The Central Board of Direct Taxes(B) CBDT has recently instructed the jurisdictional Pr.Commissioner/Commissioner to receive the declarations under the Income Declaration Scheme from assesses who do not have a PAN Card. It is mandated that in such a case, the declarant shall quote the date and acknowledgment number of PAN application form. The persons, who do not have a PAN Card, but would like to file declaration under the Scheme before the due date will get the benefit of this instruction.
However, the circular restricts the issue of form-2 before the allotment of PAN Card. it is stated that “The time limit provided for issuance of Form-2 under sub-rule (3) of rule 4 of the Income Declaration Scheme Rules, 2016 in such cases shall apply from the date on which PAN has been allotted to the declarant. In case, PAN allotment could not be made due to non-compliance/non-furnishing of documents by the declarant, the declaration shall be treated as invalid.”
The Income Declaration Scheme, 2016 is an opportunity for all the tax payers to disclose their undisclosed income before the Government by paying tax at the prescribed rate. The said scheme came into effect on 01.06.2016 and the last date for filing declarations under the IDS Scheme is 30.09.2016.
Read the full text of the instructions below.
In a recent decision, the Supreme Court held that the share issue expenses are allowable under section 35D of the Income Tax Act, 1961.
The Supreme Court bench comprising of Justice A K Sikri and Justice N V Ramana further allowed the payments made to employees as bonus, by finding that they are duly covered under section 36(i)(ii) of the Income Tax Act.
The Apex Court, while quashing the assessment order in which the amount paid as bonus were disallowed by invoking section 43B of the Income Tax Act, held that the said section is not applicable in the instant case.
The factual settings of the case are that, for the year 1995-06,the Assessing officer disallowed assessee’sclaim on share issue expenses by relying upon the Supreme Court decision in Brook Bond India Ltd. vs. Commissioner of Income Tax W.B,in which it was held that such expenditures are capital in nature.On appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee under section 35D of the Income Tax Act by finding that there was an expansion to the existing units of the industrial undertaking. Since the Revenue has not preferred an appeal challenging the said order, the assessment attained finality. However, for the subsequent years the Assessing Officer again disallowed the share issue expenses by relying on the above decision. The CIT(A) and the ITAT on appeal, allowed the claim, which was reversed by the High Court by upholding the assessment order.
The Court noted that the High Court erred in relying upon the decision in Brook Bond India Ltd, for the reason that the said decision was rendered when Section 35D of the Income Tax Act was not on the statute book. After the insertion of section 35D, the legal position has been changed. While reversing the order of High Court, the Court held that “It is here where the High Court went wrong as the instant case is to be decided keeping in view the provisions of Section 35D of the Income Ta Act. In any case, it warrants repetition that in the instant case under the very same provisions benefit is allowed for the first two Assessment Years and, therefore, it could not have been denied in the subsequent block period.”
The second question before the Court was that whether the assessee is entitled to deduction on account of payment of bonus to the employees.The Assessing Officer took a stand that the same is not allowable under Section 40A(9) of the Income Tax Act. The CIT(A) and the ITAT reversed the order. However, the High Court found the disallowance justifiable. The Apex Court rejected the findings of the High Court and opined that the payments in respect of bonus to the employees allowable as expenditure Section 36(1)(ii) of the Income Tax Act, 1961.
Section 43B, however, mandates that certain deductions would be allowed only on actual payment.
In this context, the Court opined that section 40A(9) of the Income Tax Act deals with deductions in respect of the amount paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company etc.regarding this, the Court added that “The condition is that such sum has to be paid for the purpose and to the extent provided by or under clause (iv) or clause (iva) or clause (v) of Sub-section(1) of Section 36 of the Income Tax Act, 1961. However, we are here concerned with the payment of bonus which is not covered by any of the aforesaid clauses of sub-section (1) of Section 36 but is allowable as deduction under clause (ii) of sub-section (1) of Section 36. Therefore, Section 40A(9) of the Income Tax Act has no application. Insofar as the provisions of Section 43B are concerned, they are also not applicable inasmuch as clause (b) of Section 43B refers to the sum payable by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. Thus, this provision also does not mention about bonus. With this we come to the provisions of Section 36 which enumerate various kinds of expenses which are allowable as deduction while computing the business income under Section 28 of the Act. The amount paid by way of bonus isone such expenditure which is allowable under clause (ii) of sub-section (1) of Section 36. There is no dispute that this amount was paid by the assessee to its employees within the stipulated time. Embargo specified under Section 43B or 40A(9) of the Income Ta Act does not come in the way of the assessee. Therefore, the High Court was wrong in disallowing this expenditure as deduction while computing the business income of the assessee and the decision of the ITAT was correct.”
Read the full text of the Judgment below.
The Finance Minster Shri Arun Jaitley in Para 90 of his Budget Speech 2016-17, had announced:
“A systemic vacuum exists with regard to bankruptcy situations in financial firms. A comprehensive Code on Resolution of Financial Firms will be introduced as a Bill in the Parliament during 2016-17. This Code will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. This Code, together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for our economy”.
Pursuant to the above budget announcement, a Committee was set-up under the Chairmanship of Shri Ajay Tyagi, Additional Secretary, Department of Economic Affairs, Ministry of Finance on 15th March 2016 with representatives from the Ministry of Finance, the financial sector regulatory authorities and the Deposit Insurance and Credit Guarantee Corporation with instructions to submit a Report and a draft Code.
The Committee has submitted its Report and a Draft Bill known as ‘The Financial Resolution and Deposit Insurance Bill, 2016’. A copy of the Report of the Committee and the Draft Bill along with an explanatory note explaining the key legal provisions of the Bill .
All stakeholders concerned / public are requested to forward comments / suggestions that they may wish to submit on the Draft Bill by 14th October 2016 by e-mail to > parveen.k63@gov.in < or in hard copy to Shri Parveen Kumar, Under Secretary (FSLRC), Department of Economic Affairs, Ministry of Finance, Room No. 48, North Block, New Delhi-110001. The decision of the Government with respect to the Report and the Draft Bill will be taken later after receipt of public / stakeholders comments and after following due procedure thereafter.
Read the full text of the bill below.
In an instruction (No.9 of 2016, dated 27th Sep 2016) issued by the Central Board of Direct Taxes (CBDT), clarified the ambiguities regarding the method of computing the undisclosed income in case of cash sales of a capital asset before June 1st, 2016.
The present circular expels all the confusion among the taxpayers regarding the method to be followed in determining the amount of undisclosed income required to be declared in case of capital asset acquired out of undisclosed income is sold before 01.06.2016 and the sale proceeds so received are held in cash.
In the above context, the CBDT clarified that the method for arriving at the amount of undisclosed income for a declaration under the Scheme is not in accordance with the provisions of the Act, but with the provisions of the Scheme and clarificatory circulars issued by the Board from time-to-time.
The Board also reiterated the provisions contained in section 183(2) of the Scheme that where the income chargeable to tax is represented in the form of investment in any asset, the fair market value of such asset as on 01.06.2016 shall be deemed to be the undisclosed income for the purposes of the Scheme. In this context, it may be noted that cash in hand is an asset for the purposes of the Scheme.
Read the full text of the instructions below.
The Supreme Court of India recently stayed Delhi High Court verdict declaring Empowering Officers from CAG to conduct Audit of Service Tax Assessee is ulra vires to Finance Act.
On 3rd June 2016, the division of bench of Delhi High Court declared that, Rule 5A(2) as amended in terms of Notification No. 23/2014- Service Tax dated 5 th December 2014 of the Central Government, to the extent that it authorises the officers of the Service Tax Department, the audit party deputed by a Commissioner or the CAG to seek production of the documents mentioned therein on demand is ultra vires to the Finance Act, 1994.
The Delhi High Court ruled that, “Rule 5A(2) exceeds the scope of the provisions under the Finance Act. This is the result whether Rule 5A(2) is tested vis-a-vis Section 72A of the FA which pertains to special audit or Section 72 which pertains to assessment or Section 73 which pertains to adjudication or even Section 82 which relates to searches. Under the garb of the rule making power, the Central Government cannot arrogate to itself powers which were not contemplated to be given it by the Parliament when it enacted the FA. This is an instance of the Executive using the rule making power to give itself powers which are far in excess of what was delegated to it by the Parliament”. The Court also observed that, Section 94(2)(k) does not permit the exercise of audit to be undertaken by an officer of the Department, the attempt in the circular to recognise such powers in the officers of the Central Excise and Service Tax Departments is held to be ultra vires the FA and, therefore, legally unsustainable. The bench also held that, the expression verify in Section 94 (2) (k) of the FA cannot be construed as audit of the accounts of an Assessee and, therefore, Rule 5A(2) cannot be sustained with reference to Section 94(2)(k) of the FA.
While issuing notice, the bench comprising of Justice Madan B Lokur and Justice D Y Chandrachud granted stay of the operation of the impugned judgment.
Read the full text of the order below.
The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has approved ‘Project SAKSHAM’, a New Indirect Tax Network (Systems Integration) of the Central Board of Excise and Customs (CBEC).
The total project cost involved is Rs.2256 crore which will be incurred over a period of seven years.
It will help in:
• implementation of Goods and Services Tax (GST),
• extension of the Indian Customs Single Window Interface for Facilitating Trade (SWIFT) and
• other taxpayer-friendly initiatives under Digital India and Ease of Doing Business of Central Board of Excise and Customs.
The implementation strategy for the project will be to ensure readiness of CBEC’s IT systems by April, 1, 2017, when GST is to be introduced. The upgrade of the IT systems will be carried out while keeping the existing Tax-payer services running.
All Taxpayers/lmporters/Exporters/Dealers under various indirect tax laws administered by CBEC- presently about 36 lakhs, likely to go up to over 65 lakhs after introduction of GST.
CBEC’s IT systems need to integrate with the Goods & Services Tax Network (GSTN) for processing of registration, payment and returns data sent by GSTN systems to CBEC, as well as act as a front-end for other modules like Audit, Appeal, Investigation. There is no overlap in the GST-related systems of CBEC and GSTN.
This IT infrastructure is also urgently required for continuation of CBEC’s e-Services in Customs, Central Excise & Service Tax, implementation of tax¬payer services such as scanned document upload facility, extension of Indian Customs Single Window Interface for Facilitating Trade (SWIFT) initiative and integration with Government initiatives such as E-Nivesh, E-Taal, e-Sign.
Background:
Introduction of GST will result in a several-fold increase in the number of taxpayers and resultant document load on the system. CBEC’s current IT system was set up in 2008. It cannot cater to the increased load under GST without an immediate upgrade of its IT Infrastructure. Further, CBEC has implemented the Indian Customs Single Window Interface for Facilitating Trade (SWIFT) and is integrating other partner agencies involved in Customs clearance in order to make the process simple and fast. The Customs EDI system which is currently operational at about 140 locations in India has to be extended to many more locations with improved response time and better service delivery. Taxpayers have to be given a facility for Upload of Digitally Signed Scanned Documents in order to reduce the physical interface with tax authorities and to increase the speed of clearance. CBEC also aims to introduce mobile services for taxpayers and departmental users to increase the outreach of its services.
In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal observed that the cash payments made to the whole sale vendors because of business exigencies cannot be disallowed by invoking section 40(3) of the Income Tax Act, 1961. In the opinion of the Tribunal, application of s.40(3) is subject to the peculiarity of Business and the genuineness of the transaction.
In the instant case, the assessing officer disallowed the cash payments made by the assessee to the wholesale vendors. It was found that, the assessee is engaged in the business of selling wines and alcoholic beverages across the counter. The assessee purchase goods form the wholesale vendors, and usually, the payments are made through cheques. In relevant assessment year, the assessing officer found that certain payments were made through cash. The assessee maintained that the same was due to business exigencies. However, both the lower authorities rejected this contention and passed order making additions to the total income of the assessee.
When the matter was brought before the Tribunal through second appeal, the tribunal accepted these contentions and found that the assessee made this transaction in order to ensure the regular supply of certain brands having higher demand among the consumers. A deep study of the facts further transpired that the transactions were genuine. It was also found that all these payments were made on Saturday and Sunday when the banks were closed.The Tribunal opined that merely because entry in the books were shown in the next date, fact of payment having been made on Saturday and Sunday when the banks remain closed, cannot be denied.
In the light of various judicial pronouncements, the Tribunal deleted the additions made by the lower authorities by holding that the impugned orders are not sustainable in view of the peculiarity of the business and the genuineness of the payments.
Read the full text of the order below.
While confirming the order of Clarification dated 05.11.2012 passed by the Department of Commercial Taxes, the single bench of the Kerala High Court held that T5 fluorescent lamps are exigible at 13.5% of VAT.
The appellants, in the present case, challenged the Clarification issued by the Department of Commercial Taxes, Kerala which imposes 13.5% of VAT on T5 fluorescent lamps by rejecting the contention of the appellant that the said goods ought to be treated on a par with Compact Fluorescent Lamps (CFL), the Department has held that they cannot be brought under entry 28A of the III Schedule to the Act, under which CFL has been categorized.
Before the Court, the appellants contended that the T5 fluorescent lamp has not been assigned any specific HSN number are ought to be classified along with CFL, especially because they both are technically and functionally the same. Therefore, the goods are liable to be taxed at 5%.
The division bench comprising of Justice Antony Dominic and Justice Dama Seshadiri Naidu by confirming the Clarification order, the Court held that “As seen, entry 28A of the III Schedule to the Act has specified only CFL without a HSN number. First, we are prepared to accept that T5 fluorescent lamp and CFL work with the same technology. But we find it difficult to accept that both the products are the same. It is not the case of even the very appellant either. After examining the samples of both the products—T5 fluorescent lamp and CFL—produced by the learned counsel on either side, we find that the products have their descriptions distinctly printed on the cartons. To elaborate, we may observe that the carton of T5 fluorescent lamp has nowhere mentioned that it is a CFL. As has been rightly contended by the learned Government Pleader, even in common parlance it is difficult to liken a T5 fluorescent lamp with a CFL, both of which are functionally different and distinct.
Read the full text of the Judgment below.
Kerala HC confirms 5% VAT on printed photographs in book form.
While confirming the tax rate of 5% on printed photographs in book form, the Kerala High Court observed that, the assessee cannot be deprived of his right to take a contention based on a Clarification issued by the Commissioner solely on ground that the offence has been compounded by them. The Court was considering a writ petition filed by the assessee challenging levy of 14.5% of VAT on the goods such as printed photographs in book form.
The petitioner, by relying upon the Clarification issued by the Commissioner in the matter relating to M/s. Colortone Process Pvt. Ltd, maintained that the above goods has to be taxed only at the rate of 5% by virtue of entry 100(5) of the third schedule to the Act.The grievance of the petitioners was that when they raised such an argument during the time of proceedings, the officer rejected it by pointing out that when the penalty proceedings alleging 14.5% tax on the said goods were initiated against the petitioners,they compounded offence. The petitioners urged that, they were unaware about the Clarification at the time of compounding the offence.When they came to know about the Clarification issued, they filed a rectification application seeking refund of the amount paid, which is currently pending before the authorities.
While quashing the order passed against the petitioners, the Single bench of Justice A.M Shaffique held that “though the learned Government Pleader supports the stand taken by the Officer, it is apparent that when a clarification had been issued under Section 94 of the Act, the Officer is bound to comply with the same. Merely for the reason that the petitioner had submitted an application for compounding which had been allowed, does not deprive the right of the petitioner to take a contention based on a clarification issued by the Commissioner. Under such circumstances, the Assessing Officer had committed serious error of law in coming to the aforesaid finding and for that reason itself, the impugned order is liable to be set aside”
Read the full text of the Judgment below.
The Supreme Court of India today stayed Delhi High Court verdict declaring arrest of service tax Makemytrip Officials without Show Cause Notice (SCN) is Unconstitutional.
The bench comprising of Justice J S Khehar and Justice also restrained Service Tax department to not to take any coercive action against Makemytrip and two other companies.
On 1st September 2016, The division bench of Delhi High Court has quashed arrest of senior official of MakeMyTrip, Ibibo group and Ebiz for alleged service tax evasion and held that, Arrest by Directorate General of Central Excise Intelligence (DGCEI) without show cause notice (SCN) is unconstitutional and legally unsustainable. The Court also directed that, DGCEI to refund Rs. 70 crore to each of the Petitioners, i.e makemyTrip, Ibibi and Ebiz.
In order to facilitate the declarants who would like to file the declaration in paper form under the Income Declaration Scheme, 2016, the Central Board of Direct Taxes (CBDT) has 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.
Declarations can also be made online as well as in printed copies of the prescribed form upto midnight on 30th September, 2016.
Accordingly, the counters for receiving declarations under the Income Declaration Scheme – 2016 shall be functional till 12:00 midnight on 30th September, 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.
The Revenue Secretary, Dr. Hasmukh Adhia said, “Expectations are raised that looking to the enthusiasm of people for making IDS declaration, the date for IDS would be extended. We want to make it very clear that the last date for Income Declaration Scheme will not be extended. We therefore appeal to people to file their declarations in time before 30th September”.
1/3 Expectations are raised that looking to the enthusiasm of people for making IDS declaration, the date for IDS would be extended.
— Dr Hasmukh Adhia (@adhia03) September 23, 2016
2/3 We want to make it very clear that the last date for Income Declaration Scheme will not be extended.
— Dr Hasmukh Adhia (@adhia03) September 23, 2016
3/3 We therefore appeal to people to file their declarations in time before 30th September.
— Dr Hasmukh Adhia (@adhia03) September 23, 2016
Recently, while allowing expenditure on account of Interest & administrative expenses incurred by the assessee in connection with their project, the ITAT Mumbai bench held that such expenses are allowable as deduction under section 37(1) of the Income Tax Act.
The assessee-company is a builder, who approached the Appellate Tribunal challenging the assessment order disallowing the amount spent by them on account of Interest on term loan/unsecured loan, Advertisement expenses, Brokerage, Loan processing fees etc, in connection with a project.The assessee claimed that they usually follow the percentage method for computing cost of the project. In the present case also they followed the percentage computation method.Therefore, the Assessing officer has erred in disallowing the claim of the assessee. The CIT(A) further confirmed the impugned order on appeal.
The Tribunal accepted the fact that the assessee is following the percentage method for years. The Tribunal found that there are number of case laws supporting the submission that the assessee is entitled to get deduction in respect of interest deduction relatable to the capital borrowed and utilized for business purpose. Since it is settled position of law, the Tribunal allowed interest expenditure to the assessee.
Regarding the other expenditure, the Tribunal noted that “the advertisement expenses is an allowable expenditure in the year of spending as the same is the nature of selling cost of the construction business. Considering the same, we are of the view that the finding of the Assessing Officer and the decision of the CIT(Appeals) on this issue is required to be reversed and allow the same in favour of the assessee. Regarding other claim of expenditure on account of brokerage and loan processing fee, we find the said claims should be allowed in favour of the assessee as they are otherwise found allowable under section 37(1) of the Income Tax Act. In our view, these expenses constitute some kind of administrative expenses. The said administrative expenses are allowable as they are relatable to the business activities of the assessee.”
Read the full text of the order below.
The services by way of advancement of yoga are now out of the scope of service tax. In a recent notification, the Central Board of Excise and Customs (CBEC) has removed the service tax liability upon such services provided by an entity registered under section 12AA of the Income Tax Act retrospectively.
The exemption is granted to services rendered during the period 1.07.2012 to 20.10.2015.
Read the full text of the notification below.
The Central Board of Excise and Customs (CBEC) has published three GST draft rules and formats relating to registration, invoice and payments.
The Board invites comments on draft rules from the public by Wednesday i.e 28th September 2016.
As per the rules, on-line registration facility has been allowed to all assesses including residents. The residents can obtain registration within three days of application. Non-residents who are covered by the GST shall apply for registration before 5 days of commencement of business and shall pay the entire tax liability in advance.
As per the draft rules, if no action has been taken by the department on receipt of the registration application within the prescribed time, the application for grant of registration shall be deemed to have been approved.
The draft rules provides that, the applicant seeking registration should submit PAN, mobile number, email address on the common portal or through a facilitation centre. The verification of the said details can be done by the authorities by using the PAN, one time password and Aadhaar number etc. of the applicant.
In case of any defects, the same has to be intimated to the applicant within three working days and after receiving clarification, the registration will be granted to him within 7 days from the date for receiving of reply.
The draft norms further provides for grant of separate registration for business verticals of the same organisation.
The rules also provide for suo moto registration of person who are liable but have failed to apply for registration. The rules also provide for physical verification of business premises after grant of registration.
The first meeting of the GST council was held on Friday in which the Council has fixed the threshold limit of 20 lakhs in case of businesses all over India. The next meeting has been scheduled to coming Friday for finalizing the draft rules on GST rate, rules on granting exemption and tax slabs.
Read the full text of the draft rules below.
In a recent ruling, the Delhi bench of Income Tax Appellate Tribunal observed that the interest income and rental income received by a Club is taxable from the hands of such Club since the said income would fall within the ambit of mutuality under the relevant provisions of the Income Tax Act, 1961.
While confirming the assessment order imposing tax liability on the assessee the Tribunal placed reliance on the Apex Court decision in Bankipur Club Ltd.
The assessee, in the instant case is a sports and cultural club which is registered u/s 12A(a) of the Income Tax Act. The return filed by the assessee declaring loss for the relevant year was initially accepted by the Department. Subsequently, the Department initiated re-assessment proceedings and held that the assessee being a mutual benefit organization, was not entitled for exemption u/s 11 in respect of interest income and rental income.on appeal, the CIT(A) enhanced the addition by holding that that gross receipts as well as contribution to the corpus fund both are taxable.Being aggrieved, the assessee approached the Tribunal.
It was observed by the Tribunal that “It is undisputed that the receipt, other than the interest income and rental income, is from the members of the club and, therefore,would fall within the ambit of mutuality as defined by Hon’ble Apex Court in the case of Bankipur Club Ltd. (supra). The Assessing Officer had also accepted that the assessee club is entitled to benefit of mutuality. In our opinion, the view taken by the Assessing Officer is well –supported by the decision of Hon’ble Apex Court in the case of Bankipur Club Ltd. (supra), Chelmsford Club (supra) as well as Bangalore Club (supra). Therefore, on this point, we reverse the order of learned CIT(A) and restore that of the Assessing Officer i.e., all receipts of the assessee club except receipt from interest as well as rent is out of the purview of taxation on account of the doctrine of mutuality. Insofar as interest income and rental income are concerned, we, respectfully following the decision of Hon’ble Apex Court in the case of Bangalore Club (supra), hold that the same cannot be said to be governed by the concept of mutuality because the receipt is not from the members of the club. Accordingly, the assessment of these two incomes in the hands of the assessee is upheld.”
Read the full text of the order below.
The Kolkata bench of the Income Tax Appellate Tribunal, recently ruled that the demurrage charges and penalty charges paid by a contractor to the Companies for violation of the contractual terms are allowable as deduction under section 37(1) of the Income Tax Act, 1961. Earlier, the assessing Officer had disallowed the said expenditure by holding that the payments are penal in nature.
The assessee, in the instant case was a contractor, who made payments to the Steel Authority of India and Central Coalfields Limited, on account of demurrage charges and penalty charges for breach of the contractual terms entered with these companies. While filing return, the assessee claimed deduction under the provisions of the Income Tax Act, which was disallowed by the assessing authority for the reason that the said payment is penal in nature and therefore, deduction under section 37(1) cannot be allowed.On appeal, the CIT(A) deleted the addition. Hence, the Revenue preferred an appeal before the Tribunal.
The sole issue to be resolved by the Tribunal was that whether demurrage charges and penalty charges imposed by Steel Authority of India Ltd and Central Coal Fields Ltd, are liable to be disallowed or not.
The Tribunal noted the fact that the assessee is contractually bound by the Steel Authority of India, and Central Coalfields Limited to act in various capacities. The demurrage arose out of the failure of the assessee to complete the work within the prescribed time allotted by the principal of the contractees and the same was deducted from the payments made to the contractees of the assessee who, in turn, deducted the same from the payments made to the assessee. In the opinion of the Tribunal, such imposition of demurrage charges is usual in this line of business and therefore, there is no infringement of any law, the failure of which has led to the instant imposition of demurrage but merely due to inability to comply with certain terms of the contract, the levy was imposed.
While allowing the contentions of the assessee, the Tribunal observed that “The statutory prescription contained in the Explanation along with the provisions of sec. 37(1) Act prohibits deduction of expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law as being opposed to public policy. In the instant case, incurring of the expenditure on demurrage and claiming the same as an expense was not for an offence nor prohibited by law as being opposed to public policy.
In the instant case, there was a specific requirement to complete the work in time and a clause for imposing punitive charges was included for any default. These rights and obligations arose in course of carrying on of the business of the respondent. Therefore, this payment made under a contractual obligation is to be allowed u/s. 37(1) of the Act.”
“We find that the payments in the form of punitive charges made by the assessee could under no circumstances be regarded as illegal payments or payments which were opposed to public policy. We find that as long as the payment made is not by way of default on account of infraction of any law and / or opposed to public policy, the same would be allowable as deduction. We hold that in the instant case, the punitive charges paid are only compensatory in nature pursuant to the contractual obligation which is directly connected or intrinsically related with the carrying on of its business which unequivocally qualifies as an allowable deduction u/s 37(1) of the Act. It is well settled that the nomenclature used in any provision of law to describe any payment, to be made by any person, as interest, compensation, penalty , etc is not conclusive. It is incumbent on the part of the authorities to construe the provisions as a whole to find out the true nature of the impost sought to be levied. In certain cases, the impost may be composite comprising of element of compensatory nature as well as penalty nature.”
Read the full text of the order below.
In a recent ruling, the Income Tax Appellate Tribunal, Kolkata bench has observed that, under the relevant provisions of the Income Tax Act, 1961, the Commissioner of Income Tax has limited power to examine that whether or not the objects of trust are charitable in nature, while granting the registration to the Trust, which is at the commencement stage.
Coming to the facts of the case, the assessee-trust was formed with the object of carrying out educational activities in the field of medical, engineering and such other streams. The assessee filed an application before the CIT (Exemptions), Kolkata seeking registration under 12AA of the Income Tax Act. The application was rejected by the authority on ground that the activities of the Trust were found to be bare minimum to justify the claim of Registration under section 12AA of the Income Tax Act.
The assessee could not secure any relief from the Commissioner of income Tax (Appeals) and therefore, the matter was brought before the Tribunal on second appeal.
While directing the authority to grant exemption to the assessee, the Tribunal relied upon the decision of the Delhi bench in the case of Dharma Sansthapak Sangh (Nivas) –vs. – CIT. in which it was observed that “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.A similar view was taken by the other benches of ITAT following the above decision.
Read the full text of the order below.
The division bench of the Bombay High Court, in a recent decision, held that the amount spent on issue of shares to Indian public is “capital expenditure” and therefore, deduction in respect of the same cannot be allowed under the provisions of the Income Tax Act, 1961.
The division bench comprising of Justice M S Sanklecha and Justice S C Gupte further observed that the interest earned on share application money is liable to be adjusted towards the expenditure incurred for raising share capital.
The Assessee-Company, in the instant case, had expanded their business for which they obtained the industrial licence for manufacture of Sodium Tri Poly Phosphate. The license was granted to the assessee on a condition of diluting foreign equity shares on it. In order fulfill the condition, the assessee issued its shares to the Indian public. While filing returns, the assessee claimed an expenditure of Rs.33.74 lakhs which was incurred by them while issuing shares. However, the AO completed the assessment by disallowing the said expenses by treating the same as capital expenditure since the expenditure was for issue of additional share capital.
The assessee maintained that expenditure should be allowed as it is an expense incurred with the object of carrying on its business to increase its profitability, in view of conditional license granted to it.While accepting these contentions, the CIT(A) allowed the appeal by pointing out that the issue of shares for diluting the foreign share holding was issued as per the Government of India’s directions and failure to do so would have resulted in stopping its expansion / diversification programme affecting its business. However, the Tribunal on appeal preferred by the assessee held that the said expenditure amounts to capital in nature. Further, it was held that the interest earned on share application money is taxable under the head “income from other sources.”
Thereafter, the Tribunal posed two substantial questions of law before the High Court on Reference. Firstly, whether the said expenditure is revenue in nature? Secondly,whether the interest earned on share application money is taxable under the head “income from other sources”?
Regarding the first issue, the Court noticed that in the case Kodak India Ltd., the Supreme Court held that the expenses incurred in connection with issue of public shares to Indian public even when the issue of shares was done to comply with the directions of the Reserve Bank of India (RBI) was in the nature of capital. Applying the above ratio to the facts of the present case, the Court confirmed the findings of the Tribunal.
While deciding the taxability of whether the interest earned on share application money, the Court referred the decision of the Gujarat High Court in Commissioner of Income Tax v/s. Shree Rama Multi Tech Ltd, in which it was held that the Assessee was statutorily required to keep the share application money in a separate account, till the allotment of shares is completed. Therefore, interest earned on such separately kept amount was adjustable towards the expenditure incurred for raising share capital.Accordingly, the issue was decided in favour of the assessee.
Read the full text of the Judgment below.
The Mumbai bench of the Income Tax Appellate Tribunal, in a recent ruling, held that the income from mall operations shall be assessed under the head “Business Income” under the provisions of the Income Tax Act, 1961. While accepting the contentions raised by the assessee, the Tribunal observed that the said income cannot be treated as “income from house property” since the object of the assessee was to derive income from running and maintaining the shopping mall.
The assessee-company in the instant case, has filed their income tax returns by admitting their income from Mall operations under the head “business income.”However, the Assessing Officer completed the assessment by treating the same as “income from house property.”On appeal, the Commissioner of Income Tax (Appeals) has sustained the assessment order. Being aggrieved, the assessee preferred an appeal before the Appellate Tribunal.
The Tribunal noticed the recent Apex Court decision in M/s. Rayala Corporation Pvt. Ltd, and held that the impugned income would come under the ambit of “business income” as pointed out by the assessee. The Tribunal further noted the fact that the assessee has constructed a shopping mall as per its objects for which it was incorporated and has derived income from running and maintaining the shopping mall. The activities carried on by the assessee, would show that the assessee is carrying on the activities as its trading/commercial activity.
The Tribunal further relied upon the decision of the Kolkata Bench in the case PFH Mall & Retail management Vs. ITO, in which it was held that income from Mall operation is assessable as business income, since various services & facilities as well as other amenities similar to company’s operations are provided by the assessee.
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While adopting a liberal approach in interpreting the term “reasonable cause”under section 271D and 271E of the Income Tax act, 1961, the ITAT, Pune bench held that penalty under these provisions cannot be levied since the genuineness of the transaction was roved before the authorities. The Tribunal was considering an appeal filed by a woman entrepreneur challenging the order of the first appellate authority who confirmed the penalty order passed against her alleging violation of sections 269SS and 269T of the Income Tax Act, 1961.
In the instant case, penalty for violation of sections 269SS and 269T of the Act was charged against the assessee,on ground that she made cash transactions with her close relatives. The assessee maintained that the penalty proposals should be dropped since the transactions were genuine. It was further submitted that the said payments and repayments were neither the loans nor advances but these were debts. The Addl CIT, without considering the above contentions, passed the penalty order. The CIT(A) confirmed the order on appeal. Thus, the assessee approached the Tribunal challenging the order.
Before the tribunal, the assessee contended that she has taken the money incash from her husband and mother-in-law due to business exigency and has repaid the same in cash.The same was done in bonafide belief and therefore, no penalty can be attributed.
The Tribunal considered the fact that the genuineness of the transaction has not been doubted by the Department.Further the Tribunal noticed the decisions of the Punjab & Haryana Court in the cases Sunil Kumar Goel and in Saini Medical Store. In both these decisions, the High Court observed that penalty under section 271cannot be levied if the assessee proves that there was a reasonable cause for such act which resulted in the violation of the said provisions.
Diving deeply into the facts of the case, the Tribunal found that the assessee had taken cash loan from her husband and mother-in-law which has been repaid in cash and there is no repeated transactions and the assessee has explained the reasonable cause for accepting such loans and repayment thereof in cash. On the basis of this finding, the Tribunal opined that the expression “reasonable cause” in section 273B for imposition of penalty u/s.271D and 271E is needed to be construed liberally. Resultantly, the penalty orders were deleted.
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In a recent decision, the High Court of Madras expressed a view that an Order remanding the matter for fresh consideration can be relied upon while completing assessment. The Court was considering a writ petition filed against an order passed under the provisions of the Tamil Nadu Value Added Tax Act.
The petitioners in the present case, has preferred the present petition challenging the order of the Deputy Commissioner (CT). The order says that on scrutiny of the monthly returns of the petitioner, it is revealed that the petitioner have made interstate sales against Form-C at 2%, but they have not made input tax credit (ITC) reversal under Section 19 (2) (v) of the TNVAT Act. The petitioners maintained that the amendment under Section 19 (2) (v) of the Act covers the goods falling under Section 19 (2) (v) relating to goods used for trading purpose in the course of interstate commerce and trade, and that, VAT purchases by the petitioner’s Factory falls under Section 19(2) (v), which is used as input, in manufacturing of goods in the State of Tamil Nadu. Therefore, the petitioner stated that the figures adopted in pre-revision notices does not fall under Section 19 (2) (v) of the Act, and as per the existing provisions of the amendment, the ITC reversal workings as made in the pre revision notices are not applicable to the petitioner. Further, the petitioner further referred the order passed by the same Court, in the case of Lucas Tvt. Ltd., Vs. State of Tamil Nadu in support of their contentions. The Officer refused to accept the findings of the Court made in the said case, by pointing out that it is only a remand order.
While quashing the impugned order, the Court observed that “The Authority ought to have seen that as to what was the purpose of the remand, and merely because, it was an order, remanding the matter for fresh consideration, it does not mean that, it cannot be relied upon.” Accordingly, the matter was remanded to the assessing authority for fresh consideration.
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