The Income Tax Appellate Tribunal, Hyderabad, in a recent ruling, held that depreciation under section 32 of the Income Tax Act, 1961 can be allowed even in cases where the assessing officer has estimated the net income by rejecting the books of accounts. While invalidating the order of revision passed by the Commissioner of Income Tax, the Tribunal observed that the CIT cannot exercise his revisionary power under section 263 of the Income Tax Act merely on ground that the assessment order is prejudicial to the interests of the Revenue. It should also fulfill the second condition, i.e, the order is erroneous.According to the bench, both these conditions have to be satisfied to justify an order under section 263 of the Act.
In the instant case, the assessee-firm engaged in execution of labour and mechanical Contracts. The assessee filed its income tax return for the relevant assessment year. during verification, the assessing officer expressed a suspicion over the expenditure debited to the P&L a/c alleging that it is not supported by proper vouchers/bills as the vouchers produced were not amenable for verification and the genuineness and quantum of expenditure could not be substantiated. Accordingly, the books of account of the assessee u/s 145(3) of the Income Tax Act was rejected by the officer and estimated the income of the assessee at 12.5% on the gross contract receipts and thereafter allowed depreciation therefrom. Against the said order, the Commissioner of Income Tax initiated revisionary proceedings by holding that when the net income is estimated, the depreciation is not allowable.
The assessee, relying upon a catena of decisions, maintained that there is no provision in the I.T. Act which makes the claim of depreciation inadmissible where the income is computed by applying a flat rate of profit and that even where the flat rate of profit is adopted in the assessment proceedings, the depreciation claim is to be considered separately and it should be deducted from such income determined.
While upholding the assessment order, the Tribunal held that “the books of the assessee were not found to be reliable and therefore, the AO has rejected the books and proceeded to estimate the net profit at 12.5% on the gross contract receipts. Thereafter, he has allowed the depreciation claimed by the assessee. We find that in the decisions relied upon by the assessee there were views in support of the stand taken by the AO and there are also decisions contrary to the same. The AO has adopted one of the possible views and therefore, the assessment order cannot be said to be erroneous for an order to be revisable u/s 263 of the Income Tax Act, the assessment order should be both erroneous as well as prejudicial to the interests of the Revenue. Since the assessment order is not found to be erroneous, even if the second condition of the order i.e. prejudicial to the interests of the Revenue is satisfied, it will not justify the revision u/s 263 of the order. In view of the same, the revision order is set aside and assessment order is restored.”
Read the full text of the order below.
The Kolkata bench of the Income Tax Appellate Tribunal, recently ruled that a Trust is entitled to get registration under section 12AA of the Income Tax Act, 1961 even before it start its activities. The decision was based on the decision of the coordinate bench of Delhi ITAT in Dharma Sansthapak Sangh (Nivas) vs. CIT.
The assessee is a Trust formed with the objects of promoting, establishing, equipping, erecting, maintain and /or granting all or other financial assistance for advancement of education, music, dancing, literature, culture and other similar pursuits, dispensaries, hospitals, laboratories, hostels etc. It came into existence through a Certificate of Registration of Societies, West Bengal Act. The assessee was aggrieved by the order of the CIT(E)in which registration under section 12AA and approval under section 80G(5)(vi)of the Income Tax Act was denied to them on ground that no activities of the Trust were started and there is no means to verify the genuineness of the activities.
On appeal, the Commissioner of Income Tax (Appeals)sustained the order. Aggrieved with these orders, the assessee approached the ITAT for relief.
The Tribunal found that the CIT has no objections as to the charitable nature and objects of the assessee. The Tribunal further noticed the decision of the Coordinate Bench of Delhi Tribunal in the case of Dharma Sansthapak Sangh (Nivas) –vs. – CIT, in which the Tribunal observed the following “The law is now well-settled that while granting the registration to the charitable institution or trust, if it is at the commencement stage, the powers of CIT, with whom the application is filed by such trust/institution, are limited to the aspect of examining that whether or not the objects of trust are charitable in nature and this well established law is supported by the decisions relied upon the learned Authorised Representative and referred to in the earlier part of the order. It has already been observed that objects of trust, which are religious, are charitable in nature. Thus, assessee also fulfils such condition. The carrying of charitable activity at the stage of commencement of institution is not relevant to decide that whether such trust/ institution is entitled for registration. So long the objects of the trust are charitable in nature, registration cannot be refused, if the trust is genuine. Therefore, we find no material on record to justify the action of the CIT vide which the assessee trust has been refused for grant of registration. We direct CIT to grant registration to the CIT (sic-assessee-trust). The appeal filed by the assessee is allowed.”[Emphasis supplied] While deciding the appeal in the above case, the Tribunal took into consideration the decisions of Tribunal in the cases of Acharya Sewa Niyas Uttaranchal vs. CIT [(2006) 105 TTJ (Del) 761] and Modern Defence Shikshan Sansthan vs. C.I.T. [(2007) 108 TTJ (Jd) 732].”
Following the above decision, it was held that the assessee is entitled to get registration under section 12AA of the Act.
Read the full text of the order below.
In a recent ruling, the Delhi bench of Income Tax Appellate Tribunal allowed expenditure on interest pertaining to closing stock since it is ‘capital’ in nature.The Tribunal, further allowed another claim of the assessee, which is a statutory authority who received grants from the UP Government.
The Tribunal ruled that, being a statutory authority,the grants received by it is not taxable from its hand under the provisions of the Income Tax Act, 1961. It was observed that the assessee was maintaining infrastructure, development and reserve fund (IDAR) as per the Notification dated 15.1.1998.
The factual settings of the instant case are that, the assessee, an urban development authority formed by an Act passed by the Uttar Pradesh Legislature Assembly, engaged in urban development of Meerut and for providing low cost housing to general public.The assessee challenged the orders of the lower authorities on the following two grounds. Firstly,the claim towards the interest pertaining to closing stock was disallowed by the authorities by treating the same as capital expenditure. Secondly, grants received from the Government of Uttar Pradesh were treated as revenue receipt by the AO. On appeal, the CIT(A) confirmed the assessment order.
While allowing the expenditure on interest on closing stock, the Tribunal accepted the contention of the assesse and directed the AO to exclude the interest incurred on loans from the valuation of closing stock and allow the same as deduction u/s 36(1)(iii) of the Act.The Tribunal, while treating the same as revenue expenditure, relied upon the decision of Bombay High Court in the case of Lokhandwala Constructions.
Regarding the second question, i.e, the nature of the amount of grants received from Government, the Tribunal noticed the decision of the jurisdictional High Court in the case of Lucknow Development Authority, in which it was emphasized that “From the record, it also appears that the ‘authority’ had been maintaining infrastructure, development and reserve fund (IDAR) as per the Notification dated 15.1.1998. The money transferred to this fund is to be utilized for the purpose of the object as specified by the committee having constituted by the Government under the said Notification and the same could not be treated to be belonging to the ‘authority’ or the receipt is taxable in its hands.”
In the light of the above decision, it was held that the amounts received by the assessee from Government of UP cannot be taxed as income of the assessee.
Read the full text of the order below.
In a recent ruling, the Kolkata bench, ITAT held that being an appellate authority, the tribunal, has the power to direct the assessing officer to admit a new claim which was not made by the assessee, in the original return.
the sole grievance of the assessee, in the instant case was that, the assessee omitted to make claim for deduction in respect to employees contribution to PF and ESI in the original return.They also failed to submit a revised return. Consequently, the assessing officer passed an order disallowing such amount. The officer relied upon the decision in Goetz India Ltd. Vs. CIT, in which it was held that the AO can entertain only those claims which have been claimed by the assessee by filing the return of income/revised return. If any deduction or any exemption has not been claimed by the assessee in the return of income filed by him, then normally the AO does not allow the claim because he is not authorized to entertain a fresh deduction or exemption which was not claimed by the assessee while filing the return of income/revised return.
The assessee contended that the Tribunal has enough power to admit the claim and admit the new grounds of appeal. According to them, it is the object of the Income tax Act to assess the true income of the assessee and to collect true tax from the assessee. In the instant case, the assessee has paid the PF contribution and ESI contribution before filing of return of income, therefore he is entitled to claim the deduction.
Concurring with the above contentions, the Tribunal observed that “the propositions canvassed by the ld. AR for the assessee are supported by the judgment of the Hon’ble ITAT, Kolkata in ITA No.1410/Kol/.2011 and CIT vs AIMIL Ltd. (2010) 321 ITR 508 (Del). Therefore we are of the view that the Hon’ble Supreme Court in the case of Goetze India Ltd. has held that the appellate authority being the Tribunal have the power to direct the AO to accept the claim of the assessee though the same has not been made in the original return nor has been done in the revised return. In this circumstances, respectfully following, the ratio laid down by the Hon’ble Supreme Court in the case of Goetz India Ltd., the AO is directed to grant the assessee’s claim of deduction on account of contribution to PF and ESI.”
Read the full text of the order below.
While announcing the results of the Income Declaration Scheme 2016 on 1st October, 2016 at a press conference in Delhi, the Honourable Finance Minister Shri Arun Jaitley stressed that no break-up of these declarations on the basis of trades/cities/states shall be released in order to ensure absolute secrecy with respect to the identity of the declarants.
Central Board of Direct Taxes (CBDT) clarifies that no official list of region wise declarations has been issued. The Income Tax Department is committed to maintaining strict confidentiality of declarations made under the Income Declaration Scheme 2016. CBDT requests the general public not to pay any heed to such fraudulent messages circulating on social media.
The Hyderabad bench of the Income Tax Appellate Tribunal, in a recent decision held that the registration granted to a Charitable society under s. 12AA of the Income Tax Act, 1961 can be revoked by the Department if the society is involved in commercial activities and has lost its ‘charitable nature’. The Tribunal, following the High Court decision in the assessee’s case, observed that indulging in commercial activities will attract the provisions of s. 2(15) of the IT Act and it is valid ground for withdrawing registration already granted.
The assessee in the instant case, is a charitable society engaged in the activities of welfare of farmers. The assessee was registered under section 12AA of the Income Tax Act, and also was granted with registration under s. 10(23C)(iv) vide CBDT Notification 11.03.2004. During the relevant assessment year, the DIT(E)found that the assessee is engaged in commercial activities by rendering different services for which they are collecting various charges from traders/societies. Based on this, the DIT(E),through its order, withdrawn the registration granted to the assessee on the following two grounds. Firstly, the assessee society has lost its character as a charitable organizationas per s.2(15) of the Act since they are involved in business activities through which the traders are more benefitted than the farmers. Secondly, the assessee is not carrying on activities in accordance with the objectives of the society.
The matter was brought before the Tribunal on appeal. Before the Tribunal, the assessee contended that the registration once granted cannot be withdrawn unless there is change in the society’s objectives or the activities carried on by the assessee are in contravention of its objectives. The Tribunal found that as per the CBDT Circular 27.05.2016, the registration granted to a charitable institution u/s 12AA of the Act need not be cancelled or withdrawn merely on ground of s.2(15).
Further, the Tribunal noticed the decision of the High court in assesses own case, in which it was found that the assessee is not a charitable institution in view of the second limb of the proviso to section 2(15) of the Act.The Court found that the assessee is certifying the seeds onthe application of a society or an agent with whom the seed growers have entered into an agreement and who, after securing such certification, sells such seeds to farmers at market price determined by them. In the opinion of the Court, this involves a commercial activity which isnot for the “advancement of any other object of general public utility” therefore, the provsions of s. 2(15) will apply.
Following the decision of the jurisdictional High Court, the ITAT confirmed the withdrawal of registration and resultantly, dismissed the appeal filed by the assessee.
Read the full text of the order below.
In a recent decision, the Kerala High Court ruled that interest is not allowable on refund claims where the assessee filed the returns after due date prescribed by law. The Court while upholding the order impugned, observed that even if the delay is condoned for the purpose of filing return, the revenue can deny interest on the refund amount claimed.
The petitioner, in the instant case, is a Primary co-operative society, has paid advance tax of 10 lakhs and TDS during the relevant assessment year. When he return was filed, it was found that assessee’s taxable income is nil. However, the assessee’s claim for refund was rejected by the Department for the reason that they have filed belated returns. The assessee challenged this order before the High court in which the Court held that they are eligible for refund and directed the Department to take necessary steps for the same. Though the refund claim was accepted by the Department, they refused to allow interest on such refund to the assessee by pointing out that they are not eligible for interest under s. 244A of the Income Tax Act.
The assessee challenged the order contenting that once the delay in filing the return has been condoned, it becomes a valid return and therefore grant of interest is consequential.Though there is a provision under Section 244A(2) of the Income Tax Act that interest could be denied if the delay is attributable to the assessee, once the return is accepted and refund is ordered, such an approach is clearly illegal.
“Going by the judgments relied upon by either side, I am of the view that the liability to pay interest on refund arises from the date when claim for refund is made with all necessary particulars. As already indicated, Section 244A(2) imposes a restriction on payment of interest when the procedure for refund is on account of the delay attributed to the assessee. In the case on hand, what is to be looked into is whether the delay in refund was due to a cause attributable to the assessee. The facts involved in the case would disclose that the return of income for the assessment year 1997-98 was filed only on 01/02/2000 on account of delay in auditing. Return was filed belatedly and thereby it was rejected. Thereafter an application was filed under Section 119(2)(b), seeking for condoning the delay in filing the return, was rejected and ultimately the matter reached this Court wherein this Court had directed the delay to be condoned. There cannot be two ways to look at it. Admittedly, there had been delay on the part of the assessee which had given rise to a situation to condone the same. Delay has been condoned only for the purpose of accepting the return. But it cannot be stated that the delay was not attributable to the assessee. Even if such instances where the delay is condoned, still when it is attributable to the assessee, there is justification on the part of the Commissioner to deny interest under Section 244A(2). Therefore, I do not find any error in the impugned orders passed by which the claim for interest has been rejected.”
Read the full text of the Judgment below.
Uttar Pradesh Chief Minister Akhilesh Yadav has announced yesterday ‘MS Dhoni: The Untold Story’ tax free release across the state.
Feature film ‘M.S. Dhoni’ will be tax free in the state: #UPCM @yadavakhilesh@itsSSR @DishPatani @AnupamPkher
— CM Office, GoUP (@CMOfficeUP) October 1, 2016
M.S. Dhoni: The Untold Story is an Indian biographical film directed by Neeraj Pandey, based on the life of Indian cricketer and the current ODI and T20I captain of the Indian national cricket team, Mahendra Singh Dhoni.
Earlier Jharkhand Government also exempted tax for ‘M S Dhoni: The Untold Story’ and issued a gazette notification exempting the movie to be exhibited at cinema halls and multiplexes from levy and payment of Entertainment Tax.
While upholding the decision of Single bench, the division bench of Madras High Court ruled that, Explanation V under Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970, introduced by the Amendment Act 23 of 2002, to be ultra vires the Constitution of India and beyond the legislative competence of the State.
The respondents M/s.Taher Ali Industries & Projects (P) Ltd is in the field of manufacturing, laying, joining, testing and commissioning of PSC pipes, for water supply scheme on contract basis and it is a registered dealer under the Tamil Nadu General Sales Tax Act.
The nature of work carried on by them falls under the category of ‘Works Contract’ and is paying taxes at the compounded rate as per Section 7-C of the TNGST Act at the rate of 2% as the work done by the petitioner is civil construction work and is paying the taxes on the total value of the contract as per the provisions of the TNGST Act.
The company contended that, as per the taxable turnover as defined under Section 2(p) of the TNGST Act and the turnover as defined under Section 2(r) of the TNGST Act, while determining the total and taxable turnover, for the purpose of levy of tax under Section 3 and other Charging Sections, the levy of tax at the compounded rate under Section 7-C of the TNGST Act, does not relate or refer to the taxable turnover, but refers to the value of the works contract or contracts.
Also submitted that, as per Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970if the taxable turnover of a dealer exceeds Ten Crores of Rupees, then an additional sales tax calculated at the rates mentioned in the above provisions has to be paid. However, the Assessing Authority sought to impose additional sales tax in respect of the works contract in relation to which it had opted to pay tax at compounded rate under Section 7-C of the TNGST Act and it was objected to on the ground that insofar as the additional sales tax under the 1970 Act is concerned, it can be levied only on the taxable turnover when there was no determination of taxable turnover in the case of an assessee who opted to pay tax at the compounded rate under Section 7-C of the TNGST Act and further there is no statutory provision available authorising the levy of additional sales tax in respect of such transactions and as such, the said levy would be unconstitutional as being not authorised by law.
The single Judge in the impugned Judgment made an opinion that, the imposition of sales tax on the total contract value, is not within the competence of the State Legislature, as it is only the transfer of goods, on which tax can be imposed and the impugned Explanation V to Section 2(1)(aa) of the Act, thus, expands, the scope of charging Section, which is not permissible
While dismissing the appeal filed by state, the Division Bench comprising of Justice M. Sathyanarayanan and Justice V.M. Velumani observed that, “there is no error apparent or infirmity in the reasons assigned in the impugned order in allowing the writ petition declaring that the inclusion of the explanation was beyond the legislative competence of the State legislature”.
Read the full text of the Judgment below.
64275 declarations filed under IDS-2016 up to the midnight of 30th September, 2016
The Income Declaration Scheme, 2016 came into effect from 1st June, 2016. It provided an opportunity to persons who had not paid full taxes in the past to come forward and declare their domestic undisclosed income and assets. Declarations could be made online as well in printed copies of the prescribed form up to midnight on 30th September, 2016.
In order to facilitate the taxpayers and to spread awareness about the Scheme, the CBDT issued a number of FAQs to address various queries received. Major issues clarified included manner of declaration of fictitious liability, allowance of cost indexation and holding period benefit for registered immovable property, sanctity of valuation report etc. Difficulties with respect to payment of taxes in a short span were removed by permitting payment of tax in 3 instalments, the last being in September 2017. Absolute confidentiality of the declarations made was promised under the scheme to reassure the declarants.
An appeal was made by the Honourable Prime Minister of India to the general public to come clean on taxes due. The FM personally addressed stakeholders at many stations. More than 5500 public meetings in various cities were conducted by the department. Innovative publicity methods like Talkathons, Walkathons, Nukkad Nataks, were used to spread awareness about the Scheme. The Department’s strategic use of taxpayer information and data mining techniques further spurred the declarations.
These steps resulted in a tremendous response from the general public, especially in the last two months. As a consequence, 64275 declarations were filed upto the midnight of 30th September, 2016 with an aggregate of Rs.65250 Crore worth of hitherto undeclared incomes in the form of cash and other assets being declared. With the final stock taking of declarations being filed in physical printed forms all over the country till late night on the last day, this number is likely to be further revised upwards.
This Scheme was the latest initiative of the Government of India towards tackling. The major steps taken by the Government against Black Money in the last 2-1/2 years include:
SIT: Many recommendations accepted such as mandatory quoting of PAN for cash transactions etc.
Legal Framework: Making tax crimes predicate offence under PMLA; Amendment of FEMA to provide for confiscation of domestic assets in place of foreign assets; Enactment of Black Money Law and Amendment to Benami Act.
International Treaties: Signing of FATCA with US; Amendment of Mauritius Treaty; Initiative for signing of Automatic Exchange of Information Treaty with all major countries including Switzerland, Initiatives under BEPS (Based Erosion and Profit Sharing) such as country by country reporting, PoEM ( Place of Effective Management) etc.
Detection and administration of tax evasion cases: Assessment of Rs.8000 crore in HSBC cases as well as filing of 164 prosecution complaints in l75 HSBC cases; detection of Rs.5, 000 crores of undisclosed deposits in foreign accounts made out of ICIJ cases, 55 prosecution cases filed in those cases; Big investigation in Panama cases has led to 250 references being made to other countries asking for details about tax evaders, bank accounts etc. The quantum jump in the searches and survey has resulted in seizure of Rs.1986 crores as well as undisclosed income of Rs.56, 378 crore in the last two and half years. The upgradation of IT capabilities has led to non-intrusive methods of detection of tax evasion. Rs.16, 000 crores received as tax out of one such system of Non-filers of Monitoring System (NMS). 3626 cases of prosecution and compounding in the last two and half years which is more than double as compared to previous two years.
The faith reposed by the Government in the CBDT and the Income tax Department strengthened the administration of the Scheme. This was a major step towards reigning in the parallel economy of the country and merging it with the mainstream. The CBDT endeavours to continuously use non-intrusive methods towards widening and deepening of the tax base.
The Bangalore bench of the Customs Excise and Service Tax Appellate Tribunal, in a recent decision, held that service tax cannot be levied on a Members Club in respect of services rendered to its members. The Department vehemently contended that the members and the Club are two different entities, and therefore, service tax is leviable. While rejecting this contention, the Tribunal upheld the order of the first appellate authority and opined that both are same entity.
In the instant case, the Revenue approached the Appellate Tribunal against order of the first appellate authority, alleging that the assessee, M/s. National club is a Members Club is liable to pay service tax on the gross value of service provided to the members of the club. The first appellate authority, based on various judicial pronouncements,took a view that service tax cannot be imposed on the assessee since is a Members club and not a Proprietary Club and in a members club there is no question of two sides i.e. Members and Club, both are same entity.
The Tribunal, while concurring with the findings of the first appellate authority, observed that“M/s. National club is a Members Club and not a Proprietary Club. In a Members club there is no question of two sides; Members and club, both are same entity. There should be existence of two sides/entities for having transaction as against consideration. In a members club there is no question of two sides.”
The Tribunal noticed the decision in Sports Club of Gujarat Ltd. V. UOI in which it was held that the provisions which purport to levy service tax in respect of services purportedly provided by the petitioner club to its members is to be ultra vires.
The Tribunal further relied upon the Apex Court decision in Joint Commercial Tax officer V. Young Mens Indian Association {1970 (1) SCC (462)}, in which it was held that If the club even though a distinct legal entity is only acting as an agent for its members in matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent, the supply of various preparations by each club to its members does not involve a transaction of sale within the meaning of Sales of Goods Act, 1930.
Read the full text of the order below.
The Finance Act, 2016 has amended the provisions relating to arrest procedure under sections 89,90 and 91 of the Finance Act, 1994 w.e.f. 14.05.2016. According to these provisions, a person who collects service tax but fails to pay the same to the Government within 6 months from the due date is liable to be arrested. For this, the amount so collected should exceed Rs. 2 crores. The present circular instructs the officials to comply with conditions, i.e, both legal and factual while exercising the power to arrest.
With regard to the legal conditions, the officer should have a ‘reason to believe’ that there exists a need to arrest the person who has committed the above mentioned offence.Such reasons must be recorded with clear and unambiguous noting.There should be clear evidence to prove that the person has collected service tax, the amount so collected exceeds Rs. 2 crores and he failed to make payments to government even after 6 months of the due date.
The factual conditions necessary to exercise the power to arrest are that, the officer can arrest a defaulter in order to ensure proper investigation and prevention of the possibility of tampering with evidence or intimidating or influencing witnesses etc.
The circular clearly directs that the arrest cannot be resorted to in relation with cases having technical nature. It is further emphasized that since arrest impinges on the personal liberty of an individual, the power to arrest must be done with utmost caution after analyzing the factual and legal precedents given above.
Read the full text of the circular below.
Under the Andhra Pradesh Re-organisation Act, 2014 the Government of India is extending special assistance to four districts of Rayalseema and three districts of North coastal Region of Andhra Pradesh. To further boost the industrial activities, the CBDT has notified these seven districts for availing tax incentives under section 32(1)(iia) and section 32AD of the Income Tax Act.
Accordingly, any manufacturing undertaking set up during the period from 01.04.2015 to 31.03.2020 in these districts of Andhra Pradesh is eligible for 15% of higher additional depreciation and 15% of investment allowance on the cost of plant and machinery acquired by it during the said period.
The 7 districts of Andhra Pradesh notified as backward areas vide Notification in S.O.3075 (E) dated 28.09.2016 are:
The aforesaid incentives are in addition to other tax benefits available under the Income-tax Act.
Read the full text of the notification below.
Government is working on a target date of 1st April, 2017 for the roll out of the Goods and Service Tax (GST) in the country.
The Union Finance Minister Shri Arun Jaitley said that the Government is working on a target date of 1st April, 2017 for the roll out of the Goods and Services Tax (GST) in the country. He said that till 16th September, 2017, that is one year after the provisions of the Constitution (101st Amendment) Act, 2016 being brought into force, the Constitution empowers the Central Government to levy excise duty on manufacturing; and service tax on the supply of services. The Finance Minister said that similarly the Constitution Amendment Act empowers the State Governments to levy sales tax or Value Added Tax (VAT) on the sale of goods till that time i.e. 16th September, 2016. The Finance Minister Shri Jaitley said that so far the Government is following the road map for implementation of GST as per the schedule. The Finance Minister Shri Jaitley was making his Opening Remarks at the Fourth Meeting of the Parliamentary Consultative Committee attached to the Ministry of Finance held here today. The subject of today’s Meeting was the Goods and Services Tax (GST)
The Finance Minister Shri Jaitley further said that the First Meeting of the GST Council was held in a very cordial and constructive environment earlier this month and today, he will hold the Second Meeting of the GST Council. In the GST regime, the GST Council has been created under Article 279A of the Constitution. The GST Council is a joint forum of the Centre and the States. The Council will take decisions on important issues like tax rates, exemption list and threshold limits etc.
Thereafter, the Members of Consultative Committee who participated in today’s Meeting sought various clarifications with regard to GST Law and gave suggestions for its better implementation. Some of the major suggestions include need for absolute clarity and transparency with regard to where taxes will be collected, assessed and where the appeal will be filed in case of GST regime. The members said that it will be challenging task to tackle complex situation arising-out of implementation of GST law in a federal system. Some of the members suggested there is a need for launching a large scale Awareness Campaign especially for the small traders as most of them are still unaware about the complex procedures and processes under GST regime including for registration and filing of returns etc. Some of the members suggested that availability of IT network in all parts of the country, especially in small towns and rural areas, must be ensured as GST system will work only online. Some of the members appreciated the initiative of the Government in getting the GST law passed by both the Houses of Parliament as well as its commitment to implement it in a time bound manner. The members hoped that this law will bring relief to the common man by exempting certain essential items from GST and moderate rate of taxation on other items which in turn will bring down the prices of common man consumption items as well as cost of living at large.
Along with the Union Finance Minister, Shri Arun Jaitley, Shri Santosh Kumar Gangwar, Minister of State for Finance, the Members of the Consultative Committee who participated in the today’s Meeting include Shri Baijayanta Jai Panda, Shri Dilip Kumar Mansukhlal Gandhi, Shri Kailkesh Narayan Singh Deo, Shri Prabhatsinh Chauhan, Shri Ram Charitra Nishad, Shri Subhash Chandra Baheria and Shri Suresh Chanabassappa Angadi (all members of Lok Sabha); Shri Anil Desai, Shri Digvijaya Singh, Shri Rajkumar Doot and Shri Satish Chandra Misra (all members of Rajya Sabha) .
Among the officers who attended the Consultative Committee Meeting include Shri Ashok Lavasa, Finance Secretary, Shri Shaktikanta Das, Secretary, DEA, Dr. Hasmukh Adhia, Revenue Secretary, Ms. Anjuly Chib Dugal, Secretary, Financial Services, Shri Neeraj Kumar Gupta, Secretary, DIPAM, Dr. Arvind Subramanian, Chief Economic Adviser (CEA), Chairman, CBEC Shri Najib Shah and other senior officers of the Ministry of Finance.
In a significant Judgment, the division bench of Patna High Court ruled that, levy of entry tax on online purchases is illegal and unconstitutional. Tax cannot be levied on entry of goods into local areas, in terms of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1993, over the transactions, made on e-commerce portals, for personal use or consumption of individual consumer.
The petition was filed by Instakart Services Private Limited challenging the levy and collection of entry tax on goods brought by the petitioners to the State of Bihar for individual consumers, who reside in the State of Bihar, and which are transacted using electronic commerce portal.
The petitioners are Private Limited Company and are engaged in the business of providing logistics and delivery services to various individual buyers, who undertake purchase transactions through technology platform of M/s Flipkart Internet Private Limited.
The bench comprising of Chief Justice I.A Ansari and Justice Chakradhari Sharan Singh struck down the provisions of the Bihar Finance Act, 2015, amending the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016 and are declared as ultra vires to the Constitution and are accordingly quashed.
While allowing the petition, the bench observed that, “When Article 304(a) ensures only equal rate for incoming goods, if such goods are taxed at a higher rate or where they are taxed at any rate, when indigenous goods enjoy concessional rate of tax, Article 304(a) gets attracted. These are simple cases of hostile discrimination. However, one has to determine whether a particular tax is discriminatory or not within the meaning of Article 304(a), the effect of the tax, on the flow of goods from outside the taxing State, has to be taken into consideration and if the overall effect of rebate of tax is such that they fall within the meaning of concessional rates of tax so as to discriminate between imported goods and local goods, the same would amount to discrimination within the meaning of 304(a) of the Constitution. The set off, as given in Section 3(2) of the 1993 Act, cannot be used as a device or weapon so as to make a discrimination in the rate of tax by repaying or by allowing set off to one class of local dealers of the entry tax paid against the VAT payable and not allowing the benefit of set off to outside dealers. Such a situation squarely falls within the ambit of Article 304(a) of the Constitution of India”.
“By giving set off under second Proviso to Section 3(2) of the 1993 Act, a favourable treatment is given to one class of dealers within the State, barring the dealers, similarly placed outside the State, supplying goods to the State of Bihar in course of inter-State trade and commerce, the effect whereof is that no entry tax is payable by a dealer making resale of the said goods inside the State, but, on the other hand, the dealers, who are supplying goods from outside the State to consumers, have to pay full entry tax as well as central sales tax. The net effect of the impugned provisions is that the cumulative burden of taxes, on goods imported from outside the State, is higher than the said goods produced within the State. This is what is known as fiscal barrier and such fiscal barrier has a direct and immediate effect of ensuring that goods are brought in from outside the State of Bihar for personal use or consumption on payment of CST and thereby making a discrimination between the dealers of one State and another, which is clearly violative of Article 304(a) of the Constitution”, the bench also said.
While rejecting the submissions of the Principal Additional Advocate General, the bench said that, “Even if the levy is compensatory in nature, the compensation cannot be demanded more from an outside dealer than a local dealer. There cannot be any discrimination between an outside dealer and a local dealer. Since the impugned provisions clearly discriminate between an outside dealer and local dealer by imposing higher burden of tax on goods supplied by outside dealer than a local dealer, the same is clearly hit by Article 304(a) of the Constitution of India”.
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In a recent decision, the Gujarat High Court observed that it is the discretion of the Court to relegate a party to the alternative remedy at a belated stage. In the opinion of the Court, it is not an inviolable rule. The Court further given a detail discussion on the decision of the Supreme Court in Vijaybhai N.Chandrani, and held that the ratio laid down by the High Court was not been overruled by the Court. And therefore, the scope of s. 153C of the Income Tax Act, 1961 as observed by the High Court is still valid.
The petitioners challenged the assessment order passed under section 153C of the Income Tax Act on ground that the same was issued without jurisdiction since no documents were found as result of the search carried out against the assessee. The petitioners further relied upon the decision in Vijaybhai N. Chandrani vs. Assistant Commissioner of Income Tax, in which the Court the terms “belongs or belong to” a person other than a person referred to in Section 153A of the Income Tax Act, held that condition precedent for issuing notice under Section 153C of the Income Tax Act is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. In this case, the Court observed that section 153C cannot be invoked if the said requirements are not satisfied.
Opposing to the above contentions, the Revenue submitted that the Writ petition is liable to be dismissed since alternative remedy is available to the assessee under the statute. Further, it was contended that,the decision in Vijaybhai N. Chandrani, is no longer operates as a binding precedent since on appeal, the Supreme Court the Supreme Court expressed an opinion that the High Court should not have examined these aspects in a writ petition where the assessee had ample opportunity to controvert various factual aspects before the Assessing Officer and thereafter, to carry the matter in further appeal.
While analyzing the Apex Court ruling, the Court noticed two things. Firstly, the Supreme Court restricted the power of the High Court to examine the power of the Assessing Officer under section 153C. Secondly, the Court neutralized the ratio of the decision. It was noted by the Apex Court that the impugned order is set aside “without expressing any opinion on the correctness or otherwise of the construction that is placed by the High Court on Section 153C of the Income Tax Act.”
“The Supreme Court did not disapprove the judgment by holding that the interpretation adopted by the High Court was erroneous. It merely provided that the Assessing Officer shall proceed without being influenced by the observations made by the High Court under the said judgment. In other words, the Supreme Court freed the Assessing Officer from the obligation to be bound by the finding and the ratio of the judgment of the High Court. The simple question is, if the Assessing Officer was not bound by such judgment would the High Court in a later case continue to be so bound? The answer has to be in the negative. This is precisely the reason why, while discussing the judgement of the High Court with the reference to the facts in case of VijaybhaiN. Chandrani vs. Assistant Commissioner of Income Tax(supra), the Supreme Court also dealt with large number of other appeals arising from the same court, in which, the judgment in case of Vijaybhai N. Chandrani vs. AssistantCommissioner of Income Tax(supra) was followed. In effect therefore, the Supreme Court obliterated the effect of the ratio of the judgment of this Court in case of Vijaybhai N.Chandrani vs. Assistant Commissioner of Income Tax(supra). While doing so, the Supreme Court consciously recorded that the judgment is set aside “without expressing any opinion on the correctness or otherwise of the construction that is placed by the High Court on Section 153C”. In that view of the matter, the issue is once again at large before the High Court and the question would not be governed by the ratio on decision of High Court in case of Vijaybhai N. Chandrani vs. Assistant Commissioner of Income Tax(supra).”
While concluding, the Court observed that “Quite apart from this, when under similar if not identical circumstances, the Supreme Court found that the High Court ought not to have interfered in a writ petition at an early stage of issuance of notice under Section 153C of the Income Tax Act, we do not see any reason why we should not adopt the same course in the present proceedings. We agree with the suggestion of the counsel for the petitioner that writ jurisdiction under Article 226 of the Constitution is not shut out completely by the observations of the Supreme Court in case of Vijaybhai N.Chandrani (supra) or, any other judgement for that matter and exercise thereof is always a question of discretion. This would, however, not be the same thing as to suggest that in the present petition, we should not follow the line adopted by the Supreme Court in similar if not identical circumstances without there being any reason for distinction. Likewise, the question of relegating a party to the alternative remedy at a belated stage is also the question of discretion and not an inviolable rule. As a prudent exercise of discretion, the Court may not entertain a ground of alternative remedy once the petition has been admitted. This would, however, not mean that if in a given case, facts so present exhausting such remedy becomes imperative, the Court cannot chose such a course simply because the petition had already been admitted.” Accordingly, the petition was dismissed by the Court directing the petitioners avail the statutory remedy.
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The Chandigarh bench of Income Tax appellate Tribunal recently clarified that the sales tax subsidy received by the assessee is capital in nature. Therefore, such receipts are not taxable under the provisions of the Income Tax act, 1961.
In the instant case, the revenue approached the Appellate Tribunal challenging the order of the CIT(A) finding that the sales tax subsidy received by the assessee is capital in nature, and therefore, the same cannot be added to the taxable income. The Revenue contended that the same constitutes revenue receipt. They further relied upon the decision of the Apex Court in Sahney Steel & Press Works Limited & Others Vs. CIT and contended that the first appellate authority erred in relying upon the ITAT decisionby ignoring the Supreme Court decision.
The ITAT found that the issue has been already decided the same issue in favour of the assessee by relying upon the Apex Curt decision in CIT Vs. Ponni Sugars & Chemicals Ltd. & Others. While rejecting the submissions of the Revenue, it was held that “The argument of the learned D.R. that the CIT (Appeals) should have considered the decision of the Hon’ble Supreme Court rendered in the case of Sahney Steel & Press Works Limited & Others (supra) while deciding this issue and not the decision of the Tribunal in the assessee’s own case, we find has no merit , since the decision of the Tribunal was based on the criteria outlined by the Apex Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. & Others, 306 ITR 392 for determining the nature of subsidy in the hands of the recipient to be based on the purpose test . Further, the Apex Court , while delivering its judgment in the case of Ponni Sugars & Chemicals Ltd. & Others (supra) has relied heavily on its earlier decision in the case of Sahney Steel & Press Works Limited & Others (supra) and stated that the importance of the judgment in the case of Sahney Steel & Press Works Limited & Others (supra) lay in the fact that i t laid down the basic test to be applied in judging the character of the subsidy, which was the purpose for which it was given. Thus we find that the decision of the Tribunal in the case of the assessee in earlier and later years fol lowing the rat io laid down by the Apex Court in Ponni Sugars & Chemicals Ltd. & Others(supra) cannot be said to be at variance or without considering the decision of the Apex Court in the case of Sahney Steel & Press Works Limited & Others.”
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While quashing a re-assessment order passed against the assessee, the Income Tax Appellate Tribunal (ITAT), Chandigarh bench held that an unsigned agreement is not a valid evidence and therefore, the assessment made solely based on the same is not sustainable. Earlier, both the lower authorities were of the view that re-assessment based on the evidence of unsigned agreement was a valid prof to fix tax liability.
Through the second appeal, the assessee challenged the re-assessment order passed against him on the basis of photo copy of unsigned agreement found during the course of search proceedings.Though the assessee challenged the additions made under the said order, the CIT(A) sustained the same by relying upon the decision in Rajesh Jhaveri Stock Brokers Pvt. Ltd. The first appellate authority also noted that the assessee has not made submissions for reopening of the assessment , confirmed re-opening of the assessment under section 147/148 of the Income Tax Act.
As observed by the Tribunal, it is well settled law that validity of the re-opening of assessment shall have to be decided on the basis of the reasons recorded by the Assessing Officer for reopening of the assessment.
“The authorities below have been holding that the agreement in quest ion is admissible against the assessee because two of the cheque amounts mentioned in the agreement tally with the sale consideration mentioned in the sale deed of Shri Bhagveer Singh dated 21.05.2008. The date of sale deed i .e. 21.05.2008 would not fall in assessment year under appeal i .e. 2008-09 and there is no evidence or material available on record to prove genuineness of the photo copy of the unsigned copy of the agreement .Therefore, merely because some cheque amount is same in both these documents, would not prove that addition could be made against the assessee on the basis of photo copy of unsigned agreement . Therefore, there was no reason for the authorities below to hold that the contents given in the photo copy of unsigned agreement are correct. Since on the basis of unsigned agreement , no liability could be attached to the assessee and it is not admissible in evidence against the assessee, therefore, there is no
valid reason recorded by the Assessing Officer for the purpose of re-opening of the assessment in the matter .There is also no basis for making any addition on merit on the basis of photo copy of unsigned agreement.”Based on these findings, the Tribunal quashed the re-assessment proceedings.
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In a recent decision, the division bench of the Gujarat High Court opined that re-assessment cannot be made only on the basis of the audit party opinion on a point of law. The While quashing the notices issued for re-assessment, the Court, based on various case laws,clarified that the audit party is allowed to point out the factual errors only.
The petitioners, in the instant case, challenged the notice for re-opening of assessment under the provisions of Income Tax Act on ground that excess deduction of 80IB of the Income Tax Act, 1961 had been allowed to the assessee. Further, it is proposed to disallow the interest on loans paid by the assessee. The petitioners contended that these issues were brought to the notice by the audit party. These were not duly examined during the original assessment and no opinion was formed by the Assessing Officer.
The Court found that the claim of deduction under Section 80IB of the Income Tax Act was examined by the Assessing Officer during the course of original assessment and has committed error in allowing deduction with respect to several amounts which may not be eligible for such deduction. Therefore, it was opined that the erroneous decision of the Assessing Officer is widely different from non-consideration of an issue at the time of assessment. It therefore cannot be stated that this issue was not scrutinized by the Assessing Officer during the original assessment.
Regarding the second ground for re-assessment, the Court noted that there is no direct proof that the issue was examined during the assessment.
Verification of the original files transpired that the audit party had raised two objections- regarding the excess claim of deduction under Section 80IB of the Income Tax Act and the other was of not disallowing the interest expenditure.it was further revealed that the Assessing Officer noted the two audit objections with respect to the interest expenditure, which in her opinion is not acceptable. Brief reasons for not accepting the suggestions had been recorded by the AO during the course of original assessment.
Considering the above facts, the Court arrived at a conclusion that on the vital issue of disallowance of interest expenditure, the Assessing Officer was not convinced about the audit objection.In the light of various judicial decisions, the Court observed that the opinion of the audit party on a point of law cannot be regarded as information enabling the income tax officer to initiate reassessment proceedings.
The Court found that in the instant case, it is clear that the audit party not only brought a certain issue to the notice of the Assessing Officer but compelled her to issue notice of reopening despite her clear opinion that the issue was not valid and that there has been no escapement of income on the grounds so urged by the audit party.In view of the above findings, the Court set aside the impugned notices.
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On 30th September, such declarations can be filed till midnight.
In order to further facilitate the filing of declarations under the Income Declaration Scheme, 2016, the Central Board of Direct Taxes (CBDT) has extended working hours for receiving such declarations till 8:00 pm on 28th and 29th September, 2016. However, the declarants are advised to avoid last minute inconvenience, by filing their applications in good time.
Besides, the Central Board of Direct Taxes (CBDT) had earlier issued instructions to all Principal Chief Commissioners of Income Tax across India to ensure that arrangements are made for receiving such declarations till midnight of 30-09-2016.
The Income Declaration Scheme, 2016 came into effect from 1st June, 2016. It provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets. Declarations can be made online as well in printed copies of the prescribed form up to midnight on 30th September, 2016.
