The year 2017 witnessed a lot of changes in tax laws of the Country. Demonetization and Goods and Services Tax (GST) have changed the face of the current direct tax and indirect tax laws. Some of the significant rulings delivered by the Indian judiciary in this year have been enlisted below.
- Provision Mandating Quoting of Aadhaar for IT Returns & PAN is valid
In Binoy Viswam v. Union of India, a two-judge bench of the Supreme Court upheld the constitutional validity of the provisions of Section 139AA of the Income Tax Act which mandates quoting of Aadhaar for IT Returns & PAN.
- Entry Tax can be levied on Imported/Foreign Goods
A two-judge bench of the Supreme Court, in State of Kerala & Ors v. Fr. William Fernandez Etc.Etc, upheld the levy of Entry Tax on goods imported from any place outside territories of India into a local area for consumption, use or sale under the Orissa Entry Tax Act, 1999, Kerala Tax Act, 1994 and Bihar Tax on Entry of Goods in Local Area for Consumption, Use or Sale, 1993 (before its amendment by Bihar Act, 2003 and 2006).
- Post-Sale Discounts do not form part of the Turnover for Levying VAT
A two-judge bench of the Supreme Court of India, in M/S. Southern Motors v. State of Karnataka, categorically held that the post-sale discounts granted by the dealer/manufacturer by issuing credit notes are eligible for deduction under the provisions of the Karnataka Value Added Tax Act.
- Income from Rent out Business is ‘Profits & gains of business’ not ‘Income from House property
In M/s. Rayala Corporation Pvt. Ltd vs. Assistant Commissioner of Income Tax, the Supreme Court of India has declared that, Income which was arises from Rent out business should be taxed under the Head “Profits and gains of business or profession’ not ‘Income from House property.
- Salary Paid under Secondment Agreement Not subject to TDS
In DIT (International Taxation) v. M/s Marks and Spencer Reliance India Pvt Ltd, the division bench of the Bombay High Court held that TDS cannot be charged on payment of salary under a secondment agreement since the same would not amount to fee for technical services under the relevant Double Taxation Avoidance Agreement.
- Sale of a Running Business with all Assets and Liabilities is a Slump Sale, would not attract Capital Gain Tax
In CIT v. Equinox Solution Pvt. Ltd, the two-judge bench of the Supreme Court ruled that the sale of a running business with all its assets and liabilities would not be covered by section 50(2) of the Income Tax Act since such transactions are slump sale of a “long term capital asset” within the ambit of section 48(2) of the Income Tax Act.
- Levy of Late Fee under Income Tax Act is not Ulra Vires to the Constitution
in Sree Narayana Guru Smaraka Sangam Upper Primary School v. Union of india & Anr, the Single bench of the Kerala High Court upheld the constitutional validity of Section 234 E of the Income Tax Act, 1961 as per which late fee can be imposed in case of “failure to deliver or caused to be delivered a statement within the time prescribed in Section 200(3) of the Income Tax Act, 1961.
- F&O Transaction carried out through recognized Stock Exchange is not Speculative Transaction, can be set off against Ordinary Business Income
In Shri Dron Sureshkumar Rao v. ITO, Baroda, the Ahmedabad bench of the ITAT held that the future and option transaction carried out through recognized stock exchange cannot be treated as speculative transaction, can be set off against ordinary business income.
- Twin Condition for granting Bail under Sec. 45 of PMLA Struck Down
In Nikesh Tarachand Shah v. Union of India, a two-judge bench of the Supreme Court struck down the provisions of Section 45(1) of the Prevention of Money Laundering Act, 2002, insofar as it imposes two further conditions for release on bail, to be unconstitutional as it violates Articles 14 and 21 of the Constitution of India.
- Government, as a Lessee, is liable to pay Service Tax despite Liability of Lessor
In Union of India v. Bengal Shrachi Housing Development Limited & Anr, the Supreme Court held that the Government, though in the capacity of a lessor is liable to pay service tax on the rental income as per section 66B of the Finance Act, 1994 despite the fact that the original liability lies on the lessor.
- An Industry which Ceases to be a SSI not Eligible for Income Tax Deduction
In DCIT v. M/S. Ace Multi Axes Systems Ltd, the Supreme Court held that the benefit of deduction under Section 80 IB(3) of the Income Tax Act 1961 cannot be given to an industry if it ceases to be a small scale industry.
- Payment Received by an HUF is ‘Deemed Dividend’ if one of its member is Shareholder with Substantial Interest
A two judge bench of Supreme Court of India in Gopal and Sons (HUF) v. CIT held that, payments received by Hindu Undivided Family (HUF) is considered as deemed dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 especially in view of the term “concern” as defined in the Section itself. The two-judge bench of the Apex Court had categorically held that provisions of deemed dividend are attracted if HUF gets payment and shareholder is a shareholder in a company with substantial interest.
- Amount Received for Promotion of Formula One Event is Taxable in India
In a significant ruling, Supreme Court of India upheld the Delhi High Court Judgment that, the consideration received by the Formula One Asset Management Ltd (FOAM) as per the license agreement entered into with Jaypee Sports is taxable in India under the head “business income” not as “royalty”. Disposing the appeal filed against the High Court Order, the two-judge bench of the Apex Court had clarified that FOAM has constituted PE in India and therefore, the said income was rightly characterized as ‘business income’ assessable in India.
- CBDT has No Power to issue Circulars with Retrospective Effect
A two-judge bench of the Supreme Court of India, in CIT v. M/S Gemini Distilleries, ruled that the Central Board of Direct Taxes (CBDT), the apex policy-making body of the direct tax in India, cannot issue any circular having retrospective operation.
- Reverse Charge Mechanism Applicable to Legal Services by Advocates/ Firms under GST
The Delhi High Court, in J K Mittal v. Union of India had interpreted the provisions of CGST and clarified that reverse charge mechanism (RCM) is applicable to legal services by advocates/ Firms under GST. While doing this, the Court had questioned the legal sanctity of the press release issued by the Ministry of Finance on 15th July, 2017 clarifying that RCM is applicable to legal services.
- Appy Fizz is Taxable @12.5% under the Kerala VAT Act
In a significant ruling granting tax relief to Appy Fizz, a two-judge bench of the Supreme Court categorically held that held that “Appy Fizz” is classifiable as health drink and therefore, 12.5% of VAT is leviable under the Kerala Value Added Tax Act, 2003.
- Circular Levying Service Tax on Indian Entity/Bank Rendering Agency Services to Foreign MTSOs has no binding effect
In a petition filed by All India Association of Authorized Money Changers & Money Transfer Agents, the division bench of the Bombay High Court held that the circular dated 14.10.2014 issued by the Government with a view to levy Service Tax on Indian entity/ bank rendering agency services to foreign Money Transfer Service Operator (MTSO) has no binding effect since it supersedes the circular dated 12.07.2012.
- Certain parts of ICDS Provisions and CBDT Notifications Invalidated
A division bench of the Delhi High Court, while considering a petition filed by The Chamber Of Tax Consultants & Anr struck down parts II, III, VI, VII and VII of the Income Computation and Disclosure Standards (ICDS) and certain connected Notifications and circulars issued by the Central Board of Direct Taxes (CBDT) finding the same as unconstitutional.
- Service Tax on Senior Advocates on Forward Charge Basis Quashed
A division bench of the Delhi High Court in High Court Bar Association v. Union of India, invalidated the levy of service tax on Senior Advocates under forward charge under the provisions of the Finance Act, 1994.
- Guidelines for Re-Opening of Assessment under Income Tax Act Issued
Justices S Muralidhar and Prathiba M Singh of Delhi High Court, in Sabh Infrastructure Ltd. v. ACIT issued guidelines to be followed by the income tax authorities while re-opening an assessment under section 147/148 of the Income Tax Act, 1961.
- No VAT on Sale of Demo Cars
While hearing an appeal filed by M/s Triumph Motors, a division bench of the Delhi High Court held that tax under the Delhi Value Added Tax Act is not leviable on the sale of demo cars.
- ‘Undisclosed Money’ deposited in Third Parties’ Bank Account can be subject to Search and Seizure even without a Notice
A division bench of the Delhi High Court, in Veena Singh v. DIT, held that ‘Undisclosed Money’ deposited in a third parties’ Bank Account can be subject to search and seizure under the Income Tax Act even without a Notice.
- Bihar Prohibition and Excise Act 2016 is Valid, says State cannot Ban Production of ‘Extra Neutral Alcohol’
While upholding the constitutionality of Bihar Prohibition and Excise Act 2016, the Patna High Court, in a significant ruling, held that the State has no power to prohibit the production of Extra Neutral Alcohol.
- Screening of Films in Multiplex on Revenue Sharing basis would not attract Service Tax
Ahmedabad CESTAT, in M/s PVS Multiplex India Pvt. Ltd. v. CCE, held that screening of films in multiplex on a revenue sharing basis would not attract Service Tax under the head renting of immovable property.
- Sharing of Marketing Expense with Manufacturer by distributor would not Amount to Business Auxiliary Services
The Mumbai CESTAT, while allowing an appeal by M/s. SMV Beverages Pvt. Ltd, held that sharing of marketing expense with manufacturer by distributor would not amount to Business Auxiliary Services for the purpose of Finance Act, 1994.
- HRA Exemption not Available in Case of Rent Paid to Mother
In Mrs. Meena Vaswani v. ACIT, the ITAT, Mumbai bench held that the claim for HRA Exemption cannot be allowed in case of rent paid to mother of the assessee. The bench clarified that the claim under section 10(13A) of the Income Tax Act cannot be based on sham transactions unless the assessee proves the genuineness of the transaction with adequate supporting documents.
- Leave Travel Concession benefit is not available to Foreign Tours provided by Bank to its Employees, TDS Applicable
In State Bank of India v. ACIT, the Jaipur bench of the Income Tax Appellate Tribunal (ITAT) held that the Leave Travel Concession (LTC) provided to the employees of SBI is not covered under section 10(5) of the Income Tax Act in cases where foreign destination is involved.
- No Income Tax on Gift made by HUF to its Member
A division bench of the ITAT, Mumbai in DCIT v. Ateev V Gala, held that the Gift given by an HUF to its member is not taxable in the hands of the member under the Income Tax Act since “HUF” can be treated as “related person” under the provision of s. 56 of the Act.
- Pre-deposit paid before the First Appellate Authority is not adjustable while filing Second Appeal
In a significant ruling, the larger bench of the CESTAT, Delhi held that separate amount of pre-deposit shall be paid by the appellants at the time of filing first and second appeals before the Commissioner (Appeals) and the CESTAT.
- Loss or Profit earned in derivative/future arbitrage can be Set Off against the Profit/Loss of delivery based Share Transactions
The Mumbai bench of the ITAT, recently in the case of J.M. Financial Services Ltd v. Joint Commissioner of Income Tax, held that the loss or profit earned in derivative/future arbitrage can be set off against the profit/loss of delivery based share transactions under the provisions of the Income Tax Act, 1961.