Exemption Granted from Service Tax for Official Services Used by Foreign Diplomatic Missions to Ease Financial Burden. Notifications : Exemption to services for the official use of foreign Diplomatic Mission - Notification Visit to Get Source New Service Tax Notification: Updated Abatement Rates and Compliance Protocols for Businesses and Service Providers Notifications : Abatement notification - Notification Visit to Get Source Service tax exemption list expanded to reduce financial burden on education, healthcare, agriculture, and public transport sectors. Notifications : Mega exemption notification - Notification Visit to Get Source Tax Exemption for Services in SEZs: Notification No.4/2004-ST Excludes SEZ Act, 2005 Interpretation. Case-Laws - AT : Notification No.4/2004-ST - exempting taxable services provided to developer of a SEZ or a unit in the SEZ by any service provider for consumption of service within such SEZ, cannot be interpreted on the basis of the provisions of SEZ Act, 2005 - AT Visit to Get Source Interpretation of 'Sale' in Section 2(h) Excludes Intangible Goods like IP Rights from Tangible Goods Provisions. Case-Laws - AT : Intellectual property right service - Definition of sale in section 2 (h) of Central Excise Act - This provisions can not be interpreted to mean that provisions that are relevant for tangible goods will apply for intangible goods when the subject involved requires a distinction to be made. - AT Visit to Get Source CAG Audit Fees Now Subject to Service Tax: Key Updates and Compliance Guidelines for Accurate Tax Application. Circulars : Audit fees collected by the Comptroller and Auditor General (CAG) – regarding. - Circular Visit to Get Source Farmers Using Tractors or Lorries for Sugar Cane Transport Not Subject to Service Tax, Not Commercial Entities. Case-Laws - AT : As individual farmers who owned tractors or lorries either in their name or the names of their family members and who transported sugar cane from collection centre to their factory were not commercial concerns engaged in transportation of the goods no point of levying service tax - AT Visit to Get Source Builders Not Service Providers Before July 1, 2010: Prima Facie Case Supports Assessee on Service Tax Obligations. Case-Laws - AT : Prior to 1-7-2010 a builder cannot be deemed to be service provider - prima facie case in favor of assessee - AT Visit to Get Source Assistant Commissioner Rules on Cenvat Credit Eligibility; Orders Reversal, Establishes Communication as Appealable Order. Case-Laws - AT : Appealable order - As there is a clear finding by the Assistant Commissioner on the question of eligibility to Cenvat credit and also a direction to reverse the credit availed in view of this factual position, the communication satisfies the requirements of an appealable order - AT Visit to Get Source Central Excise Refund Process for CENVAT Credit u/r 5: Conditions and Procedures for Exporters Explained. Notifications : Refund of CENVAT Credit under rule 5 of the CENVAT Credit Rules, 2004 - Notification Visit to Get Source Guide to Claiming Cenvat Credit Refunds: Key Steps, Requirements, and Updates u/r 5 of Cenvat Credit Rules 2004. Notifications : Refund of Cenvat Credit - Safeguards, conditions and limitations prescribed for the purpose of Rule 5 of Cenvat Credit Rules, 2004 - Procedure for filing the refund claim Visit to Get Source Cenvat Credit Reversal for Capital Goods Must Reflect Transaction Value, Even Pre-Amendment, Under Central Excise Rules. Case-Laws - AT : Reversal of the cenvat credit - removal of capital goods - when a transaction value is available, cenvat credit reversal has to be on the basis of transactional value even prior to the amendment - AT Visit to Get Source Reassessing MODVAT credit documents lets appellants claim previously unclaimed credits, impacting overall assessment. Case-Laws - AT : Cenvat Credit - By verifying the entire documents for the purpose of MODVAT credit, it amounts to opening of the entire assessment, in which case, the appellants would be entitled to take short availed credit by them. - AT Visit to Get Source Case Laws: Income Tax 2012 (6) TMI 453 Undisclosed Income - Source of Investment in FDRs being in question - assessee contended that same has been invested out of the amount received as successor to will of Father-in-law - Revenue questioned genuineness of Will on ground of it being non-registered and source of investments with deceased since deceased person was never assessed to Income or Wealth tax - Held that:- Indian law only prescribes that Will should be in writing, and attested by two witness; there is no requirement of any registration or notarization thereof. In this case the Will is in writing and duly attested by two witnesses, therefore, no adverse inference can be drawn on the aspect that witness did not advice for registration of the same. Further, flow of writing as pointed out by AO cannot be held to be determinative to discard the Will, in the absence of any opinion of the handwriting expert. Moreover, genuineness of will has been confirmed by witnesses. Therefore, when the direct evidence is available the issue cannot be decided on assumption without contradicting the statements on record. Consequently the additions in respect of the amount arising out of the Will are deleted. Estimation of Agricultural Income - addition on ground of difference - AO estimated agricultural income taking the yield of 2000-01 as base year and applying the cost inflation index to it - Held that:- Report of the Investigating officer itself suggest that agricultural income at Rs. 1500/- per bigha was reasonable. AO has adopted a yardstick of estimating the agricultural income on the basis of cost inflation index which, in our considered view, may be useful for capital gain purposes but cannot be a yardstick for estimating the assessee's agricultural income. Hence, agricultural income as claimed by assessee is allowed. Advances received qua the alleged agreement to sell the land - addition made on ground of it being cash transactions and doubt about credit-worthiness of purchasers - Held that:- Excepting doubting the confirmations, additions have been made without further inquiries. therefore, we set aside these issues back to the file of AO to decide the same afresh in accordance with law. 2012 (6) TMI 452 DTAA between India and USA - remittance of professional fees to KPMG LLP, USA being treated as 'Royalty' under Article 12 of DTAA - assessee engaged the services of KPMG Dallas to provide consultancy services and conduct negotiations with the potential parties in connection with consultancy to be given to Essar Oil Ltd for sale of its energy business - dis-allowance u/s 40(a)(ia) - Held that:- Impugned services were purely a professional service for consultancy which were rendered outside India and not for supply of scientific, technical, industrial or commercial knowledge or information. Thus, nature of payment do not fall within the meaning of Article 12 and, therefore, there was no liability to deduct TDS and consequently dis-allowance made u/s 40(a)(ia) is uncalled for. Similarly, in the case of payment made to KPMG, Canada were also purely for professional services and reimbursement of expenses, which in any manner does not fall under Article 12. Thus, on such payment also there was no liability to deduct TDS and consequently Section 40(ia) will not be applicable - Decided in favor of assessee. Bad debts - dis-allowance of professional fees and expenses not recoverable from clients claimed as Bad debts on ground of insufficient evidences placed on record - Held that:- After the amendment w.e.f. 1st April, 1989, it is not necessary for assessee to establish that the debt, in fact, has become irrecoverable, it is sufficient that the assessee has written off the bad debts in the account and the same has to be allowed. See T.R.F. Limited Vs. CIT (2010 (2) TMI 211 - SUPREME COURT ) - Deduction allowed - Decided in favor of assessee. Ad-hoc dis-allowance of 10% of sum paid as support service charges and professional fees to KCPL and KPMG u/s 40A(2)(b) - Held that:- In present case, AO has neither inquired nor brought anything on record to show that the payment is excessive as compared to unrelated parties or it was not for the legitimate needs of the business or profession of the assessee. The same does not seem to have been doubted. Thus, this matter is restored back to the file of the AO for verification and decision accordingly. Dis-allowance u/s 43B - contribution to the EPF - assessee contended allowance of expenditure in view of the second proviso to section 43B - Held that:- Since, in present case, payments have been made before the due date of filing of a return, hence in view of omission of second proviso to Section 43B and the amendment of first proviso by the Finance Act, 2003 being retrospectively effective from 1st April, 1988, dis-allowance is deleted. See CIT Vs. Alom Extrusions Ltd.(2009 (11) TMI 27 (SC)) - Decided in favor of assessee. 2012 (6) TMI 451 Applicability of Section 206AA to persons whose income is below taxable limit - non-acceptance of Form 15G by Bank on ground of non-production of PAN - Held that:- Section 206AA makes it conditional for every person who wish to have a transaction in the bank or financial institution including small investors/depositors, invariably to have a PAN. Imposition of such condition on small depositors would cause hindrance and discourage small investors to come forward to invest their money for secured returns and as security for their future. This runs contrary to what has been contemplated u/s 139A. Hence, Section 206AA is made inapplicable to persons and read down from the Statute for whose income is less than the taxable limit. Banking and financial institutions shall not invariably insist upon PAN from such small investors as well as from persons who intend to open an account in the bank or financial institution. 2012 (6) TMI 450 Validity of revisionary order passed by CIT u/s 263 - order passed u/s 143(3) revised on ground that expenses incurred in foreign currency for rendering technical services outside India, were not deducted from the export turnover, resulting in excess allowance of deduction u/s 10A - Loss incurred by one of the STPI units was not set off against the business profits while computing the deduction allowable u/s 10A - assessee engaged in the business of Business Process Outsourcing (BPO) - Held that:- Assessment order was passed by the Assessing Officer after examination of details called for and furnished and on application of mind. The AO has examined the aspects of computation and allowability of deduction u/s 10A and has also examined the details called for in respect of foreign currency expenses. Also, there were judicial decisions in favour of the assessee on the issues dealt with by the CIT in the order passed u/s 263 as on the date of said order and which fact has been acknowledged by the CIT. Even otherwise, the issues dealt with by the CIT in the order passed u/s 263 are capable of two views and the AO has taken one of the possible views. It is settled law that when an officer adopts one of the courses permissible in law and it has resulted in a loss of Revenue or when two views are possible and the Assessing Officer takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. Hence, order passed by CIT u/s 263 is without jurisdiction and liable to be quashed - Decided in favor of assessee. 2012 (6) TMI 449 Transfer pricing - Power of the TPO for suo-moto determination of ALP in respect of international transaction which were not referred to him by the AO - Held that:- Finance Act, 2012 has amended the provisions of sec. 92CA retrospectively effective from 01.04.2002 to empower the TPO to determine the ALP of international transactions noticed by him in the course of proceedings before him, even if said transaction was not reported by the assessing officer. Appeal dismissed. Depreciation on Computer peripherals - 15% or 60% - Held that:- Assessee will be eligible for depreciation @ 60% on UPS, WAN/LAN equipment, switches, network equipment etc. Expenditure incurred on issue of mobile handsets on FOC basis to dealers for various display and promotional purposes - revenue or capital expenditure - Held that:- Since on identical issue the ITAT has set aside the matter to the file of the AO for AY 2006-07, we also set aside the issue for AY 2007-08 to the file of the AO. Transfer Pricing - benefit of working capital adjustment not allowed while computing ALP in respect of international transaction pertaining to the provisions of software development services to associated enterprises - Held that:- Matter set aside to the file of the AO with the direction to examine the case of the assessee. Further, Since DRP has used information obtained u/s 133(6) against assessee without confronting it, in our considered opinion, the assessment order needs to be set aside to the file of AO who will refer the matter to D.R.P. for providing necessary opportunity of being heard. Advertisement, marketing and promotion expenditure - adjustment - assessee submitted that AMP expenditure incurred by the assessee does not represent international transactions between the two associated enterprises within the meaning of S92B r.w.s. 92F - Held that:- There is no dispute about the fact that Finance Act, 2012 has proposed amendment in the provisions of sec. 92B by insertion of Explanation clarifying the term "International transactions". Since both the parties agreed for setting aside the issue and decide the same in the light of the amended provisions of sec. 92B by the Finance Act, 2012, we set aside the matter to the file of the AO 2012 (6) TMI 448 Amendments to the MOA - non-existence of registration under section 12A - assessee society didn’t intimated to the Income Tax Department amendment brought in its memorandum and rules & regulations for a period of three years – Held that:- The registration granted under section 12A and the benefits flowing therefrom cannot be extended to the amended objects of the society unless the DIT examines the same and comes to a conclusion that the registration under section 12A can be extended to the revised objects, memorandum and by-laws - illogical to hold that once an institution is registered under section 12A, no matter whatever may be the changes in the objects, rules and regulations, for any number of times, the institution should be given the benefit of section 11 to 13, in view of the original registration granted under section 12A - the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law - the letter dated 18th November 2009 is only advisory in nature and is not an exercise of a statutory power withdrawing or cancelling of registration under section 12A – against assessee. 2012 (6) TMI 447 Search action u/s. 132 – Assessment completed u/s. 143(3) r.w.s. 158BC – AO rejected books of account of the assessee – AO estimated the income at 10% citing two comparable cases – AO estimated the undisclosed income from construction activity for the block period and addition to this being interest accrued on amount advanced on the basis of calculations shown in the loose sheets – Held that:- No specific reason has been given for applying the flat rate of 10% except stating that considering the nature of contract works executed by the assessee-company and the percentage of income admitted for other A.Ys. and also for the percentage of income admitted by other two comparable cases - considering two comparable cases relied to estimate the income, carry on business in one line viz. construction of irrigation works such as dams, canals, etc. which is not strictly comparable with the business of the appellant. As to the percentage of net profit amongst the two concerns there is a variation of 4.15% approximately - therefore the estimation of the rate of net profit @ 10% by the AO is arbitrary, not proper, not correct and illusory as the comparison relied upon by the assessing officer is without any basis and not in any way nearer to the facts of the appellant's case. No material was found during the search which could show suppression of income, no estimation of undisclosed income of block period by resorting to Section 145 could be made - a lower rate of gross profit declared by the assessee as compared to the previous year, would not by itself be sufficient to justify any addition - there is a reasonable cause for declining in net profit rate explained by assessee and it is found to be genuine. The low profit rate itself cannot be the reason for rejecting the books of accounts more so in the block assessment. The addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. Estimation of income on contracts which are disclosed in the regular books of accounts cannot be disturbed in the block period, and at best it could be the subject matter of regular assessment only - inclined to hold that the CIT(A) is not justified in giving the direction to assessing officer for the Assessment Year 2001-02 and for part period from 01.04.2001 to 20.12.2001 to determine the undisclosed income at 6.5% before depreciation as against 4.49% for the assessment year 2001-02 and 5.59% for part period from 01.04.2001 to 20.12.2001 declared by the assessee. Accordingly, the ground raised by the assessee is allowed. Department allegation that seized material reflected money advanced by the assessee and interest accrued thereon – Held that:- Revenue not able to unearth any background with regard to accrual of real income - There is no evidence as to whether he paid the interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. The assessing officer without examining concerned party, who has received advance from the assessee, cannot come to the conclusion that the assessee has received interest on the basis for addition is only note book/loose slips. which are unsigned documents – thus revenue unable to established nexus between the note book/loose slips with actual accrual/ receipt of interest – in favour of assessee. 2012 (6) TMI 446 Royalty - transfer of the right to use the software/computer programme - Held that:- As decided in CIT v. Samsung Electronics (P.) Ltd.[2011 (10) TMI 195 (HC)]that consideration paid by the Indian customers or end users to the assessee a foreign supplier, for transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of 'royalty' as defined under sub-clause (v) to Explanation 2 to clause (vi) of section 9(1)- against assessee. 2012 (6) TMI 445 Denial of claim of the assessee for deduction on account of bad debt –assessee contented that the assessee did not claim any deduction on account of bad debts in assessment year 2004-05 though a provision was made in the books of account – Held that:- Since assessee in assessment year 2004-05 reduced a sum of Rs. 70,00,000/- in the balance-sheet from the sundry debtors, the sundry debtors account was not credited and closed - The assessee made a provision for doubtful debts in the books of account but in computation of income filed along with the return of income for assessment year 2004-05 added to the profit as per P & L account the provision for doubtful debts - though the Assessee had not claimed deduction on account of bad debts in AY 04-05 there is no double deduction claimed - the claim of the Assessee deserves to be accepted as if the claim is not allowed, then it would amount to double taxation – in favour of assessee. 2012 (6) TMI 444 Valuation of Shares – Revenue contented against the ITAT Order the shares held by the assessee at the end of the year should be valued as per market rate and the consequential loss should be allowed as a business loss – Held that:- The assessee carrying on the business in sale of shares held to be stock-in-trade and not by way of investment – as the value of stock-in-trade is reduced because of market conditions as the said shares were held as stock-in-trade, the assessee suffered a loss in the business and therefore the assessee was entitled to claim business loss - The valuation of stock is cost or market value whichever is lower is settled position of law – in favour of assessee. Accounting of interest received on loans and advances – to be on receipt basis or accrual basis as per the regular mercantile system of accounting maintained by the assessee – Held that:- The interest on which the tax is levied is an income shown to be due from non-performing asset and once a particular asset is shown to be a non-performing asset then the assumption is that it does not yield any revenue - If it is not yielding any revenue, the question of showing that Revenue and paying tax would not arise - unless that amount is received no tax is payable - in favour of the assessee 2012 (6) TMI 443 Capital or Revenue - Treatment of 'books' as 'plant' entitled to depreciation under section 32(1) of the Act, i.e., in contradistinction to being a revenue expenditure - assessee is a partnership firm engaged in running coaching classes for entrance examinations – Held that:- where the article being used is the same (books), and the purpose for which it is used also the same, i.e., for imbibing knowledge and understanding the subject, as well as teaching it, capital expenditure would not become revenue, depending upon whether the income is considered as arising from exercise of profession or undertaking a business; the purpose of expenditure being the same, as also its contribution to the earning of the income or the income generating process. books, if not used in carrying on a profession (or a specified business), would carry the general depreciation rate of 25%, and not operate to alter the character of the expenditure to a revenue expenditure Disallowance under section 40A(3) of the Act - AO found the assessee to have made cash payments in excess of Rs. 20,000/- in respect of several purchases for awards, the aggregate expenditure under which head stood claimed at Rs. 14.19 lakhs – Held that:- it does not take much strain to infer that the books of account stand manipulated to reflect the impugned payments in installments of Rs. 20,000/- in an orchestrated manner to apparently accord with the provision of law, so as to circumvent its rigour and effect, i.e., as contended by the Revenue, so that its findings cannot be faulted with. In the case of McDowell Co. Ltd. (1985 - TMI - 40038 - SUPREME Court - VAT and Sales Tax), it stands held that there was as much moral sanction behind the taxation laws as is behind any other welfare legislation, and that it stood on no less a moral plane than honest payment of tax. That, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provision should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. It is up to the court to take stock to determine the nature of the legal device to avoid the tax and expose the same for what it really is and to refuse to give judicial benediction to it 2012 (6) TMI 442 Writ petition - whether the Excise and Customs Department of the Central Government have priority over the secured debt of the 1st respondent - financial institution – Held that:- are no specific provisions under the Central Excise Act or the Customs Act to claim first charge, as provided under other enactments, the Full Bench held that generally the dues to the Government i.e. tax, duties, etc. (Crown's debts) get priority over ordinary debts; only when there is a specific provision in the statute claiming first charge over the property, the Crown's debt is entitled to have priority over the claim of others. In absence of any such provision to claim first charge, the Government cannot claim precedence under the Central Excise Act over the claim of the secured creditor under the SARFAESI Act, 2002. Customs Department cannot claim any priority of claim over the claim of the secured creditor, the 1st respondent - financial institution. 2012 (6) TMI 441 Penalty - penalty proceedings under s. 271(1)(c) of the Act were initiated and notice under s. 274 r/w s. 271 of the Act was issued to the assessee for furnishing inaccurate particulars of loss - AO categorically stated in the penalty order that "The assessee has not discharged its onus that the wrong/inadmissible expenses is a bona fide mistake rather than done intentionally – Held that:- in the case of Reliance Petroproducts (P) Ltd. [2010 (3) TMI 80 - SUPREME COURT ] mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. appeal is dismissed 2012 (6) TMI 440 Addition on account of sale of TDR - slum rehabilitation project. - AO observed that TDR was nothing but FSI granted by SRA which could be used by recipient for construction of flats /premises in Mumbai. – Held that:- approach adopted by the Assessing Officer for assessing the income from TDR independently without deducting the expenses incurred is not justified. - The assessee has been following project completion method which is an accepted method of accounting in construction business and also recommended as per accounting standard AS-7 of ICAI. Therefore, in such cases the income from the project has to be computed in the year of completion. The TDRs received are directly linked to the execution of the project and therefore, before the completion of the project the income from TDR or any other receipt inextricably linked to the project will only go to reduce costs of the project. order of CIT (A) deleting the addition confirmed. - appeal of the revenue for the Assessment Year 2006-07 is dismissed 2012 (6) TMI 439 Person liable to tax - cash credit - owner - assessee or his son - held that:- there is a concerted attempt by the father and the son to suppress income and one is trying to put the blame on the other. In the process both of them are not willing to offer the said income for tax under the Act. - As the said amount was credited to the bank account of the assessee which is also reflected in the statement of books of the assessee and the explanation offered by him is not consistent, subsequently the said amount is not repaid and there are contradictions in his statement and the statement of his son, apart from other two persons from whom the money is said to have flown, we are satisfied that all the ingredients of section 68 are attracted. The burden of showing the nature and source of income was squarely on the assessee. In the facts of the case, he has miserably failed to prove the said fact. Therefore, the impugned order passed by the Tribunal cannot be sustained and accordingly it is set aside. The first substantial question of law framed in this regard is answered in favour of the Revenue and against the assessee. Enhancement of assessed income - jurisdiction of CIT(A) to enhance - held that:- the first appellate authority gave an opportunity to the assessee to explain those receipts, called upon the Assessing Officer to hold an enquiry and submit a report. In the report submitted it became evident that except the aforesaid payment of Rs. 40 lakhs in respect of all other payments, the creditors stood by the said payment. Only in respect of this disputed payment, in the first place there is a difference in the name. After the person was identified he gave a statement denying the said pay- ment, denied knowing the assessee at all. The assessee was given an opportunity to cross-examine the said Rajanna who was extensively cross- examined. It is after all this exercise, the appellate authority held that the explanation offered by the assessee is not satisfactory and, therefore, he has failed to disclose the nature and source of income and, section 68 is attracted. Therefore, it cannot be said that the appellate authority had no jurisdiction to go into the said matter, add the said income and enhance the tax. The Tribunal was wholly in error in its approach in so far as the jurisdiction of the appellate authority is concerned. As the judgment relied on by the Tribunal is set aside by the apex court, the order passed by the first appellate authority is valid and legal and the same is restored. 2012 (6) TMI 438 Penalties u/s 271(1)(c) - held that:- there was no mens rea for concealment of income which had formed the basis for making additions to the income of the assessee. The assessee had disclosed the G. P. rate of 22 per cent. in the revised return and on that basis the intentional concealment could not be held. Further, the Assessing Officer had not found any sales or purchases outside the books of account and if there had been any intention in the mind of the assessee, the latter would have erased those cuttings. - no penalty - decided in favor of assessee. 2012 (6) TMI 437 Reassessment u/s 147 / 148 - deduction claimed u/s 80HHC - Explanation (baa) - Whether the appellate authorities were correct in holding that wages, appraisal charges, repairs and renewals charges, received by the assessee cannot be reduced by 90 per cent. from the profits and gains of business as contemplated under Explanation (baa) read with section 80HHC(3)(c) of the Act for the purpose of granting deduction under section 80HHC(1) of the Act where the assessee had exported goods manufactured/processed/traded by it in India? - Whether the appellate authorities were correct in taking into consideration irrelevant circumstances like direct nexus between pay- ments and receipts positive and negative income instead of adopting the mandatory method of computation prescribed under section 80HHC of the Act for claiming deductions on exports manufactured/ processed/traded in India? The appellate authorities were justified in allowing the deduction under the head by setting aside the order of the assessing authority and were of the view that the assessee has to first prove that it was a trade debt and, secondly, it was irrecoverable and, thirdly, it was actually written off. Therefore, the said substantial questions of law are answered against the Revenue and in favour of the assessee. - Decision in f CIT v. Shri Ram Honda Power Equip [2007 (1) TMI 86 (HC)] followed. 2012 (6) TMI 436 Expenses incurred for imparting technical know-how - whether entire expenditure is allowable instead of one-sixth - assessee had to directly bear the air fare and other travelling and living expenses of each such technician - assessee had to pay Molex, fees as was mutually agreed and as was permissible, per man for each day. The said payment was in addition to the air fare and other travelling living expenses of the technicians to be borne directly by the licensee. - held that:- In the case of imparting this technical know-how, firstly, there is no lump sum payment. Imparting know-how to the assessee's personnel would arise only after acquiring the know-how and, therefore, this imparting is distinct from acquisition of know-how though both of them are for the use of the assessees' business. As rightly held by the Tribunal, it is in the nature of a revenue expenditure incurred by the assessees in its business after acquiring the know-how for a lump sum consideration. Therefore, the entire amount has to be deducted under section 37(1) of the Act and it does not fall under section 35AB. - Decided in favor of assessee. 2012 (6) TMI 435 Method of accounting - mercantile or accrual basis of accounting - held that:- Whether the method of accounting referred to in section 145 of the Income-tax Act, 1961, prior to its substitution by the Finance Act, 1995, with effect from April 1, 1997, included the hybrid or mixed system of accounting and it was open to a company assessee to follow the cash system of accounting in respect of a particular source of income and the mercantile system in respect of the others? - Whether the provisions of section 209(3) of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 1988 have any overriding effect on the provisions of section 145 of the Income- tax Act, 1961? Held that:- the provisions of the Companies Act are meant for the requirement of the Companies Act and in case of infraction thereof necessary consequence as provided in the Companies Act itself follows. - Tribunal had no justification to discard the mixed accounting system resorting to the amended provision of the said Companies Act. - Decided in favor of assessee. 2012 (6) TMI 434 Reassessment - wrong deduction u/s 80IB - held that:- The law regarding reopening of assessment is very strict. If an assessment could have been done but has not been done or erroneously done it cannot be done after expiry of the prescribed time limit. Exception can be made in very special circumstances. f the Assessing Officers had not questioned the entitlement of the assessee to deduction under section 80-IB in the assessment years in question, it was their mistake. All information regarding the alleged manufacturing process of the assessee was before them. After the time limit for making assessment or reassessment has long expired, the Revenue cannot turn round, take recourse to an extraordinary provision which is section 147 and attempt to reopen concluded assessments. If such exercise is permitted that would be quite contrary to the intention of the Act. - Decided in favor of assessee. 2012 (6) TMI 415 MAT - re-computation of book profit on ground that provision for doubtful debts and provision for contingencies were not added to arrive at the book profits u/s 115JB - Held that:- It can be seen that the provision of bad and doubtful debts has been reduced from the gross debtors and the net sundry debtors are shown as asset in the balance sheet. Thus the provision for bad and doubtful debts cannot be termed as a provision for liability but is in the nature of diminution in the value of asset. Facts in the present case are identical to that of the case of Yokogwa India Ltd wherein it is held that if the bad debt or doubtful debt is reduced from the loans and advances or the debtors from the assets aside of the balance sheet, the Explanation to Section 115JA or JB is not at all attracted. Hence, CIT(A) has rightly deleted the addition made on aforesaid ground - Decided in favor of assessee 2012 (6) TMI 414 Deduction u/s 10A - exclusion of expenditure on account of communication charges, insurance charges and professional fee from export turnover for computing deduction u/s 10A - assessee contending that if same are reduced from export turnover, the same should also to be reduced from the total turnover - Held that:- Professional fee, communication charges and insurance expenditure once are excluded from the export turnover, for maintaining principle of parity, the same also has to be excluded from total turnover - Decided against the Revenue. 2012 (6) TMI 413 Deduction u/s 10A - exclusion of expenditure incurred on account of freight, telecommunication charges, insurance attributable to delivery of articles or computer software, from export turnover while the same is included in total turnover - Held that:- In absence of definition of total turnover, the meaning of the said term for purposes of sections 80HHC and 80HHE and 80HHF are to be applied. Parity is to be maintained with export turnover. Expenses on freight, telecommunication charges or insurance attributable to delivery of articles or things or computer software, required to be excluded from export turnover, are also to be excluded from total turnover for computing exemption u/s 10B/10A. See ITO Vs. Sak Soft Ltd (2009 (3) TMI 243 (Tri)) Similarly, reimbursement of onsite expenses are to be excluded from both export and total turnover for the purpose of computation of benefit under S.10A. Adjustment of profits u/s 10A(7) r.w.s. 80IA(10) - assessee contended that only the profit making companies from the Transfer Pricing Report of the assessee are to be considered in order to determine the ordinary profits - Held that:- Phrase ‘more than ordinary profits’ referred in section 80IA(10) is different from ‘arm’s length price’ as referred u/s 92C. Issue set aside to the file of the AO with a direction to verify the comparable in the light of the decisions of the in the case of Tweezerman (India) P. Ltd. and Digital Equipment India Ltd. Decided in favor of assessee for statistical purposes. 2012 (6) TMI 412 Trading receipt - refundable contingency deposit representing sales tax collected in respect of disputed transactions during pendency of appeal before court - Ay 91-92 - Held that:- Irrespective of the labelling, the deposit either as contingency deposit or security deposit, the fact remains that the assessee had collected sales tax towards disputed items and retained part of the amount with it. There are no materials forthcoming from the asseesee to show that the said contingency deposit was never dealt with by the assessee as part of the trading receipt. We confirm the order of the Tribunal in treating the same as Trading receipt - Decided in favor of Revenue Deduction of same for computing total income - assessee contended that amount is refunded to parties - Held that:- On perusal of materials placed it is seen that those amounts relate to the AY 1995-96, hence while treating the receipt as a trading receipt in respect of the AYs under consideration, we hold that on the assessee producing the proof before the AO as regards the refund of the said amount to the parties, it is open to the assessee to make such a claim for deduction of the amount so refunded. Prior period expenses - Held that:- It was not the case that the assessee received the bills after the end of the PY but the assessee omitted to claim the expenditure in the relevant AY which means the liability towards the expenses crystalised in the earlier previous years only. Hence it cannot be allowed in this year, as each AY is an independent and separate assessable unit - Decided in favor of Revenue 2012 (6) TMI 411 Purchases from non-existent firms – bogus transactions in the books of accounts – contention that Section 145(2) were attracted - Held that:- Evidence against the applicant-assessee would show that the whole purchases shown by the applicant-assessee from M/s Raj Kumar Raghbir Kumar were bogus - the copies of the sales tax bills issued to assessee did not inspire any evidence as the bills did not carry any sales tax/Central Sales Tax number nor the telephone number - the said firm was not found to be in existence when inquiry was made by the AO in the year 1989 nor the address of the party was known to the postal authorities - the said firm was not an existing assessee and the applicant-assessee had failed to produce the said party as also their books of account as the truck numbers given by the applicant-assessee were not truck at all but either scooters, motorcycle and mopeds and many other found to be non-existence because no such number had been allotted by the transport authorities - Section 145 have no application to such a situation as the provision deals with cases where AO is not satisfied about 'correctness' and 'completeness' of the accounts of the assessee and not fraudulent or fabricated entry – against assessee. 2012 (6) TMI 410 Review petitions by the Revenue – reopening concluded assessments – dis allowance under Section14A – Held that:- If the Revenue's claim is allowed, then the prohibition under the proviso against the AO to revise concluded assessments for making disallowance under Section 14A can be neutralized and defeated by referring concluded assessments to the Commissioner for initiating suo moto revision power under Section 263 - as in the case of concluded assessments the proviso makes it clear that the assessee should not be subjected to disallowance either by reopening assessment under Section 147 or under Section 154 for raising demand of tax after disallowance or for withdrawing refund granted – review petition dismissed – against revenue. 2012 (6) TMI 409 Review petitions by the Revenue – reopening concluded assessments – dis allowance under Section14A – Held that:- If the Revenue's claim is allowed, then the prohibition under the proviso against the AO to revise concluded assessments for making disallowance under Section 14A can be neutralized and defeated by referring concluded assessments to the Commissioner for initiating suomoto revision power under Section 263 - as in the case of concluded assessments the proviso makes it clear that the assessee should not be subjected to disallowance either by reopening assessment under Section 147 or under Section 154 for raising demand of tax after disallowance or for withdrawing refund granted – review petition dismissed – against revenue. 2012 (6) TMI 408 Deduction u/s 54f – AO contested to withdrawn LTCG claim allowed as exemption in the A/Y 2006 and to reduce the amount of Rs 25 Lakhs being a capital loss on the sale of house property from the exemption claimed on LTCG u/s 54F - Held that:- As the AO was justified in treating Rs. 73,94,157/- as long term capital gains of the year under consideration the assessee has invested in purchase of new residential house at Rs. 70,80,620/- within the period of two years in which the transfer took place, thus the assessee was eligible for deduction u/s 54F(1) in respect of the said investment - as the capital gains of the assessee was Rs. 48,94,157/- only whereas the assessee was eligible for exemption of more than that amount u/s 54F for investment of Rs. 70,80,620/- in purchase of residential house, CIT(A) was justified in deleting the addition of Rs. 48,94,157 – against revenue. Unexplained investment - appeal by revenue that CIT(A) deleted the addition of Rs. 25 lakhs - AO’s treated the source of investment in property at Chetpet to the tune of Rs. 50 lakhs only as per the sale proceeds of Alwarpet property as shown in registered sale deed, treating Rs. 25 lakhs as unexplained investment - Held that:- The assessee has brought no material on record to show that it actually received any amount more than the amounts shown in the registered deed of sale - the assessee has invested Rs. 70,80,620 in the house property at Chennai and out of which source to the extent of Rs. 50 lakhs stands explained from the sale of property at Alwarpet and Rs. 6 lakhs stands explained from the sale of Velacherry land, thus the assessee was not able to explain the source of investment of balance amount of Rs. 14,80,620 only need to be added to the income of the assessee as un explained income – modify the order of the CIT(A) and restore back the addition to the extent of Rs. 14,80,620 - in favour of revenue. 2012 (6) TMI 407 Denial of claim of exemption u/s. 80P(2)(a)(i) - Cooperative Society - the amendment to section 80P w.e.f. 01-04-2007, excludes benefit u/s. 80P to co-operative banks other than the defined categories – assessee claimed to be a primary co-operative agricultural and rural development bank – Held that:- Nothing in its object clause to suggest that its primary object is providing financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including marketing of crops) - the only object which enables it to provide financial accommodation is its object clause 2(a) only specifing the assets on the security of which the assessee-society may provide finance to its members - its area of operation admittedly extends beyond one Taluk - the assessee's claim of being a primary cooperative agricultural and rural development bank, which though would require independent examination and finding/s, is strongly indicative of the nature of its lending activities, which has a direct bearing on the question of it being a PACS (or not) - restore the matter for the purpose of necessary verification and issue of definite findings of fact/s, back to the file of the first appellate authority - no basis to consider the assessee as being a primary cooperative agricultural and rural development bank as defined in section 80P, so as to be entitled for tax benefit thereunder on its income as one such – in favour of assessee for statistical purpose. 2012 (6) TMI 406 Factual errors in computing Disallowance u/s 14A r.w.r. 8D - Held that:- From the perusal of the assessee's profit & loss account, it is evident that the total expenditure incurred was Rs. 49,04,028/- only and the disallowance cannot exceed the expenditure actually claimed by the assessee - in favour of assessee. 2012 (6) TMI 405 Capital gain - transfer - Whether the Tribunal was correct in holding that there was no transfer during the current assessment year despite the assessee handing over the possession of the immoveable property to the builder who had in turn handed over the part of the consideration amount which would amount to transfer attracting capital gains tax – Held that:- as per the agreement, actual possession of the property was handed over on 30.5.1996 and affidavit is also filed to that effect by the assessee and despite the same, the Tribunal has held that assessment of capital gain cannot be done in the year 1997-98 and is liable to be taxed in the year 2003-04 when the entire construction was completed. - Therefore, finding of the Tribunal is erroneous and substantial questions of law answered in favour of the revenue. capital gain is to be taxed in the year 1997-98 and not in the year 2003-04 as contended by the assessee. 2012 (6) TMI 404 Disallowance under Section 40(a)(i) of Income-tax Act for non deduction of tax on consultancy charges paid to nonresidents working in oil exploration projects in India – Held that:- payments made by the assessee to non-resident consultants, were directly related to the Nigerian projects of the assessee. Assessee being engaged in consultancy business, the fees paid to such consultants on its projects abroad has to be considered as fees paid for services utilized in the business of the assessee outside India. - Therefore, clearly Section 9(1)(vii)(b) of the Act applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bona fide belief that no part of the payment had any element of income which was chargeable to tax in India. It cannot be fastened with any liability associated with non-deduction of tax at source on such payments. application of Section 40(a)(i) of the Act was not called for. appeal filed by the Revenue is dismissed 2012 (6) TMI 403 Assessment of income of any other person u/s 153C versus income escaping assessment u/s 147/148 - Whether CIT(A) has erred in not appreciating the fact that proceedings in this case were initiated under s. 148 – Held that:- provisions of s. 153C of the Act were applicable, which supersedes the applicability of provisions of ss. 147 and 148 of the Act. - documents were seized during the search under s. 132 of the Act and the same were sent to the assessee's AO at Amritsar by the officer at Delhi, officer at Delhi has mentioned in his letter that the necessary action may be taken as per law under s. 153C/148 of the Act. - Hence, notice issued under s. 148 of the Act and proceedings under s. 147 of the Act by the AO are illegal and void ab initio. procedure laid down under s. 153C has not been followed by the AO and, therefore, assessment has become invalid. CIT(A) was fully justified in quashing the reassessment order. order of the CIT(A) upheld and dismiss the ground Nos. 1 to 4 of the appeal. appeal of the Department is dismissed. 2012 (6) TMI 402 Whether Tribunal is right in holding that Gross profit from the assessees' arrack business at 40 per cent. of the purchase value is sustainable in law and if not what would be the estimate of gross profit as per the principles of best judgment assessment – Held that:- The adoption of 40 per cent. as gross profit of purchase price of arrack, in our considered opinion, is arbitrary and irrational. As seen from the purchase price and sales recoveries, there is a wide variation. In some cases, it is more than nine (9) times and in some other cases less than seven (7) times. Given the fact that there is no price fixed by the Government for sale of arrack and it is generally a seller's market, to assume that the gross profit would be at 1 per cent. of the estimated sales, in our considered view, is low. Accepting the total sale price at eight (8) times of the purchase price, we feel it appropriate to hold that 2 per cent. of the estimated sale value, after considering all types of deductions mentioned hereinabove, would be reasonable. Net profit be estimated at 2 per cent. of the estimated sales or 16 per cent. of the purchase value, whichever is higher. 2012 (6) TMI 401 Addition on account of unaccounted sale – Held that:- sales tax and entry tax liability pertain to other years. Cess, duties and taxes cannot be reduced from the turnover pertaining to other years. The law provides for claiming of deduction u/s.43B as and when paid therefore cannot be subjected to reconciliation to determine the net sales as declared in the P and L account and the gross sales as per the books of account. - addition deleted. Disallowance u/s. 40(a) (ia) of the Income Tax Act – Held that:- assessee was entitled to make the payment of TDS till the due date of filing of the return when the due date of payment of TDS was the first week of the immediately proceeding month for the Assessment Year 2005-06. The books of account are audited and the financial statement and tax deducted at source payable were certified by the auditors having been paid prior to the due date of filing of the return. - CIT(A) therefore, misdirected himself to confuse between "previous year" and the "assessment year" under the mercantile system of accounting which we are inclined to vacate. The assessee had complied with the provisions of Section 40(a)(ia) was therefore entitled to claim deduction of these expenses which are directed to be allowed. Belated serving of order after a gap of two years – Held that:- assessee did not seek to find the delay in serving the order when the demand had already been informed to it. No purpose would be served for the Assessing Officer to create a demand and not inform the assessee when the learned CIT(A) on the basis of the demand notice agreed to hear the appeal u/s.246 of the I.T.Act. assessee had already filed returns for the Assessment Year 2006-07 and 2007-08 during the intervening period as were intimated to him therefore cannot held a grievance against the Assessing Officer for belatedly serving the same. Customs 2012 (6) TMI 432 Recovery of excess duty draw back - The appellant made an application for draw back under Rule 6 - entitlement to claim draw back in respect of IC Diesel Engines exported in terms of Rule 7 - department alleged the claim to fall under Rule 3 of Draw Back Rules – Held that:- It may be noted that all the conditions to be complied with for determination of the drawback rate under Rule 6 and Rule 7 are the same and therefore, the claim should not be rejected only on the ground that the claim was filed under Rule 6 instead of Rule 7 - to claim the benefit under Rule 7, certain terms and conditions have been prescribed and it is for the department to verify the claim of the appellant whether he satisfies prescribed the terms and conditions - matter needs to be remanded back to the adjudicating authority for consideration afresh of the claim of the appellant for sanction of draw back under Rule 7 of the Draw Back Rules and if the appellant is found to be eligible, then sanction the same as per law - the department’s out-right rejection without verification is unacceptable. 2012 (6) TMI 416 Application to condone the delay of 985 days in filing appeal - Joint appeal - Held that:- As the main appeal was filed well within the limitation period of 3 months, the present two appeals filed by the partners are required to be treated as supplementary appeals and the delay in filing the same is required to be condoned - as the earlier appeal has been allowed on merits the present appeal being impugned in the main appeal stand set aside allow their appeals - stay petition also gets disposed of. Corporate Laws 2012 (6) TMI 431 Enforceability of Arbitration agreement on the death of a named arbitrator - petitioner on ground of arbitration clause having no life questions entertaining of application preferred u/s 11 of the Arbitration and Conciliation Act, 1996 - Held that:- Time factor mentioned in the arbitration clause "at any time" is a clear indication of the intention of the parties. "At any time" expresses a time when an event takes place expressing a particular state or condition that is when the dispute or difference arises. The arbitration clause 21 has no nexus with the life time of the named arbitrator. Arbitration clause would have life so long as any question or dispute or difference between the parties exists unless the language of the clause clearly expresses an intention to the contrary. Hence, clause 21 does not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators. Therefore, High Court was justified in entertaining such an application and appointing arbitrator to adjudicate the dispute and difference between the parties - Petition dismissed. 2012 (6) TMI 430 Writ petition - praying for direction to respondent to include the advocates/corporate advocates in the list of practicing professionals and enable them to issue various certificates integrated into various e-forms notified under the Companies Act, 1956 and the Limited Liability Partnership Act, 2008 – Held that:- authentication or certification is required to be made by company secretaries, chartered accountants and costs accountants. prayer made by the petitioner could not be accepted. 2012 (6) TMI 400 Winding up petition u/s 433(e) r.w.s. 434 and 439 of the Companies Act, 1956 - alleged inability to pay debts - respondent contended that that in fact petitioner's holding company namely, M/s. Wacker Chemie, Germany is liable to pay monies in excess of Rs. 8 crores to the respondent - Held that:- Though petitioner admits that the respondent has had business transactions with the petitioner's holding company, but he states that the petitioner's holding company is an independent corporate entity and consequently the aforesaid defence should not be looked into by this Court. However, doctrine of single economic entity is not only well established, but also well recognized by the Courts. Accordingly, this Court is of the view that the defence of the respondent would have to be examined. Consequently, the present petition is dismissed with liberty to the petitioner to file a recovery proceeding in accordance with law. 2012 (6) TMI 399 Winding up – applicant booked plot before the date of appointment of Provisional Liquidator - Applicant made payments of Rs. 31,100 with JVG Finance and Rs. 3,00,910 with JVG Projects - One Man Committee has found that the claimant has deposited only a sum of Rs. 61,290 towards the sale consideration and other charges whereas the applicant claimed that it had additionally deposited a sum of Rs. 1,00,580 in cash – Held that:- Sale Deed dated 14-7-1998 has been executed only after appointment of Provisional Liquidator and injunction order dated 5-6-1998. The sale is void under section 537(1)(b) of the Act. applicant-claimant is not entitled to allotment of Plot. However, the applicant is entitled to simple interest at the rate of 4 per cent per annum on Rs. 61,290 the amount deposited with the respondent company from the date of its deposit. Application is dismissed FEMA 2012 (6) TMI 433 Writ petition for declaring sections 5(1) and 5(4) of the Foreign Contribution (Regulation) Act, 2010 and Rules 3(i), 3(v) and 3(vi ) of the Foreign Contribution (Regulation) Rules, 2011 (for short, 'the 2011 Rules') as ultra vires the Articles 14, 19(1)(a), 19(1)( c) and 21 of the Constitution of India. Held that:- Reading the Rule as a whole, we really fail to fathom, how it can be urged that it travels beyond the statutory provision. What is urged before us is that the right to raise the voice of the people to advance public causes is curtailed. The provision under section 5(1) carves out an exception when an organisation can be notified and thereafter barred from accepting foreign contribution section 3(1)(f), section 5(1) and Rule 3 have to be read together in harmony. The Rule effectuates the two sections and complements them. The Rule at every place refers to the political actions. Therefore, the Rule, according to us, is within the rule making power of the statutory authority. It confirms to the provisions of the statute and comes within the scope of purview of the rule making power of the authority of framing the Rule. Therefore, the Rules cannot be declared as ultra vires the Act. It is trite law that there is a distinction between conferment of power and exercise of power. If the power by an authority is not properly exercised, the same can always be assailed in a court of law. It has nothing to do as regards the constitutional validity of a Rule or a guideline. The apprehension in the mind of the petitioner that there would be abuse of power and some organizations may be unnecessarily harassed, we are disposed to think, is not to be taken note of while dealing with the validity of a statutory provision or the Rule made thereunder. The same shall be subject to judicial scrutiny when the order is passed. Thus, the aforesaid submission, being bereft of merit, is rejected. Ex-consequenti, the writ petition, being sans substratum, stands dismissed without any order as to costs. Service Tax 2012 (6) TMI 458 Notification No.4/2004-ST - alleged wrong availment of said Notification for the CHA services rendered outside the unit situated at Special Economic Zone, Chennai - demand together with interest and penalty u/s 76 & 78 imposed - Held that:- Notification No.4/2004-ST being a conditional exemption notification issued u/s 93 of the Finance Act 1994, exempting taxable services provided to developer of a SEZ or a unit in the SEZ by any service provider for consumption of service within such SEZ, cannot be interpreted on the basis of the provisions of SEZ Act, 2005 or the Rules made thereunder and the conditions specified therein have to be fully satisfied for availing the benefit under the said notification. Further, the notification came into force much before the Special Economics Zone Act or the Rules made there under came into force. Therefore, exemption will not be available if the services are consumed elsewhere than in the SEZ. Accordingly, appellant directed to make a pre-deposit of Rs.1.00 Crore within a period of eight weeks and report compliance - Decided against assessee. 2012 (6) TMI 457 Extended period of limitation - assessee contended that SCN is time barred as earlier SCN dated 31/8/04 had been issued on the same ground for demand hence extended period of limitation cannot be invoked - Held that:- When the activity of the appellant was fully known to the department and earlier a SCN dated 31/8/04 had been issued for demanding service tax for the period from 1/4/02 to 31/12/03, the department cannot accuse the appellant of suppression of fact for the subsequent period, even if they did not pay the service tax or filed the returns, as the department could have searched their premises and obtained the required information. Hence, for demand of non-paid service tax for the subsequent period from February 2004 to 31/3/05, the longer limitation period under proviso to Section 73 (1) would not be applicable. Since SCN for this period has been issued on 15/10/07, the same is time barred hence, demand is not sustainable on the ground of limitation - Decided in favor of assessee. 2012 (6) TMI 456 Waiver of pre-deposit - Commercial Training and Coaching Service - appellant was engaged in the activity of providing training courses on English, German, French, etc. - they were under the impression that their activity fell in the category of Vocational Training Course and hence exempted from payment of Service Tax – Held that:- Board's Circular No.59/8/2003-ST dated 20.6.2003 wherein it was clarified that vocational coaching and training services provided by foreign language institutes would not be chargeable to Service Tax on account of exemption under Notification No.9/2003-ST. They cannot be held to have suppressed any fact with intent to evade payment of Service Tax. - Extended period of limitation, prima facie, is not invocable. Waiver of pre-deposit granted. 2012 (6) TMI 455 Waiver of pre-deposit - overriding commission from the foreign company - demanded Service Tax – Held that:- no categorical finding as to whether the service rendered by the appellant was received by the foreign company or not. - Appellant is supported by Board's circular and Rule 3(1)(iii) read with Rule 4 of the Export of Service Rules, 2005. Waiver of pre-deposit granted. 2012 (6) TMI 454 Intellectual property right service - Exemption under Notification 12/2003-ST - deduction of goods sold from gross value - The Appellants owned the trade Mark "EICHER" registered in India in respect of Tractors. They entered into an agreement dated 27-05-2005 for permitting M/s Tafe Motors and Tractors Limited (TMTL) and received Rs.39.60 crores in consideration of such transfer. They did not pay any service tax on this amount. Held that:- When the contract is read as a whole it is indeed a contract for transfer of the right to use the Trademark for limited purposes but on a permanent basis. The fact that certain post transfer conditions are attached to transfer of the right does not change the nature of the contract. A person selling a particular product to a dealer may impose post sale conditions like he should not re-sell the goods in loose forms, the dealer should sell the product only from a premises displaying the name of the manufacturer, the dealer should not re-sell the goods in other than specified territories or that he should not resell the goods or to the effect that the goods sold should be used only for a specified purpose only does not alter the nature of the transaction as a sale. So the transaction would not be covered by clause (a) of section 65 (55b). But we do not see any reason why the transaction would not be covered by clause (b) section 65 (55b). So the transaction amounts to Intellectual Property Service. Definition of sale in section 2 (h) of Central Excise Act - held that:- This provisions can not be interpreted to mean that provisions that are relevant for tangible goods will apply for intangible goods when the subject involved requires a distinction to be made. Definition of sale in section 4 of Sale of Goods Act, 1930 - held that:- The goods namely the Trade Mark "Eicher" continues to be the property of the transferor or more appropriately the licensor which is the word used in the concerned agreement. Secondly an agreement to sell become a sale only when all the conditions of the agreement are complied with. In this case there are conditions to be complied with by the Appellants in perpetuity and at no point of time the conditions be considered to be fully complied with. There is no sale involved and the appellants are not entitled to the benefits under Notification 12/2003 is a valid argument. 2012 (6) TMI 423 Matter was heard by the Bench consisting of learned Member (Judicial) and (Technical) on various dates - the notice for listing the matter afresh was shocking as detailed arguments were advanced by both the sides and the matter was reserved for pronouncement of orders - Sr. Advocate submits that they have not made a prayer for fresh hearing while filing the Misc. application - Held that:- After appreciating the submissions made by the learned Sr. Advocate, expressing difficulty in rehearing of the appeal and making a request for passing of the order by the same Bench who heard the matter originally it is desirable to place the file before the Hon'ble President for passing appropriate orders, as having no powers/jurisdiction to place the matter before any particular Bench - Registrar is directed to place the file before the Hon'ble President. 2012 (6) TMI 421 Demand - transportation of sugar cane from collection centres to the factory - Held that:- Notification No.18/2003-Service Tax, dated 21-8-2003 has been issued which exempts commission or installation services provided by a commissioning or installation agency other than a commercial concern, thus accordingly, the commissioning or installation services provided by an individual will be exempt from service tax - As individual farmers who owned tractors or lorries either in their name or the names of their family members and who transported sugar cane from collection centre to their factory were not commercial concerns engaged in transportation of the goods no point of levying service tax - in favour of assessee. 2012 (6) TMI 420 Service tax liability under the category of commercial or industrial construction services as per the explanation added to sub clause zzzh of clause (105) of Section 65 of the Finance Act, 1994 – Held that:- The present case is not covered by the clause given in parenthesis in the text of the Explanation but covered by the situation envisaged in the main part of the Explanation thereby meaning that the appellant as a builder cannot be deemed to be service provider providing any service in relation to industrial/commercial or residential complex to the ultimate buyers of the property any time before 1-7-2010 - the deeming provision would be applicable only from 1-7-2010 contained in the explanation added to Section 65(105)(zzq) and (zzzh) having only prospective effect - prior to this date, a builder cannot be deemed to be service provider - as the entire dispute in the present case lies prior to 1-7-2010 a prima facie case against the impugned demand of service tax and the connected penalty arises - since appellant paid an amount of over Rs.64 lakhs waiver of pre-deposit of the amounts involved is allowed and recovery thereof stayed till the disposal of appeal – in favour of assessee. 2012 (6) TMI 419 Appealable order - Reversal of the Cenvat Credit - services of renting of immovable property – appeal rejected as the letters issued by the Assistant Commissioner demanding the reversal is not an order-in-original against which an appeal lies – Held that:- As there is a clear finding by the Assistant Commissioner on the question of eligibility to Cenvat credit and also a direction to reverse the credit availed in view of this factual position, the communication satisfies the requirements of an appealable order as decided by the Jaswant Sugar Mills vs. Laxmi Chand [1963 (10) TMI 9 (HC)] if a communication in substance contains determination of a question by the application of objective standards as per the legal rules declaring a right affecting their civil rights and it is based on an investigation involving ascertainment of facts by means of evidence it should be considered as proper communication acceptable in the eyes of law - remand the matter back to the lower appellate authority for a decision on merits. 2012 (6) TMI 418 Adjustment of excess payment of service tax made in the previous quarter - Held that:- As the excess amount actually adjusted amounting to Rs.32,545/- with interest has been deposited and penalty also has been deposited and considering the amounts deposited as sufficient, the requirement of pre-deposit of balance dues is waived and stay against recovery of the same is granted during pendency of appeal. Central Excise 2012 (6) TMI 429 Classification of Honing Machine - Revenue contended that Honing Stones are classifiable under chapter 6801.90 therefore they are not eligible for the CENVAT - period involved September, 2000 to June, 2003 - Held that:- It is undisputed that Honing Machine is classifiable under chapter sub-heading 8460 which is covered under sub clause 1 of Rule 57AA of the erstwhile Central Excise Rules, 1944. Also, Honing Machine is used for smoothing and polishing the outer surface of ball bearing. In case the outer surface is not smoothened it would adversely effect the performance of the ball bearing. Tribunal in the case of Gotze India Ltd. vs CCE has held that Honing Stone is similar to grinding wheel in so far as the function is concerned and accordingly they allowed the CENVAT Credit on the same and which was upheld by larger Bench in the case of Rathi Udyog Ltd (2000 (5) TMI 73 (Tri)). Therefore, order of Commissioner is set aside and appeal is allowed in favor of assessee with consequential relief, if any. 2012 (6) TMI 428 Removal of chemical solvent/industrial chemicals without raising any central excise invoice or paying any central excise duty – assessee contested that he was unaware that central excise duty is to be paid on manufacture of the chemical solvent since only physical mixing of various inputs is involved in their case - Commissioner(Appeals) accepted the classification of the goods and set aside the demand and penalty - Held that:- At no stage the assessee informed the department regarding the activity undertaken by them for manufacture of industrial solvents - they have been filing classification declarations from time to time but have not been able to show that they have disclosed in those declarations about the activities undertaken by them- since assessee have not been able to establish that they had bona fide belief as they have not been able to show that they had approached to the department or disclosed these activities undertaken by them – Comm.(A) has not given any finding on this aspect and he has straightway drawn inference that the respondent’s CENVAT Credit is more than the duty liability of the respondent - the case is remanded to the Commissioner(Appeals) to decide the issue afresh – in favour of Revenue by way of remand. 2012 (6) TMI 427 Cenvat credit – Welding Electrodes used for repair and maintenance of the plant and machinery – Held that:- In the case of Ambuja Cements Eastern Ltd. (2010 (4) TMI 429 (HC), Cenvat credit is available. 2012 (6) TMI 426 Confiscation - redemption fine and penalty - Assembly of cars - assembly of car from the component parts amounts to manufacture under Section 2(f) of the Central Excise of the Act and excise duty is liable to be charged on such assembly – Held that:- Once a manufacturing activity is undertaken for manufacture of excisable goods, the manufacturer is required to obtain a licence from the Central Excise department under Rule 174 of the Central Excise Rules and if any manufacturing activity is undertaken without a licence from the department, there is a contravention of the Central Excise Rules and the excisable goods so manufactured are liable for confiscation under Ruled 173Q(1)(c) as existing at that time. Section 11AC was not in existence at the time of this manufacturing activity undertaken by the appellant. Therefore, the absence of the condition of Section 11AC will not have any effect on the confiscation of the goods. Order of confiscation of the impugned cars and the consequential imposition of redemption fine and penalty upheld. 2012 (6) TMI 425 Cenvat Credit - Input service of photography - manufacture of colour picture tube - held that:- there is no scope to hold that the/photography service was (essential and inevitable as well as indispensable for manufacture of picture tube. - Credit denied - however penalty redeuced. 2012 (6) TMI 398 Stay petition - applicability of Rule 2A - dispute regarding duty liability in case of products ie., Air Circuit Breakers and Spares to Air Circuit Breakers in terms of Section 4A of the Central Excise Act, 1944 - assessee contending that since goods were sold directly to the manufacturers, the same has to be treated as industrial consumers - Held that:- Since matter stands remanded to the original authority by the Commissioner (Appeals) for re-quantification of duty amount, the appellants are at liberty to raise the above legal points before the original adjudicating authority, we also find that upholding of penalty amount, but having corrected the demand figures before the Commissioner (Appeals) is not fair. As such the issue on penalty is also kept open to be decided by the Assistant Commissioner, to whom the proceedings already stand remanded. All the stay petitions and appeals get disposed of in the above manner. 2012 (6) TMI 397 Reversal of the cenvat credit - the appellants had removed capital goods on which credit had been taken to another unit of the same company – Held that:- As this is a case where if the unit were to reverse the cenvat credit in its entirety also, the credit would have been taken in the other unit and therefore the situation was entirely revenue-neutral – assessee’s submission that the other unit was not making entire payment from cenvat credit alone thus the revenue neutrality situation would exist - there were no decisions during the relevant time giving the logic for payment of cenvat credit on the basis of depreciated value - when a transaction value is available, cenvat credit reversal has to be on the basis of transactional value even prior to the amendment - it cannot be said that there was suppression of fact or mis-declaration with intention to evade duty, thus confirmation of the demand cannot be sustained - in favour of assessee. 2012 (6) TMI 396 Unjust enrichment - rejection of refund claim for want of documents showing that there was no unjust enrichment - appellant submitted refund claim on the ground that that they had passed on cash discount and performance based discount by issuing credit notes half yearly to their dealers - Held that:- Since, appellants have not produced any evidence in the form of Chartered Accountant statement or balance sheet, other than making a statement that they have passed on discounts and discounts includes the element of excise duty also, to show that there is no unjust enrichment, hence appellant's plea stands rejected. 2012 (6) TMI 395 Recovery of cenvat credit availed on shortages in quantity received in the factory of the appellant as the actual quantity received was less than what was indicated in the invoices – appellant’s claim that such shortages have taken place because of evaporation has to be accepted and he has allowed cenvat credit in all cases, where the shortage was less than 2% - Held that:- As Commissioner (Appeals) himself has observed while taking a view that cenvat credit has to be reversed only in cases where short receipt is more than 2% as there does not seem to be any intention to evade duty as shortage happened due to evaporation or different methods of weighing no point of levying duty demand - when there is a clear observation that there is no intention to evade duty, extended period of limitation could not have been invoked and Commissioner has rightly not imposed penalty – as the total amount involved in this case is less than Rs. 50,000/- the Tribunal need not to entertain the appeal -impugned order is set-aside and appeal is allowed – in favour of assessee. 2012 (6) TMI 394 Demand imposed due to denial of excess/ wrong credit of duty paid on inputs - assessee requested for allowing short credit availed by appellant which stands denied by Commissioner - appellant engaged in manufacture of computers - Held that:- Adjudicating authority has picked up those cases where the appellants have availed wrong/excess credit but he has ignored those instances where appellants have availed short credit. By verifying the entire documents for the purpose of MODVAT credit, it amounts to opening of the entire assessment, in which case, the appellants would be entitled to take short availed credit by them. As such, we set aside the impugned orders and remand the matter to the adjudicating authority for fresh verification of the documents and allow the appellants to avail the short taken credit, if otherwise available to them. Wealth tax 2012 (6) TMI 424 Valuation of property under Schedule III of the W.T. Act – bifurcation of rateable value into two parts viz, legal occupants and illegal occupants – Held that:- action of the CIT(A) in bifurcating the maintainable ratable value and attributing part of it to legal occupation and illegal occupation is not within the frame work of Rule 5(i) of the Act. As we have already seen wealth tax is levied on the net wealth on the corresponding valuation date. Net wealth in turn is defined to mean the aggregate value of assets owned by the assessee after reducing debts owed in relation to those assets by the assessee. Thus ownership of the property and the fact that it is a let out property is relevant criterion and illegal occupation of the property or actual rent received from lawful tenants all becomes irrelevant. Proceedings under the Income Tax Act for determining income from house property are different and that yardstick cannot be applied in proceedings under the W.T. Act. In terms of Rule 4 the assessee will be entitled to deduction on account of taxes levied by Local Authorities and 15% of GMR. The resultant figure will be NMR which is to multiplied by 12.5 to arrive at the value of the property. Basis of determining by the AO of the value of the property at Rs.5,24,61,625/- based on the Income Tax proceedings cannot be sustained as it was based on erroneous claim made by the Assessee while filing its return of wealth. Order of CIT(A) set aside. Indian Laws 2012 (6) TMI 417 Petition to assail order of Central Information Commission (CIC) directing petitioner to provide information under the Right to Information Act in relation to the donations made by the President from time to time and to publish the details regarding the donations made i.e. the names of the recipients of the donations, their addresses and the amount of donation in each case, on the website of the President's Secretariat - petitioner invoked Section 8(1)(j) i.e. by treating the information as personal information - Held that:- The donations made by the President of India cannot said to relate to personal information of the President. It cannot be said that the disclosure of the information would cause unwarranted invasion of the privacy of, either the President of India, or the recipient of the donation. A person who approaches the President, seeking a donation, can have no qualms in the disclosure of same. Such acts of generosity and magnanimity done by the President should be placed in the public domain as they would enhance the stature of the office of the President of India. In that sense, the disclosure of the information would be in the public interest as well - Petition dismissed.
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter June 21, 2012

Articles

1. Whether F form is required if goods are sent inter-state for job work or repairs?

2. Deemed sale v/s Declared Service - Controversy C/F to Negative List

3. AN ESTABLISHMENT, SEEKING VOLUNTARY COVERAGE UNDER SECTION 1(4) OF EPF ACT, 1952 IS HAVING RIGHT TO WITHDRAW FROM SUCH COVERAGE.

4. Minor child is separately eligible for incentive for investment of capital gains.

5. No Cenvat credit on Input services after 1st July, 2012 ... ???

6. Works Contract viz-a-viz Commercial or Industrial Construction Services – Valuation & Abatement Issues -Budget 2012

News

1. FM releases Guidance Paper on service tax: new approach intended to take country and economy a step closer to GST

2. Import of Sensitive Items During April-March 2012.

3. Jurisdictional commissioner should not be part of DRP to avoid likelihood of bias

4. 144C : Assessment - Dispute resolution panel

5. New LLP Portal – Guidelines for Stake holder.

6. Auction for Sale of Government Stocks.

Notifications

1. 27/2012 - dated 18-6-2012 - CE (NT)

2. 33/2012 - dated 20-6-2012 - ADD

3. 40/2012 - dated 20-6-2012 - ST

4. 39/2012 - dated 20-6-2012 - ST

5. 38/2012 - dated 20-6-2012 - ST

6. 37/2012 - dated 20-6-2012 - ST

7. 36/2012 - dated 20-6-2012 - ST

8. 35/2012 - dated 20-6-2012 - ST

9. 34/2012 - dated 20-6-2012 - ST

10. 33/2012 - dated 20-6-2012 - ST

11. 32/2012 - dated 20-6-2012 - ST

12. 31/2012 - dated 20-6-2012 - ST

13. 30/2012 - dated 20-6-2012 - ST

14. 29/2012 - dated 20-6-2012 - ST

15. 28/2012 - dated 20-6-2012 - ST

16. 27/2012 - dated 20-6-2012 - ST

17. 26/2012 - dated 20-6-2012 - ST

18. 25/2012 - dated 20-6-2012 - ST

Circulars / Instructions / Orders

1. 159/10/2012 - dated 19-6-2012

2. 01 (RE- 2012) /2009-14 - dated 18-6-2012

Highlights / Catch Notes

Income Tax

India-USA DTAA exempts professional consultancy services provided outside India from TDS deduction requirements. No TDS liability under DTAA.

Transfer Pricing Officer's Authority to Independently Determine Arm's Length Price for Unreferred International Transactions.

High Court Confirms Software Usage Rights as 'Royalty' Under Income Tax Law, Affecting Taxation of Such Transactions.

Taxpayer Share Valuation: End-of-Year Shares Assessed by Lower of Cost or Market Value Principle.

Bad or doubtful debts deduction on balance sheet exempts from Section 115JA or 115JB applicability of the Income Tax Act.

"More than Ordinary Profits" in Section 80IA(10) Differs from "Arm's Length Price" in Section 92C: Key Tax Distinction.

Court Rules Contingency Deposit as Trading Receipt in Disputed Transactions During Appeal.

Non-existent firm transactions recorded as bogus; Section 145 of Income Tax Act not applicable for fraudulent entries.

Commissioner of Income Tax (Appeals) Justifies Quashing Reassessment Order u/ss 153C and 147/148.

Customs

Department's Rejection of Duty Drawback Application u/r 6 Without Verification Deemed Unacceptable.

DGFT

New e-BRC System Introduced to Digitize and Streamline Export Transaction Verification, Reducing Paperwork and Enhancing Transparency.

Indian Laws

Finance Ministry Unveils Guidance Paper to Align Service Tax with GST for Streamlined, Efficient Tax System.

President's Donations Not Personal Info; Disclosure Doesn't Invade Privacy of President or Recipients.

Service Tax

Exemption Granted: No Service Tax on Services for SEZ Authorized Operations to Boost Economic Activity and Competitiveness.

Rule 6A Notification: Rebate on Duty and Service Tax for Exported Services to Ease Exporters' Tax Burden.

New Guidelines in Point of Taxation Rules Clarify Service Tax Liability Timing for Better Compliance and Reduced Disputes

Service Tax Rules Amended: Key Changes in Compliance and Procedures for Businesses and Individuals to Ensure Regulatory Adherence.

Service Tax Notifications Rescinded to Simplify Framework and Remove Outdated Provisions for a More Efficient System.

Service tax exemption granted to small service providers to ease compliance and boost economic growth.

Services by Technology Incubators and Entrepreneurship Parks Exempt from Service Tax to Boost Innovation and Growth.

Service Tax Exemption Granted for Specified Services to Exporters, Aiming to Ease International Trade Operations.

Reverse Charge Mechanism Update: Service Tax Liability Now Shifts to Recipient u/s 68(2.

New Notification Issued on Service Tax Exemption for Property Tax on Immovable Property: Key Details for Taxpayers.

Understanding Service Tax: Place of Provision of Services Rules, 2012 Clarifies Cross-Border Transactions and Tax Liabilities.

Exemption Granted from Service Tax for Official Services Used by Foreign Diplomatic Missions to Ease Financial Burden.

New Service Tax Notification: Updated Abatement Rates and Compliance Protocols for Businesses and Service Providers

Service tax exemption list expanded to reduce financial burden on education, healthcare, agriculture, and public transport sectors.

Tax Exemption for Services in SEZs: Notification No.4/2004-ST Excludes SEZ Act, 2005 Interpretation.

Interpretation of 'Sale' in Section 2(h) Excludes Intangible Goods like IP Rights from Tangible Goods Provisions.

CAG Audit Fees Now Subject to Service Tax: Key Updates and Compliance Guidelines for Accurate Tax Application.

Farmers Using Tractors or Lorries for Sugar Cane Transport Not Subject to Service Tax, Not Commercial Entities.

Builders Not Service Providers Before July 1, 2010: Prima Facie Case Supports Assessee on Service Tax Obligations.

Assistant Commissioner Rules on Cenvat Credit Eligibility; Orders Reversal, Establishes Communication as Appealable Order.

Central Excise

Refund Process for CENVAT Credit u/r 5: Conditions and Procedures for Exporters Explained.

Guide to Claiming Cenvat Credit Refunds: Key Steps, Requirements, and Updates u/r 5 of Cenvat Credit Rules 2004.

TMI Tax Updates - e-Newsletter
June 21, 2012