Delhi High Court Strikes down the Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996.
On a writ petition filed by the Community Welfare Banquet Association Delhi, the Delhi High Court struck down the Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996 which mandates Banquet Hall Owners to include the entire value of the turnover regardless of whether the substantial part or whole of them are subjected to VAT levy.The Court emphasized that the new rule is totally against the scheme of the parent Act i.e, Delhi Tax on Luxury Act, 1996.
In the instant case, the petitioners, Community Welfare Banquet Association Delhi, an association of Banquet Hall Owners, approached the High Court impugning the vires of Rule 3 (2) (b) (ii) of the Delhi Tax on Luxury Rules, 1996.According to them, a large majority of its members are registered dealers under the Delhi VAT Act, 2004. The existing VAT regime in Delhi requires dealers who report return of an annual turnover of more than Rs.20 lakhs, to comply with its provisions and file quarterly returns purporting the details of the transaction for the particular periods. The grievance of the petitioners was that the impugned rule, which was newly introduced, requires all Banquet Hall Owners to include the entire value of the turnover regardless of whether the substantial part or whole of them are subjected to VAT levy.The petitioners submitted that the Delhi Tax on Luxury Act, 1996 clearly bars levy and recovery of luxury tax “in respect of turnover of receipts for supply of food, drinks and goods such as cosmetics, medicines, nutritional supplements etc. on the sale of which the proprietor is liable to pay tax under the Delhi Value Added Tax Act, 2004. Therefore, it was submitted that the new rule is inconsistent with the Parent Act, and therefore invalid.
The Revenue, on the other hand contended that,though VAT amounts are excluded by virtue of Section 3 (5), its language states that tax amount would not be levied to the extent “turnover of receipts for supply of food, drinks and goods”; however, the remaining turnover of receipts is liable to luxury tax. It is submitted that in effect Rule 3 (2) (b) (i) and (ii) constitute dimensions of the mechanism for recovery of luxury tax and cannot be per se characterised as ultravires.
The division bench comprising of Justice S Ravindra Bhat and Justice Deepa Sharma observed that “It is evident that the levy of luxury tax is upon all those incidents which are defined as luxury under Section 2 (i). The provisions of the Act lay out the manner of recovery which is through an obligation on the part of the proprietor or firms which provides luxury to register itself and collect luxury tax charges, from its customers in respect of the luxury service provided by it. At the same time Section 3 (5) incorporates an important exclusionary principle. Given that the legislature was conscious of an element of overlap in the broad nature of the levy and also the circumstance that the overlap can be in respect of two different heads of taxation which are within the exclusive domain of the State legislature, as a matter of policy in this present instance the provision – Section 3(5) embodies an important and salient principle i.e. excludes all those items for luxury which were also subjected to DVAT levy.”
The Court refused to accept the contention of the Revenue that there is a radical difference between the threshold required for luxury tax levy on the one hand and the DVAT levy on the other.
“There is no doubt that in the present case, the thresholds are fulfilled. Furthermore, what is important is not the collection but the subjecting of the incidents of taxation. As long as the activity answers description provided by the legislature – in the present instance of luxury, it would be subjected to tax. Equally, as long as there is a sale or transfer of goods or right to use the goods or other services which are purportedly a subject of VAT, that thedealer is subjected to actual levy and collection at a higher threshold is a matter of detail. The levy exists per se by legal definition. It is this aspect which is crucial rather than the existence of higher or lower threshold as is urged by the revenue” The Court said.
Based on the above findings, the Court struck down the impugned rules.
In a significant ruling, the Income Tax Appellate Tribunal, Kolkata bench has observed that section 194C of the Income Tax Act, 1961 is not applicable to the wages paid to labourers. The Tribunal opined that wages must be treated just like salary and are taxable on same basis and therefore, such payments are covered under section 192 of the Act.
The assessee, in the instant case, is engaged in the business of contracting. The assessee for the relevant assessment year, filed a return conceding income under the head “profits and gains from business and profession.”While completing assessment, the assessment officer disallowed certain expenditures including the wages paid to the labourers on ground that no TDS was paid on such amount. The assessee maintained that labourers to whom the wages were paid are the employees. There was no relationship of contractor and contractee between the assessee and the labourers, therefore the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act are not attracted.It was further contended that the payment was made to the employees after deducting PF and ESI in respect of all the labourers.
On appeal, the first appellate authority accepted the contentions. Therefore, the Revenue approached the Tribunal impugning the order of the CIT(A).
While upholding the findings of the first appellate authority, the Tribunal held that “as per the provisions of section 17(1) of the Act salary includes wages and therefore conceptually there is no difference between salary & wages. Wages are treated just like salary and are taxable on same basis. The employment relationship can be complex, with no quick and easy formulae to use which will provide an instant solution. The general principles of contract law govern the formation of the contract of employment. A contract of employment is a contract by which a person, the employee, undertakes for a limited or indeterminate period of time to do work for remuneration according to the instructions and under the direction or control of another person, i.e the employer. Within the framework of a contract of employment, a person carries out the service of work, receives remuneration and the work is carried out according to the direction and control of the employer. The terms of the contract may be either in writing or given orally, but both are equally binding and enforceable. When a person is hired to be an employee, the person enters into a contract of service, which is an employer/employee relationship. Another type of contract between two parties is that of an independent contractor or a contract for service. This type of contract may be defined as a contract by which a person, contractor or service provider makes a commitment to another person, the client, to carry out material or intellectual work or to provide a service for a price or fee. The characteristics of a contract for service are that the contractor isfree to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance. In the instant case before us the ld. DR has not brought anything contrary to the findings of ld. CIT(A). In our considered view the wages in the instant case are covered under section 192 of the Act. Therefore the provisions of section 194C are not applicable.”
Read the full text of the order below.
Division bench of Kerala HC confirms single bench’s order refusing exemption to ‘Cleaning Materials’ under KVAT Act.
Recently, the division bench of the Kerala High Court confirmed the decision of the Single bench’s decision, in which the Court refused to grant exemption to‘Cleaning Materials’ under section 6(7)(b) of KVAT Act.
Earlier, the Single bench observed that the exemption under section 6(7)(b) of the KVAT Act, 2003 is not available to ‘cleaning materials’ since they are not ‘consumables’ as per the provisions of the said section. The single bench held that, as per the said section, the exemption is available only to the consumable used by the developer or industrial unit or establishments situated in the Special Economic Zone for the purpose of setting up of the unit or use in the manufacture of other goods. Therefore, cleaning material used for the purpose of cleaning the building and other facilities, furniture etc cannot be treated for the above purpose. Hence no exemption is available to such products.
The above decision was challenged by the assessee through writ appeal. While upholding the order of the single bench, the division bench comprising Justices Thottathil B.Radhakrishnan and Devan Ramachandran opined that no interference is needed to the impugned order.
However, the Court reduced the penalty imposed on the appellant-assessee. “we have bestowed our anxious consideration to the question as to whether the authorities are justified in imposing penalty equal to double the amount of tax sought to be evaded. Weighing the different materials and factors and contentions raised by the appellant before the statutory authorities, we are of the view that ends of justice would be satisfied if the penalty is confined to the amount equivalent to the tax sought to be evaded, and we do so.”
Read the full text of the Judgment below.
In a recent decision, the two-judge bench of the Supreme Court, while upholding the validity of letter dated 20.11.2001, issued by the Orissa Government, has categorically held that the surcharge under section 5A of the Orissa Sales Tax Act can be levied before deducting the amount of entry tax paid by a dealer. In the opinion of the two-judge bench, a combined reading of the provisions of the OST act and the Orissa Entry Tax Act permits such levy.
In the instant case, the respondent-assessee is registered dealers under the Orissa sales Tax Act and is engaged in the business of Motor vehicles. They have been paying entry tax for the inter-state purchase of the vehicles u/s 3(3) of the Orissa Entry tax act, 1999. They were also paying surcharge on the balance amount after deduction of the entry tax paid on the motor vehicles.The Finance Department, Government of Orissa, issued a letter stating that the surcharge under the OST Act shall be calculated on the payable amount of tax due on the taxable turnover (Section 5 & 5A) instead of on the reduced Sales Tax amount after setting off of entry tax. Accordingly, the Sales Tax Department passed an order against the assessee imposing surcharge on the gross sales tax payable. The assessee-Company impugned both the letter and the order before the High Court. The division bench allowed the appeal. Aggrieved with the order, the Revenue approached the Apex Court through a Special leave Appeal.
The revenue submitted before the Court that there is nothing in the provisions of the OET Act or the Rules made thereunder which would alter the mode of computation prescribed in Section 5A of the OST Act. Section 4 of the OET Act provides for reduction of the liability of a dealer under the Sales Tax Act to the extent of entry tax paid under the OET Act, which only appertains to reduction of entry tax. It has nothing to do with the computation of the surcharge under the OST Act. In any event, in terms of Section 4 of the OET Act, reduction of entry tax paid by the dealers is from the liability under the Sales Tax Act. In substance, it means that the total liability under the Sales Tax Act having been determined would then be reduced by the extent of entry tax paid.
The Court emphasized that, section 5A of the OST Act creates a charge and imposes liability on every dealer under the OST Act to pay surcharge @ 10% on the amount of tax payable by him under the OST Act. Section 4(1) of the OET Act, in the same way, prescribes for reduction of the tax amount payable by the dealer to the extent of entry tax already paid for the same article for which sales tax is payable. “The Section, does not specifically contemplate anything, which would indicate that the provisions of the OET Act or the Rules have to be taken into consideration while assessing the sales tax or surcharge. In essence, the provisions made in the Rules lay down the modality of ‘set off’. It is important to mention here that OST Act was enacted in the year 1947 whereas OET Act was enacted in 1999. The provision of set off has been made in the OET Act and the Rules framed thereunder and not in the OST Act. The heading of Section 4 of the OET Act gives a broad idea regarding the provision of set off by way of “reduction in tax liability”. Sub-Sections 1 and 2 of Section 4 of the OET Act provide for reduction of liability under the OST Act.” The Court said.
“It is well settled that the objective of framing rules is to fill up the gaps in a statutory enactment so as to make the statutory provisions operative. Rules also clarify the provisions of an Act under which the same are framed. Section 4 of the OST Act is a charging Section attracting liability to pay Sales Tax “on sales and purchases effected”. Section 5 of the OST Act provides for rate of Sales Tax. Section 5A of the OST Act levies surcharge on the dealer which is nothing but an additional tax. Therefore, on a plain reading of the provisions under the OST Act as well as under the OET Act, a dealer is not entitled for reduction of the amount of entry tax from the amount of tax payable before the levy of surcharge under Section 5A of the OST Act. A harmonious reading of Rule 18 of the Rules as well as Sections 4, 5, 5-A of the OST Act reveals no conflict or inconsistency. The Rules are to be construed to have been made for furtherance of the cause for which the Statute is enacted and not for the purpose of bringing inconsistencies.”
While quashing the High Court order, the Court said “on a conjoint reading of Section 5 of the OST Act, Section 4 of the OET Act and Rule 18 of the Rules, we are of the considered opinion that the amount of surcharge under Section 5A of the OST Act is to be levied before deducting the amount of entry tax paid by a dealer.”
Read the full text of the Judgment below.
The two-judge bench of the Supreme Court, in a recent judgment upheld the order of the High Court, in which it was observed that,under the relevant provisions of the U.P. Trade Tax Act, 1948, exemption can be granted on purchase of raw material against Form III-B whereas the dealer has made a stock transfer of finished goods.
The factual settings of the case are that, the respondent-assessee is a registered dealer under Section 8-A of the U.P. Trade Tax Act, 1948 and has also obtained a recognition certificate as per provisions contained in Section 4-B of the Act. The respondent used to make purchases of raw material at the concessional rate of tax against Form III-B obtained by it from the office of the Trade Tax Officer.
While rejecting the returns filed by the assessee for the relevant assessment year, the Department observed that the assessee had made purchases of natural gas against Form III-B at the concessional rate of tax, and after manufacture of the notified goods, that is, fertilizers, out of the said purchases of natural gas purchased against Form III-B, some of the finished goods were transferred outside the State of Uttar Pradesh. Accordingly, penalty was imposed on the assessee after concluding of the assessment proceedings.
The order was sustained by the first appellate authority. On second appeal, the Judicial Member of the Tribunal deleted the order of assessment and penalty. Hence, the Revenue preferred an appeal before the High Court impugning the decision of the Tribunal, in which the single bench, relying upon the decision in Camphor and Allied Products Ltd. v. State of U.P.& Ors held that the assessee had purchased the material and used it in manufacture and there was no violation of Section 3-B of the Act. Aggrieved with the order, the Revenue approached the Apex Court.
The Court noted that section 4-B(2) is applicable to the dealer who manufactures notified goods in the State or engaged in packaging of such notified goods manufactured or processed by him. The said dealer can apply to the assessing authority in such form, manner and within the time prescribed for grant of the recognition certificate. The assessing authority can grant the recognition certificate to the dealer in respect of goods used in the manufacture of the notified goods or packing of the notified Goods. Explanation to the sub-section defines the word “Goods” which means raw materials, processing material, machinery, spare parts and also fuels. The expression “Notified Goods” means such goods as notified by the State government from time to time.
“Sub-section (2) to Section 4-B also requires that the notified goods should be “intended” to be sold by the dealer within the State or in the course of inter-State trade or commerce or in the course of exports out of India. The expression “intended” is significant and important. It refers to the intention of the dealer after the goods are manufactured and packed. The expression “in the course inter-State trade or commerce” is quite broad and wide. An issue may arise as to whether the stock transfer outside the State in terms of directions issued by the Central Government can be considered as sale or transaction in the course of inter-State trade or commerce. In the case at hand, we would not decide the said issue or question, for it was not raised or argued before the authorities and can be examined in an appropriate case when raised and considered. Be it noted, sub-section (6) is a specific provision which deals with the case of the dealer who has been issued the recognition certificate and has purchased goods without payment of tax or at concessional rates, but has sold the manufactured goods or packaged goods otherwise than by way of sale in the State, or in the course of inter-State trade or commerce or export out of India. The provision specifically deals with cases where the dealer manufactures or packs the notified goods and has taken benefit of lower/concessional or nil rate of tax on the raw material but is unable to fulfill the intendment, i.e., he has not been able to sell the notified goods by way of sale within the State or in course of inter-State state or commerce or by way of export. In such cases, the dealer is liable to pay the amount of difference on the amount of sale or purchase of such goods on which concession or nil rate of tax was paid on account of issue of the requirement certificate and the amount of tax calculated @ 4%. The sub-section is a particular and a specific section which deals with and specifies theconsequences when the dealer is unable to meet and comply with intendment. The sub-section (6) would, thus, be applicable.” The Court said.
Concurring with the findings of the Tribunal and the High court, the bench comprising Justice Dipak Misra and Justice Shiva Kirti Singh, held that “section 3-B undoubtedly commences with a non-obstante clause, but the provision has to be read harmoniously with sub-section (6) to Section 4-B. Any other interpretation would make sub-section (6) a dead letter, for if we accept the plea of the Revenue whenever there is violation or failure to abide with the “intendment”, Section 3-B would be invoked and applied, not sub-section(6) to Section 4-B. Section 3-B would apply when a false and wrong certificate or declaration is made. Sub-section (6) on the other hand, deals with cases where the dealer is unable to comply with the intendment, i.e., for some reason he is unable to sell the goods within the State, export them or sell them in the course of inter-State trade or commerce. Intendment of the said nature has not been treated as false or wrong declaration as consequences have been prescribed in sub-section (6). It is essential to be stated that consistency and certainty in tax matters is necessary. In cases relating to “Indirect Taxation”, this principle is even more important. Clarity in this regard is a necessity and the interpretative vision should be same.”
Read the full text of the Judgment below.
In a recent decision, the two-judge bench of the Gujarat High Court allowed IPT claim on the LPG and oxygen gases used for the purpose of ship-breaking, treating the same as raw-material. The Court, referring to various judicial pronouncements, held that the activity of ship-breaking is a “manufacturing-process” within the ambit of section 2(14) of the Gujarat Value Added Tax Act, 2003.Consequently, the assessee is eligible to get IPT on the raw-materials used for the said activity, such as the LPG and oxygen gases.
The appellant, in the instant case, is deemed to be a dealer under the provisions of the Gujarat Value Added Tax Act, 2003, is engaged in business activity of ship breaking and in the course of such business appellant purchases ships for the purpose of dismantling and then sell the material derived there from to various persons. According to the assessee,the activity of the ship breaking requires a unique technical knowledge with the aid and assistance of manual and physical labour. The method upon which the activities are being undertaken in India is popularly known as afloat method in which dismantling starts while the ship is in water. The assessee claimed that they are entitled to Input tax credit the goods purchased locally from registered dealers and used as raw materials in the process since the process of scrapping and dismantling converts ship into different articles and the activities are a manufacturing process in view of Section 2(14) of the VAT Act. The assessee, approached the concerned authority in order to determine the eligibility to IPT on the use of LPG and Oxygen gas in the said process. The authority rejected the claim of the appellant.
The assessee approached the Tribunal through an appeal contending that the activity of ship breaking is a manufacturing activity and in that process since the Oxygen gas and LPG gas are being consumed, is entitled to have a tax credit.The Tribunal allowed the appeal by hlding that the activity being undertaken by the opponent is a manufacturing activity and the petroleum gas (LPG) and Oxygen gas are forming part of raw material in the said process, are covered within the scope of Section 2(19) of the VAT Act. Aggrieved with the Tribunal order, the Revenue preferred an appeal before the High Court.
Before the Court, the Revenue contended that the ship breaking activity is not a manufacturing activity at all as it is not creating any new commodity out of it. Further, the consumption cannot be treated as manufacturing process and therefore, simply because the LPG and Oxygen gases are being consumed in the process of breaking of ship, the material in the form of same cannot attract the scope of Section 2(19) of the Act.
The Court noticed that in the case of Ship Scrap Traders 251 ITR 806 the Bombay high Court held that ship breaking activity gives rise to manufacture and production of altogether new commercial article or thing which is commercially identifiable in the commercial world as other than ship.
Further, in the case, Bhagawati Ship Breaking Industries, the Tribunal observed that the ship breaking activity is a manufacturing process within the meaning of Section 2(14) of the Act.
Further, the Apex Court in the case of Vijay Ship Breaking Corporation reported in 214 ITR 309, held that ship breaking activity gave rise to manufacture and production of altogether a different article.
Concurring with the findings of the Tribunal, the two-judge bench comprising Justice Akil Kureshi and Justice A J Shastri observed that “From the aforesaid situation prevailing on record and proposition of law laid down herein before, it clearly transpires that the opponent is engaged in ship breaking activity, which is nothing but a manufacturing process under the provisions of the VAT Act and the petroleum gases (LPG) and Oxygen gases are forming part of the said process, being raw material covered within the swip of Section 2(19) of the VAT Act, and since the same are the processing material and consumable stores in the activity, the tax credit of tax paid on purchases of these commodities is admissible under the Act and therefore, we see no reasons to interfere with a detailed and well reasoned order passed by the learned Tribunal and therefore, we hereby dismiss the appeal by answering question of law against revenue and in favour of assessee.”
Read the full text of the Judgment below.
The Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance entered into five (5) Unilateral Advance Pricing Agreements (APAs) today, i.e., 27th October, 2016 with Indian taxpayers.
The Agreements cover a range of international transactions, including sale of finished goods, purchase of raw materials, software development services, IT enabled services, exports and interest payment. The Agreements pertain to different industrial sectors like manufacturing, IT services, etc. The Agreements provide certainty to the taxpayers for 5 years with regard to the covered international transactions.
With today’s signing, the total number of APAs signed so far has reached 108. These include 4 bilateral APAs and 104 unilateral APAs since 2013-14. Of these, 44 APAs have been concluded in 7 months of the current Financial Year itself.
The APA Scheme was introduced in the Income-tax Act in 2012 and the Rollback provisions were introduced in 2014. The Scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and determining the arm’s length price of international transactions in advance for a maximum period of five future years. Further, the taxpayer has the option to roll-back the APA for four preceding years. Since its inception, the APA scheme has attracted tremendous interest among Multi National Enterprises (MNEs) and more than 700 applications (both unilateral and bilateral) have been filed in just four years.
Will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017.
A new revised Double Taxation Avoidance Agreement (DTAA) between India and Korea for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income was signed on 18th May 2015 during the visit of the Prime Minister Shri Narendra Modi to Seoul .It has now come into force on 12th September 2016, on completion of procedural requirements by both countries. The earlier Double Taxation Avoidance Convention between India and Korea was signed on 19th July, 1985 and was notified on 26th September 1986.
Provisions of the new DTAA will have effect in India in respect of income derived in fiscal years beginning on or after 1st April, 2017.
Some of the salient features of new DTAA are:
It may be added that a Memorandum of Understanding (MoU) on suspension of collection of taxes during the pendency of Mutual Agreement Procedure (MAP) has already been signed by Competent Authorities of India and Korea on 9th December 2015. The MoU provides for suspension of collection of outstanding taxes during the pendency of MAP proceedings for a period of two years (extendable for a further maximum period of three years) subject to providing on demand security / bank guarantee.
The revised DTAA aims to avoid the burden of double taxation for taxpayers of two countries in order to promote and thereby stimulate flow of investment, technology and services between India and Korea. The revised DTAA provides tax certainty to the residents of India and Korea.
The Central Board of excise and Customs has recently issued a circular regarding the transferability of goods imported/procured by debiting duty in SFIS scrips in consequent to the judgment of the Delhi High court in Great India Ltd’s case. In the above case, the Court held that the DoR cannot insist that the vessels of the Petitioner that have completed more than three years after import should be transferred only by sale within group companies or managed hotels or be re-exported. Further, the Customs Notification No. 91/2009 dated 11th September 2009 under Section 25 (1) of the CA to the extent it restricts the transfer/sale of goods imported using the SFIS duty certificates/scrips for the purpose of payment of customs duty, even where such goods satisfy the criteria for transferability under the FTP and HBP, is in violation of the FTDR Act, the FTR Rules as well as FTP 2004-2009 and FTP 2009-2014.
Consequently, the Board has consulted with the DGFT. In order to give effect to the above decision, it is clarified that the goods imported/procured utilizing SFIS Scrip issued in terms of FTP 2009-14 may be sold/transferred on completion of 3 years from the date of clearance of import/ procurement in terms of the Department of Commerce notification no. 30 dated 1.8.2013.
The circular also clarifies that “In the light of the Hon’ble High Court’s order and absence of specific amendment by Dept. of Commerce to the FTP 2004-09, requests for sale/transfer of goods imported/procured utilizing SFIS scrip issued in terms of FTP 2004-09 shall be considered by DGFT in terms of para 2.5 of FTP 2004-09 on merits keeping in view the spirit of the Hon’ble High Court’s order to the effect that transferability of goods that have completed 3 years is not deniable only on the ground that imports were in terms of the FTP 2004-09.”
It also provided that the provision of transferability after 3 years is not applicable to consumables (including food items and alcoholic beverages) since such consumables are meant to be consumed in the course of day to day business of the applicant, such consumables are non-transferable even after 3 years. However, the above instances are exempted from this.
As per the circular the DGFT will also consider the requests for export sale of goods any time after import/procurement, subject to such export being without claim for any export incentive, rebate, refund, drawback and/or re-credit of incentive and the bringing back into India being treated as a fresh import.
Read the full text of the circular below.
The Supreme Court on Friday has refused to grant stay order to the Allahabad High Court order removing toll on the Delhi-Noida-Delhi (DND) flyway. The High Court decision was on a petition filed by the Federation of NOIDA Residents Welfare Association. The order was a great relief for Delhi-Noida commuters.
Against the High Court order, the Noida Toll Bridge Company Ltd. has approached the Supreme Court. A bench headed by Chief Justice T S Thakur decided to hold a detailed hearing on November 7. Reportedly, the Court may also consider Noida toll company’s offer to have CAG audit its cost-expenditures.
Earlier the High Court found the levy of toll tax as arbitrary and illegal and observed that “certain clauses of the Concession Agreement are affecting the public at large i.e. commuters who are subjected to pay toll for the use of public road in perpetuity due to wrongful arbitrary terms and conditions of the contract, we have no hesitation to hold that the offending clauses can be severed from the rest of the agreement without affecting the contract as a whole and leaving the Concessionaire and Noida Authority to perform their part of contract.”
In a recent ruling, the single bench of the Karnataka High Court held that the levy of Electricity Tax under the provisions of the Karnataka Electricity (Taxation & Consumption) Act, 2013 is constitutionally valid. The Court clarified that the levy is not ultravires to the constitution since it is not on sale of electricity but on its consumption within the State. The Court was hearing a bunch of petitions praying for deletion of section 3 of the Karnataka Electricity (Taxation & Consumption) Act, 2013 of which directs every generator of electricity to pay electricity tax not exceeding 50 paisa per unit for captive consumption and to pay not exceeding 25 paise on auxiliary consumption.
The petitioners impugned the amended section on ground that it imposed tax liability on Sugar Mills for co-generation facilities maintained by them. According to the petitioners, the State legislature lacks jurisdiction to impose sales tax on electricity. They claimed that since they get supply of electricity through an open access transaction and they get electricity supply from outside the state, such sales are liable to be taxed by the Union under entry 92A of the Union List. Therefore, the said amendment is ultravires to the Constitution. Further, the petitioners pointed out that the levy of sales tax on interstate sale of electrical energy is barred under section 6 of the CST Act. The respondents, on the other hand submitted that the levy is not on the interstate trade and commerce, but on the consumption of electricity within the State of Karnataka which is permissible under entries 52 and 53 of the State List.
While rejecting the contentions of the petitioners, the High Court observed that in the instant case, the electricity which is wired from outside an open access, has not been taxed by the State Government but is taxed on its consumption within the State which is permissible in law. While upholding the legitimacy of the impugned provision, the Court said that the State has exclusive power to legislate on matters included in the State list. When the state legislature enacts the legislations covering these matters with the power vested in it by the Constitution, then the same must be treated as for constitutional purpose.
Referring to the Apex Court decision in Andhra Pradhesh v. National Thermal Power Co. Ltd., the Court further clarified that the moment electricity is generated within the State or from outside the State, it is to be consumed and the State is empowered to levy tax on such consumption.
On the basis of the above findings, it was held that the amendment is neither arbitrary nor illegal.
Read the full text of the Judgment below.
The division bench of the Delhi High Court, in a recent decision, held that, the “Stridhan” of a woman cannot be seized during the course of completing assessment proceedings against her husband. While directing the Department to release the jewellery seized, the Court expressed a view that since the wife is the owner in respect of ”stridhan”, it cannot be attached.
Coming to the facts of the case, the Department officials, in consequence to a search,attached certain assets of the petitioners husband. During the course of search of the bank locker, the jewellery of the petitioner was also seized. The petitioner claimed that she is the owner of the jewellery which was received by her at the time of her marriage and therefore, it cannot be included in the undisclosed income of her husband and therefore, must be released. While completing the assessment proceedings, the Assessing Officer also noted that the jewellery actually belong to the petitioner.The Department did not responded to the petitioners request to release the jewellery. Aggrieved with thedetached attitude of the department, the petitioner filed a writ petition before the High Court.
The petitioner relied upon the circulars of 1985 and 1994 to say that when such small quantities are recovered, no follow-up action is necessary and that in any case, the jewellery is her stridhan.
While allowing the petition, the Court observed that “This court is of opinion that the respondent’s recalcitrance is not mere inaction; it is one of deliberate harassment. Unarguably, the first round of assessment proceedings culminated in no addition of the jewellery or its value in the hands of the petitioner’s husband. The matter ought to have rested there, because the further proceedings were at the behest of the petitioner’s husband who was aggrieved by the additions made (and not aggrieved by the decision on issues in his favour). The ITAT’s decision to proceed de novo, nevertheless strengthened the respondents’ obduracy and hardened their resolve not to release the jewellery. The de novo order did not result in any addition on that aspect at all; still the respondents cling to another ingenious argument- that till the petitioners’ husband’s tax demands are satisfied, they can detain the jewellery.”
“The respondents’ rationale or justification is entirely insubstantial. The petitioner says that she was married in mid 1960s and her daughters were born in 1967- she was 70 when these proceedings were started. The respondents do not deny this. In the circumstances, the further explanation that the jewellery belonged to her and represented accumulation of gifts received from family members over a period of time, and also acquired during the subsistence of her marriage is reasonable and logical.” The Court observed that the nature of ownership of a woman’s Stridhanis explained by the Supreme Court in its decision Pratibha Rani vs. SurajKumar 1985 (2) SCC 70, in which it was held that the wife has the ownership over such valuables.
“The petitioner’s explanation is justified and reasonable. Like in Ashok Chadha (supra), her contention that the gold jewellery was acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits. The obdurate refusal of the respondents to release the jewellery constitutes deprivation of property without lawful authority and is contrary to Article 300-A of the Constitution of India.”
Read the full text of the Judgment below.
In a petition filed by the Federation of NOIDA Residents Welfare Association, the Allahabad High Court expelled the toll on the Delhi-Noida-Delhi (DND). The order will be a great relief for Delhi-Noida commuters.
The petitioners preferred the petition submitting that as per the concession agreement betweenthe NOIDA Authority and the NOIDA Toll Bridge Company, the Company was authorized to impose and realise User fee.The company has been given power to increase the toll charges from time to time.
The Court observed that “certain clauses of the Concession Agreement are affecting the public at large i.e. commuters who are subjected to pay toll for the use of public road in perpetuity due to wrongful arbitrary terms and conditions of the contract, we have no hesitation to hold that the offending clauses can be severed from the rest of the agreement without affecting the contract as a whole and leaving the Concessionaire and Noida Authority to perform their part of contract.” Resultantly, it was held that the selection of Concessionaire in the facts of the case is violativeof Article 14 of the Constitution of India and is found to be unfair and unjust. However, the Court fund it is not necessary to nullify the entire Concession Agreement.
“We are also sure that in the instant case, if we would have gone into the question of decision making process for looking into the validity of the Concession Agreement, we could have quashed the entire Concession Agreement being opposed to Public Policy and hit by Article 14 of the Constitution of India. However, giving due consideration to the fact that the Concessionaire has performed its part of the obligations and the bridge has been constructed and is being used by the Public and the contract has worked for about 15 years, we do not propose to traverse all the contractual obligations and liability of the parties but in order to rectify the situation before us we can take the help of “Doctrine of Severibility” so as to see that only offending clauses of the Agreement to the extent they are harming the “Public interest” i.e. the interest of the commuters are severed from the contract leaving the contracting parties to perform their other obligations.”
The Court further held that the right to levy and collect User fee from the commuters as conferred upon the Concessionaire under the Concession Agreement suffers from excessive delegation and is contrary to the provisions of the U.P. Industrial Area Development Act’ 1976. Article 13 (Clause) of the Concession Agreement was held as bad and inoperative in the eyes of law.
The method of calculation of the Total Project Cost and appropriation of the User fee collection under Article 14 (Clause) of the Concession Agreement was held as arbitrary and opposed to Public Policy. Article 14 (Clause) of the Concession Agreement is severed, therefrom.
While allowing the petition, the Court directed that NOIDA Toll Bridge Company, the Concessionaire shall not impose or recover any User fee/Toll from the commuters for using the DND Flyover.
Read the full text of the Judgment below.
The ITAT, Ahmedabad bench, in a recent decision, ruled that the authorities should take a liberal approach while condoning delay in filing appeals. In the opinion of the single member,
While entertaining such petitions, the authorities must consider the sufficiency of reason, not the length of delay. The delay must be arose out of bonafide act on the part of the assessee.
The assessee filed a cross objection before the Tribunal with a delay of near three and half years. The assessee claimed that the delay was a bonafide one since they were under an impression that they have succeeded in the appeal filed before the first appellate authority. Referring to the Apex Court decision in Collector Land Acquisition Vs. Mst. Katiji & Others, the appellants pointed out that adjudicating authority should adopt a liberal approach in construing the explanation of the assessee inferred from the material.
Diving deeply into the facts of the case, the Tribunal observed that length of delay is immaterial and it is sufficiency of reasons that matters. Any amount of delay can be condoned if there is a plausible reason.
While dismissing the Cross Objection, the Tribunal observed that “In the present case also, I am not satisfied with bona fide of the assessee, because, the ld.CIT(A) has decided the appeal of the assessee on 4.7.2011. This order must have been served upon the assessee within reasonable time. From the stamp of date available on the order of the ld.CIT(A) it revealed that it was received by tax consultant of the assessee i.e. ITP. A perusal of this, the assessee would have come to know about issue which has been decided partly against him. When assessee received notice from the Tribunal on 20.10.2011 again he must have appraised himself about the issue involved in the appeal and how the ld.CIT(A) had adjudicated them. There must be conscious decision to accept the order of the ld. CIT(A) when it was passed. Similarly, the assessee was not in a mood to challenge this order, when summons were issued to the assessee for defending appellate proceedings before the Tribunal. If the Department has taken out one of the grounds erroneously that would not persuade the assessee to believe that the ld.CIT(A) has decided both the issues in favour of it. To my mind, the assessee has declared a loss of Rs.15,13,710/-. He was not going to be effected by a marginal disallowance of Rs.6,30,000/-, and therefore, consciously, he never thought to challenge the order of the ld.CIT(A). When the appeal before the Tribunal came up for hearing, then realizing the fact that the assessee should be visited with penalty also, this CO might have been filed. But, really the assessee was not fully aggrieved with the impugned order of the ld. CIT(A), because, there was no tax liability by virtue of such disallowance, and therefore, he never thought to challenge it in the higher appellate forum.”
Read the full text of the order below.
The Income Tax Department has introduced the service of sending SMS alerts to the tax payers when their tax deducted at source. The new service was launched by the Finance minister Arun Jaitley on Monday. The service will be available to the salaried persons on a monthly basis. This is with an aim to make the salaried class updated on TDS and to avoid litigations and double payment of tax among the tax payers.
“By the new service, the tax payers can match the office salary slip and the SMS and at the end of the financial year be clear about any possible tax dues.”- Jaitley said.
According to reliable source, the service will be extended to 44 million non-salaried tax payers.
CBDT Chair person Rani Singh Nair said the Department is encouraging people to register their mobile number on the e-filing website. Initially, the tax payers will receive a welcome message from CBDT informing them about the SMS facility. On receipt of this message, the assessee would be sent message informing them about heir TDS. In case of any mismatch, they can clarify it with their deductor.
The deductors too will receive SMS alerts on failure to file TDS returns or payment oftaxes deducted.
Recently, the Single bench of the Madras High Court held that the assessee should be granted with an opportunity to cross-examine the third party when the assessment under the provisions of Tamil Nadu General Sales Tax Act, 1959 is completed solely on the basis of the statements of the latter. The Court emphasized that this is essential since such evidence relied upon by the Department would affect the interest of the petitioner adversely.
The petitioner, in the instant case, is a registered dealer in iron and steel products on the file of the respondent under the provisions of the Tamil Nadu General Sales Tax Act. While completing assessment, the assessing officer disallowed the entire claim of second sale exemption on the basis of certain purchases effected from four registered dealers. The petitioner challenged the above order before the High Court contending that the officer failed to furnish the copies of the statement records obtained from the third parties based on which the assessment was completed. Further the respondents did not provided an opportunity of cross examination with reference to the accounts of the registered dealers before disallowing the claim of exemption.
The Court noted that in Kalra Glue Factory case, the Apex Court, while allowing the Special Leave Petition, has set aside the order of the High Court as well as the Sales Tax Tribunal and remitted the matter back to the Tribunal with liberty to the assessee to produce documents subject to proof of its genuineness and the Tribunal was directed to redo the matter.
Referring to the above decision, the single bench directed the assessing officer to re-consider the matter and held that “Therefore, when statement recorded from a third party was the sole basis of revision of assessment, such material is an adverse material to the interest of the dealer. In any event, it cannot be stated that the respondent cannot rely upon those statements, but could have done so only after furnishing copies thereof to the petitioner and when the petitioner disputed the correctness of those statements, the efficacy and admissibility of those statements have to be tested, for which, an opportunity of cross examination ought to have been afforded.”
Read the full text of the Judgment below.
Have you ever spent money for building a website for your business venture? Is website building deductible from Total Income?.
In the contemporary scenario, website building for a business venture is inevitable to compete. Normally, the website building expenses incurred in respect of website development are in the nature of “revenue expenditure” hence the same do not form part of the taxable income.A revenue expenditure is an amount that is expensed immediately thereby being matched with revenues of the current accounting period.
A website might provide an enduring benefit to an assesse. Though the intended purpose behind the Website is not to create an asset, it provides a means for disseminating the information about his business venture.
It is a known fact that software upgradation, especially in the field of computer environment, is a continuous affair which entails continuous expenditure in this regard. There is hardly any scope for creating an asset with this kind of expenditure.While dealing with the issue of taxability of amount spent on website development, the various Courts in India, in a catena of decisions have concluded the issue against the assesse by observing that the same is in the nature of capital expenditure.
In the case of Alembic Chemical Works Co. Ltd., the Supreme Court decided that, the expenditure on the website was of a revenue nature and not of a capital nature. The highlight of the judgment is that just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of website expenditure, there is no change in the fixed capital of the assessee.
Although the website may provide an enduring benefit to a business venture, the intent and purpose behind the purpose of a website is not to create an asset but only to provide a means for disseminating the information about the business venture.
The same question is also dealt in the case of Deputy Commissioner of Income Tax Vs M/s Edelweiss Capital Ltd (I.T.A No: 3971/Mum/2009). The opinion laid down was that even if the websites had materialized, the expenditure could not have been viewed as capital expenditure because the website is put up for the purposes of day-to-day running of the business and even if one was to view that some enduring benefit is obtained by the asessee, the benefit cannot be said to accrue to the assessee in the capital field.
A web site is something where full information about the assessee’s business is given and it helps the assessee’s customers in dealing with it. A website constantly needs updating, otherwise it may become obsolete. It helps in the smooth and efficient running of the day-to-day business.
It seems that the Courts are reversing the earlier opinion. In a recent case, in DCIT –vs.- M/s. Edelweiss Capital Limited (ITA No. 3971/Mum./2009), it was held that the expenditure incurred on Website could not be viewed as capital expenditure because the Website was put up for the purposes of day-to- day running of the business. It was also held that even if some enduring benefit was obtained by the assessee by way of development of Website, such benefit could not be said to have accrued to the assessee in the capital field.
In another case, Income Tax Appellate Tribunal Mumbai has also confirmed that, the expenditure incurred by the assessee on Website Development was of a revenue nature and not of a capital nature. In the same decision, the Court made an observation that that although the Website might provide an enduring benefit to an assessee, the intended purpose behind the Website was not to create an asset but only to provide a means for disseminating the information about the assessee.
Rasheela Basheer is the Co-Founder of TaxScan Media.
In a recent ruling, the division bench of the Bombay High Court held that discovering an incriminatory material during the search is a mandatory requirement to initiate proceedings against the assessee under section 158BC of the Income Tax Act, 1961.
While quashing a notice under section 158BC of the Income Tax Act, the Court observed that in the absence of such a requirement, proceedings cannot be initiated by the Department.
In the instant case, a search under section 132 of the Income Tax Act was carried out on the premises of the assessee. Consequently, the department issued a notice under Section 158BC of the Act to the assessee to file his return of income for the block period covered by the search. The assessee maintained that nothing was found with the assessee during the course of search so as to infer that he was in possession of any undisclosed income either at the time of search or at any time prior thereto. Therefore the assessee impugned the notice before the High Court contending that, in the absence of there being undisclosed income, the Assessing Officer would not have any justification to issue the impugned notice under Section 158BC of the Income Tax Act.
The fact that no incriminating material was revealed as result of the search was not disputed by the Revenue. The same was also not proved by the appraisal report. The Court found that the Respondents-revenue took search and seizure proceedings in respect of the assessee on account of mistaken identity.
Therefore, division bench opined that no notice under Section 158BC of the Act could be issued to the Petitioner-assessee as the condition precedent to issue notice under Section 158BC of the Act, viz. undisclosed income found during the search proceedings, is not satisfied.
Before concluding, the division bench comprising of Justice M.S Sanklecha and Justice S.C Gupte directed the Department to pay costs to the assessee, and added that “We note that this action on the part of the Respondents-revenue to issue the impugned notice ignoring the appraisal report is highly deplorable. We live in a Country governed by laws. The Officers of the Income Tax Department are obliged to proceed in accordance with the statutory provisions and not on their whim and fancy. The Officers hold power in trust and must ensure that no citizen is harassed by sending him notices, when on the basis on its own record, such notices are not sustainable. We trust that the Income Tax Department would adopt a standard operating procedure which would provide for appropriate safeguards before issuing notices under Chapter XIVB of the Act. This alone would ensure that Officers of the Revenue act in terms of the mandate provided in the Act”.
Read the full text of the Judgment below.
In a recent ruling, the Income Tax Appellate Tribunal, Hyderabad bench has ruled that mere disallowance of a claim under section 80-IA of the Income Tax Act is not sufficient to initiate penalty proceedings against the assessee under section 271(1)(a) of the Income Tax Act, 1961. The Tribunal found that such a disallowance cannot lead to a conclusion that the assessee has concealed income or has failed to furnish accurate particulars’.
Coming to the facts of the case, the assessee-company is engaged in the business of manufacture and sale of ‘condition monitoring equipment’.The assessing officer, while rejecting the return filed by the assessee during the relevant assessment year, has disallowed certain claims of the assessee under section 80-IA and made certain additions. Parallelly, the Department initiated penalty proceedings under section 271(1)(c) of the Act. Though the disallowance of the claim was successfully appealed by the assessee before the first appellate authority, the same was disallowed by the Appellate Tribunal on Revenue’s appeal.Thereafter, the penalty proceedings initiated against the assessee was completed and the same was confirmed by the CIT(A).
Aggrieved with the order, the assessee preferred a second appeal before the Tribunal contending that mere disallowance of claim under section 80-IA cannot be a valid ground for initating penalty proceedings under section 271(1)(c).
While deleting the order of penalty, the Tribunal observed that “It is to be noted that claim u/s 80-IA was allowed by the Ld.CIT(A) after due examination by him. On further appeal by Revenue, ITAT however, has not allowed the claim. This shows that it is mere rejection of a claim. Mere disallowance of a claim does not come within thepurview of ‘concealment of income’. It can also do not form under the category of ‘furnishing of inaccurate particulars’.”
The Tribunal noticed the Apex Court decision in CIT Vs. Reliance Petro Products, in which it was held that, in the absence of a finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, penalty under section 271(1)(c) will not be sustained.
In view of the above findings. The Tribunal allowed the assessee’s appeal by holding that there is no scope for levy of any penalty u/s. 271(1)(c) since there was no ‘concealment of income’ or ‘furnishing of inaccurate particulars’.
Read the full text of the order below.
In a recent ruling, the ITAT, Ahmedabad bench held that the profit arising out of purchase and sale of shares and investing in mutual funds are capital gain. By relying upon the CBDT Circular No.6/2016 dated 29.2.1016, the Tribunal observed that such income shall not be treated as business income if the assessee treats the same as capital gain.
In the instant case, assessee is a limited company engaged in the business of manufacturing of dyes intermediates & fine chemicals. The assessing authority and the first appellate authority held that assessee’s profit on purchase and sale of shares and units of mutual fund was held to be treated as business income. The assessee maintained that their man business is manufacturing of dyes intermediates & fine chemicals. Therefore, the assessee preferred an appeal before the Appellate Tribunal by contending that the said income should be considered as their capital gain.
The assessee’s main object as per Memorandum of Association is of business of manufacturing and purchase and sale of dyes intermediates and fine chemicals. Further, assessee has been claiming the gain/loss from transactions of sale/purchase of shares and mutual funds as short term and long term capital gain since last many years and Revenue has been regularly accepting the same. It was also noted by the division bench that investments in shares and mutual funds are being separately shown at cost price in the audited balance sheet. Reliance was placed on the CBDT Circular No.6/2016 dated 29.2.1016. As per clause 3(b) of the above Circular reads that assessee if desires to treat the income arising from transfer of shares and securities as capital gain the same shall not be put to dispute by the Assessing Officer. The Tribunal observed that the above circular is applicable in the case of assessee.
Read the full text of the order below.
