In a recent order of Madras High Court has held that, the Deputy Commercial Tax Officer does not have jurisdiction to cancel eligibility certificate under the Sales Tax waiver scheme.
The petitioner M/s.Padmashri Oil Refineries Pvt. Ltd., is a registered dealer under the provisions of the Tamil Nadu General Sales Tax Act, 1959, and Central Sales Tax Act, 1956.
The petitioner was granted an eligibility certificate under the Sales Tax Waiver Scheme, by a Certificate, dated 14.05.1999, by the Industries Department. By virtue of the said certificate, the petitioner was entitled for waiver of sales tax, for the sum, not exceeding Rs.80,41,000/, for the period of five years, from the month in which the petitioner’s unit commenced its commercial production, i.e., from 06.08.1998 to 05.08.2003.
The petitioner-industry was established for manufacturing of refined oil from kernals with oil coke and soap stocks. Pursuant to the eligibility certificate granted to the petitioner, the Assessing Officer, namely, the second respondent passed a consequential order on 11.02.2000, permitting the petitioner to avail the waiver of sales tax to a sum of Rs.80,41,000/-, for five years from 06.08.1998 to 05.08.2003, as per the conditions prescribed therein.
The petitioner was unable to procure sufficient quantity of kernals / seeds, as a result of which without raw material, they could not undertake manufacturing process to manufacture edible oil. Therefore, they approached the Industries Department to amend the Eligibility Certificate, requesting them to manufacture edible oil for kernals / seeds as well as Refined edible oils from seed / crude oil, like, sunflower, soya and palmolein etc., and bye-products as well as oil and oil cake and oil waste muddy (soap stock). This request made by the petitioner was accepted by the Industries and Commerce Department and Eligibility Certificate, issued on 14.05.1999, was amended.
The petitioner, thus, effected, import of crude oil, palmolein and sunflower oil, from Malaysia and had been effecting manufacture of edible oil. At that juncture, a notice was issued by the first respondent, on 24.07.2002, stating that the petitioner has reported the sales turnover of the refined sunflower oil and RBD Palmolein oil, liable to be taxed at 4%, from 2001-02 and 2002-03. Further, they have not paid the tax. On a perusal of the Eligibility Certificate, it revealed that the petitioner was granted waiver of sales tax and sales of oil cake manufacture, out of kernals / seeds soap cakes only.
Therefore, the Deputy Commercial Tax Officer proposed to deny the benefit of waiver to the petitioner.
While quashing the notice of Tax department, Justice T.S.Sivagnanam observed that, “the petitioner’s Eligibility Certificate has been amended and the Eligibility Certificate has not been cancelled or declared as null and void by the respondents, who are Sales Tax Authorities. As long as the petitioner’s Amended Eligibility Certificate, dated 28.08.2002, is valid and not been cancelled by the competent authority, the petitioner is entitled to the benefit of waiver scheme. If that is the legal position, then, obviously, the respondents could not have assessed the petitioner to tax, ignoring the said Eligibility Certificate”.
The Court also noted that, no record is being placed before this Court, by the respondents, to show that the amended Eligibility Certificate, dated 28.08.2002, has been either modified, cancelled or amended further by the competent authority and the respondents have no jurisdiction to cancel such eligibility certificate.
Read the full of the order below.
In a circular (200/10/2016) dated 6th September 2016, the Central Board of Excise and Customs (CBEC) has clarified the scope of Notification No. 25/2012-Service Tax dated 20.06.2012, SI. No. 5(a).
The said notification exempted services by way of renting of precincts of a religious place meant for general public owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961, or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the Income-Tax Act.
The notification also defined the term ‘Religious Place’, means a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation or spirituality.
According to the notification the term `General Public’ means the body of people at large, sufficiently defined by some common quality of public or impersonal nature. `Renting’ has been defined in the Finance Act, 1994 as allowing, permitting or granting access, entry, occupation, use or any such facility, in any immovable property, with or without the transfer of possession or control of the said immovable property. However, the word ‘precincts’ appearing in the notification has not been defined and this gives rise to difficulty/ disputes in interpreting scope of the said exemption notification.
The notification also relied recent orders of Income Tax Appellate Tribunal and clarified that, in the case of CCE, Mangalore Vs. Dakshina Kannada Mogaveera Mahajana Sangha [2010(17) S.T.R. 258 (Tri.- Bang.)]., involving identical issue, CESTAT, Bangalore held after perusing the photographs of the temple complex that since the entire temple complex and marriage hall were enclosed by a boundary wall, the marriage hall was within the precincts of the temple and thus eligible for benefit of Notification No. 14/2003-Service Tax.
The Supreme Court has also held in the context of Notification No. 63/1995‑Central Excise dated 16.03.1995, in the case of South Eastern Coalfield Ltd. vs Commissioner of Customs and Central Excise, Madhya Pradesh[2006(200) E.L.T. 357 (S.C.)] that the word ‘precincts’ has to be given the broader meaning and not the narrower meaning. The word ‘precinct’ in the exemption notification No. 63/1995-Central Excise dated 16.03.1995 was interpreted by the Hon’ble Apex Court to mean the surrounding region or area. as defined in Collins English Dictionary or the surroundings or environs of a place as defined in the New Shorter Oxford English Dictionary.
In view of the above, field formations may not take a restricted view of the word ‘precincts’ and consider all immovable property of the religious place located within the outer boundary walls of the complex (of buildings and facilities) in which the religious place is located, as being located in the precincts of the religious place. The immovable property located in the immediate vicinity and surrounding of the religious place and owned by the religious place or under the same management as the religious place, may be considered as being located in the precincts of the religious place and extended the benefit of exemption under Notification No. 25/2012-Service Tax, SI. No. 5(a) dated 20.6.2012, the notification also said.
Read the full text of the notification below.
In a recent Judgment of Kerala High Court has upheld the Single bench decision that, Income Tax or Stamp duty shall not be levied on compensation for Land Acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
While upholding Single bench judgment of Kerala High Court, the division bench comprising of Acting Chief Justice Mohan M. Shantanagoudar and Justice Thottathil B Radhakrishnan observed that, the decision of Single Judge is just and proper in as much as Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 clearly discloses that no income tax or stamp duty shall be levied on any award or agreement made under this Act, except under Section 46. It is not in dispute that Section 46 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is not applicable to the facts of this case. Hence, it is amply clear that as per Section 96 of the Act, 2013, exemption is provided from levying income tax and stamp duty.
While dismissing the appeal, the Court also relied on S.Sreekumar vs The District Collector has already concluded that income tax is not liable to be deducted from the compensation payable to similarly placed persons. The bench also allowed the writ petitions directing the authorities to pay compensation to the petitioners, without deducting any amount towards income tax or stamp duty.
Read the full text of the Judgment below.
Bitumen emulsion falls under residuary entry of Value Added Tax Act; Supreme Court upholds Allahabad HC order.
The two judge bench of Supreme Court of India today dismissed revenue’s appeal against Allahabad High Court order allowing 4% Tax for ‘Bitumen Emulsion’ under Serial no. 22 Part A of Schedule II to the Value Added Tax (VAT) Act.
The respondent manufactures ‘bitumen emulsion’ filed an application before the Commissioner, Commercial Taxes, Lucknow, U.P. under Section 59 of the VAT Act seeking a clarification about the rate of tax applicable to the sales of bitumen emulsion. The Commissioner of Commercial Taxes, vide order dated 23.1.1999 opined that bitumen emulsion is an unclassified commodity and, therefore, is excisable to tax at the rate of 12.5% as it would fall under the residuary Entry.
While upholding the Allahabad High Court order, the bench comprising of Justice Dipak Misra and Justice P C Pant observed that, “a reading of the aforesaid definitions and the scientific text clearly reveal that bitumen in its original form is solid but melts when heated, for it is used in molten stage. There is no difficulty to appreciate that bitumen emulsion comes into existence when bitumen is treated with emulsifiers and other chemicals to attain a liquid form”.
The learned counsel for Revenue Pawan Shree Agarwal submitted that, the word “bitumen” must be conferred a narrow meaning for the reason that the legislature has not thought it appropriate to use the prefix or suffix like “all”, in all forms or of all kinds. It may be immediately clarified that bitumen is a generic expression which would include different types of bitumen.
While rejecting the revenue’s contentions, the observed that, “the nature and composition of the product or the good and the particular entity in the classification table is important. Matching of the good with the Entry or Entries in the Schedules is tested on the basis of identity of the goods in question with the Entry or the contesting entries and by applying the common parlance test, i.e., whether the goods as understood in commercial or business parlance are identical or similar to the description of the Entry. Where such similarity in popular sense of meaning exists, the generic entity would be construed as including the goods in question. Sometimes on certain circumstances the end use test, i.e., use of the good and its comparison with the Entry is applied”.
“The Entry in question uses the word “bitumen” without any further stipulation or qualification. Therefore, it would, in our opinion, include any product which shares the composition identity, and in common and commercial parlance is treated as bitumen and can be used as bitumen. When we apply the three tests, namely, identity, common parlance and end use to the goods and the Entry in question, bitumen emulsion would be covered by the Entry bitumen. It is worthy to note that bitumen emulsion matches the Entry as it is only one of the varieties of bitumen. Bitumen emulsion is processed bitumen, but the process has not changed its composition, commercial identity or its use. Bitumen emulsion is regarded and performs the same function as bitumen. As a result of processing, neither the primary character nor the composition is lost. Emulsification only eases and provides proficiency to the use of application of bitumen. Hence, in popular and commercial sense, bitumen emulsion is nothing but bitumen, which is in liquid form and is user friendly”.
It is perceivable that the legislature has used the word “bitumen” and treated it as a separate entity. As we notice, it has not indicated that this was done with the intention and purpose to exclude some type or variety of bitumen. All bitumen products, which share and have common composition and commercial entity, and meet the popular parlance test, is, therefore, meant to be covered by the said Entry. In the instant case, even the end use test is satisfied. There is nothing in the Entry to suggest and show that the Entry is required to be given a restrictive and a narrow meaning, the bench said.
Justice Dipak Misra and Justice P C Pant also noted that, there is a fallacy in the argument raised by the Revenue that bitumen per se would only include its solid hard form which melts at high temperature and not bitumen emulsion. The two varieties and types carry the same composition, do not differ in character and have the same commercial identity i.e. bitumen. That apart, the use or end use test is also satisfied.
Read the full text of the Judgment below.
An agreement on the expansion of India–Chile Preferential Trade Agreement (PTA) was signed between India and Chile in a meeting held between Ms. Rita Teaotia, Commerce Secretary and Mr. Andrés Barbé González, Ambassador, Embassy of Chile on 6th September, 2016.
A Preferential Trade Agreement (PTA) between India and Chile was earlier signed on March 8, 2006 and came into force with effect from August, 2007. In the original PTA concluded in March 2006, India’s offer list to Chile consisted of 178 tariff lines the Margin of Preference (MoP) ranging from 10%-50% at 8-digit level and Chile’s offer list to India consisted of 296 tariff lines with MoP ranging from 10% – 100% at 8-digit level.
Under the expanded PTA, Chile has offered concessions to India on 1798 tariff lines with Margin of Preference (MoP) ranging from 30%-100% and India has offered concessions to Chile on 1031 tariff lines at 8-digit level with MoP ranging from 10%-100%. India’s export basket with Chile is diversified and keeping in view the wide variety of tariff lines offered by Chile, the expanded PTA would immensely benefit India.
Among the LAC countries, Chile was the third largest trading partner of India during 2015-16. India‘s bilateral trade with Chile stood at US$ 2.64 billion with exports at US$ 0.68 billion and imports at US$ 1.96 billion respectively during 2015-16(P). India’s exports to Chile are diverse which consist of transport equipment, drugs and pharmaceuticals, yarn of polyester fibres, tyres and tubes, manufacture of metals, articles of apparel, organic/inorganic and agro chemicals, textiles, readymade garments, plastic goods, leather products, engineering goods, imitation jewellery, sports goods and handicrafts. Major items of Import from Chile are copper ore and concentrates, iodine, copper anodes, copper cathodes, molybdenum ores & concentrates, lithium carbonates & oxide, metal scrap, inorganic chemicals, pulp & waste paper, fruits & nuts excluding cashews, fertilizers and machinery.
India has friendly relations with Chile. Chile has been cooperating with India at the International fora and expansion of India Chile PTA will enhance the trade and economic relations between the two countries. The expansion would be an important landmark in India-Chile relations and consolidate the traditional fraternal relations that have existed between India and LAC countries.
The Mumbai bench of the Income Tax Appellate Tribunal recently ruled that the amount collected and paid to the government cannot be included to the total income of the assesse for the purpose of computing presumptive tax under section 44B of the Income Tax Act, 1961 since the said amount does not have any element of income. The Tribunal further observed that the said amount, therefore,cannot be included in the gross receipts of the assesse.
In the present case, the assesse filed an appeal before the Tribunal challenging the assessment order in which the assessing officer, for the purpose of determining the presumptive income under section 44B of the Act, included the payment made by the assesse in respect of service tax to the government. The assesse submitted that the issue has been considered and allowed in favour of the assessee by the decisions of Coordinate Bench of the same Tribunal in assessee’s own case for the earlier assessment years.
The Tribunal noticed that the Delhi High Court, in the case Director of Income Tax-I vs. Mitchell Drilling International (P) Ltd, held that for the purpose of computing the presumptive income of the assessee under section 44BB of the Act, the service tax collected by the assessee on the amount paid for rendering services is not to be included in the gross receipts.
Referring to the above judgment along with the decision of the co-ordinate bench, the Tribunal held that the amount of service tax cannot be included for the purpose of computing the ‘presumptive income’ of the assessee under section 44BB of the Act, since service tax collected by the assessee does not have any element of income. The Tribunal opined that the same cannot form part of the gross receipts and consequently directed to delete the addition made in this regard by the authorities below.
Read the full text of the Judgment below.
The Kolkata bench of the Income Tax Appellate Tribunal recently held that the delay in filing appeal can be condoned if the delay was occurred due to non-availability of a proper professional advice. Accordingly, the Tribunal condoned delay of 2380 days, on an application file by the appellant who challenged the order of the Commissioner of Income Tax (Appeals) through which the appellate authority refused to admit the same.
Coming to the facts of the case, the assesse-company’s returns were duly accepted by the Department after allowing them deduction under section 80HHC of the Income Tax Act. Subsequently, re-assessment proceedings were initiated and completed against the assesse on by relying upon CBDT Circular F.No.153/193/2004 TPT which clarified that profit on sale of DEPB licences are not covered under the provisions of Section 28(iiia). Therefore, it was concluded that the assesse is not entitled to get the benefit of the export incentives under section 80HHCC(3) since assessee’s entire export Incentives Includes profit on sale of DEPB. The assesse has advised by its legal representative that no purpose will be served in filing appeal.However the position was made clear by the Supreme Court in case of Topman Exports Ltd, after which the assessee was advised to file the appeal which was the reason for long delay and accordingly it has been requested that the delay may be condoned. However, the CIT(A) has rejected the appeal, and therefore, the assesse approached the Tribunal for relief.
The Tribunal cited a catena of decisions in assessees’ favour and held that “It is thus clear that the assessee had guided by a profession advice did not think it fit to file any appeal against the impugned orders of the AO. It is clear from the record that the AO issued a letter dated 15.01.2013 demanding the payment of arrears of taxes arising out of the order of assessment u/s ,147 r.w.s.143(3) of the Act. It is also seen that in that connection the assessee had met the present lawyer Shri Subash Agarwal who advised the assessee the correct legal position pursuant to the decision of the Hon’ble Supreme Court in the case of Topman Exports (supra). Thereafter the appeal has been filed by the assessee before CIT(A). It is clear from the evidence on record that the delay in filing the appeal was due to non availability of a proper professional advice to the assessee.”
Read the full text of the order below.
The Bombay High Court, in a recent decision held that refusal of the Tribunal to follow the decision of the co-ordinate bench, without any reason, would result in breach of principles of judicial discipline. Further, the Court directed that when the Tribal chooses to ignore such a decision, it is under an obligation to make a request before the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue.
The Court was considering an appeal filed by the assesee, a co-operative society, who submitted that the order of the Tribunal in the instant case is not justifiable for the reason that the issue, ie, taxability of the transfer fees and TDR premium received by a co-operative society, has been already decided by the co-ordinate bench of the Tribunal in assessees’ favour in an earlier case, pertains to a different assessment year. The Tribunal, while considering the second appeal in the present case, has refused to follow the earlier decision without recording any valid reason.
The division bench found that in the earlier order, the co-ordinate bench opined that transfer fees as well as TDR premium received from Cooperative Societies is covered by the principle of mutuality.
The Court, while quashing the impugned order of the Tribunal, the Court observed that “We are of the view that when an identical issue, which had earlier arisen before the Co-ordinate bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow the view taken by its earlier Coordinate Bench. No doubt its discipline is subject to the well settled exceptions of the earlier order being passed per incuriam or sub silention or in the meantime, there has been any change in either statutory or by virtue of judicial pronouncement. If the earlier orders does not fall within the exception which affect its binding character before a co-ordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different, then the view taken by its co-ordinate bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue which could only be one of the well settled which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier view of the Tribunal if there is difference in facts from the earlier order of Coordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it choses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co. Op. Hsg. Society (supra), and take a view contrary to that taken by its earlier Coordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a co-ordinate bench, then for reasons to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue.”Accordingly, the matter was remanded to the Tribunal for fresh disposal.
Read the full text of the order below.
Payment to Sub-Contractors cannot be added to the Total Turnover under the Karnataka Sales Tax Act, says Supreme Court.
The two-judge bench of the Supreme Court of India, today held that, under the provisions of section 6-B of the Karnataka Sales Tax Act, 1957, the value of work entrusted to the sub-contractors and the payment made to them are liable to be excluded from the total turnover.
The appellant is an assessee under the Karnataka Sales Tax Act, is doing the business of engineers and contractors, also executes projects under contracts with public sector undertakings, local bodies as well as the Union and the State Governments, besides private sector. The contracts which are secured by the assessee are the works contracts and a part thereof is generally assigned to sub-contractors.
The Assessing Officer, while completing assessment added the payment made to the sub-contractors to the total turnover. The assessee maintained that the said amount cannot be added to the turnover since the sub-contractors, who are dealers under the Act, has already paid tax in respect of the works undertaken by them.
On appeal, all the appellate authorities including the High Court has upheld the assessment order. Being aggrieved, the assesse filed an appeal before the Supreme Court raising the following fundamental questions. Firstly, whether the assesse can be held liable to pay turnover tax on payment made to the sub-contractor by considering the fact that the sub-contractor had declared the turnover and paid tax? Secondly, the term “turnover” defined under section 2(1)(5)Karnataka Sales Tax Act includes such payments made to the sub-contractors?
The bench comprising of Justice A K Sikri and Justice R F Nariman observed that, the term ‘sales’ has been defined under the Act as transfer of the property in goods by one person to another in the course of trade or business for consideration and it, inter alia, includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Thus, even in respect of works contract whenever there is a transfer of property in goods, that is deemed as ‘sale’.
In the light of the above finding, it was opined that “An essential element to constitute a transaction as ‘sale’ is the transfer of property in goods. Aggregate amount for which the goods are bought or sold, or supplied or distributed or delivered or otherwise disposed of, in any of the ways referred to under Section 2(t), by a dealer is treated as ‘turnover’ within the meaning of Section 2(v) of the Karnataka Act. There are two variants of this turnover known as ‘taxable turnover’ and ‘total turnover’, the definitions whereof are already reproduced above. ‘Total turnover’ is defined as aggregate turnover in all goods of a dealer at all places of business in the State. However, from this aggregate turnover, certain deductions are permissible under the provisions of the Karnataka Act and when those deductions are allowed from the total turnover, we get ‘taxable turnover’ on which a dealer is liable to pay tax.”
“On a plain reading of Sections 5-B and 6-B of the Karnataka Sales Tax Act, it can be seen that Section 5-B deals with levy of tax on transfer of property in goods involved in the execution of the works contract. It is, thus, a special provision made for imposing sales tax on works contract and taxis payable on ‘taxable turnover of transfer of property in goods’. Additionally, in those cases where total turnover of a registered dealer in an year is not less than the turnover specified in sub-sections (1) and (2) of Section 10, such a dealer is liable to pay tax at the rate specified in Section 6-B of the Karnataka Act.”
While delivering the judgment in favour of the assesse, the Court also observed that “What is significant is that total amount paid or payable to the dealer as a consideration for ‘transfer of property in goods’, which is involved in execution of the works contract, is to be treated as ‘total turnover’. This Rule, thus, specifically restricts the total turnover in respect of those goods, alone, where the property has been transferred. Thus, transfer of property in goods, becomes necessary event and unless there is a transfer of property, the amount paid is not to be included in the total turnover. The amount paid to the sub-contractor is not for transfer of property in goods. When matter is examined from this angle, the ratio laid down by this Court in the Andhra Pradesh judgment clearly applies inasmuch as in that case also the Court noticed that Section 4(7) of the Andhra Pradesh Act indicated that the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works. The Court held that the value of the goods which constitute the measure for the levy of tax is the value of goods at the time of the incorporation of the goods in the works. The Court further found that same was the position contained in Rule 17(1)(a) of the Andhra Pradesh Value Added Tax Rules, 2005.
Referring to the decision of the Andhra Pradesh High Court, the Court held that the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B of the Karnataka Act.
Read the full text of the Judgment below.
The Kolkata bench of the Income Tax Appellate Tribunal in a recent decision ruled that the rental income earned by a licencee is chargeable under the head ‘business income’.
The Tribunal further made a clear distinction between the terms ‘lease’ and ‘license’ and held that a ‘licensee’ is not a deemed owner for the purpose of determining liability under the head ‘income from house property.’
The factual settings of the case are that, the assessee-company entered into an agreement with another company to acquire licence on a building for 50 years with an aim to set up a shopping mall. The shopping spaces of the mall were further subscribed to various parties on monthly subscription. Apart from these the assessee also provided certain infrastructure facilities such as electricity, air-conditioning, telephone services, maintenance, water etc.for which they received consideration based on the bills. The assessee categorized the income received by them as consideration for subscribing the shopping spaces under the head ‘business income’. Further, the claimed deduction in respect of the amount paid as ‘licence fee’ to the licencor-company by treating the same as expenditure. However, the Assessing Officer, rejected the claims by treating the above income as ‘income from house property’ under section 22 of the Act. He further, relied upon the decision in CIT – vs. – Poddar Cement Ltd.226 ITR 625 in this regard.
Before the CIT(A), the assessee contended that section 22 is not applicable since they are not an owner or a deemed owner in respect of the said property. However, the CIT(A) concluded the appeal by confirming the impugned order. Therefore, the assessee filed a second appeal before the Tribunal.
Thequestion to be decide by the Tribunal was whether the assessee is a ‘lessee’ or a ‘licensee’ in the in the instant case. While analyzing the terms ‘lease’ and ‘licence’ in the light of the relevant provisions of the Transfer of Property Act, 1882 the Tribunal observed that ‘Lease is a transfer of interest, but licence is not. Generally Lease can be assigned, but a licence generally cannot be assigned. A lease being a proprietary right is a transferable interest. Licence the other hand cannot be transferred by virtue of it being a personal right. However, there exist certain exceptions such as movie tickets. A Lessee is required to have exclusive possession of the property for its proper enjoyment. But, a licence is created without transfer of possession. A Licensee is required to share the possession with the grantor (who is still the owner) and has not parted with the interest.’
The Tribunal further pointed out that the tests laid down by the Supreme Court in the case, Associated Hotels of India Ltd. v. R. N. Kapoor, as to distinguish between a ‘lease’ and ‘license’ is applicable in the instant case. While observing so it was observed that “Applying the above tests to the facts of the present case, especially in the light of clause-2 and 7 of the leave and license agreement, we have no hesitation in coming to the conclusion that on the facts of the present case the assessee was only licencee of the premises owned by M/s. East India Hotels Ltd., and the parties intended it to be license and the agreement did not create an interest in the property owned by the licensor and that the licensee did not have exclusive possession of the property. As a licensee it had granted sub-licence to various parties and derived income there from. Once we come to the conclusion that the Assessee is only a licencee, then it can safely be said that the provisions of Sec.22 read with Sec.27(iiib) of the Act are not attracted and hence the income in question cannot be assessed under the head ‘Income from House Property”.
Read the full text of the order below.
Chairman, Special Investigation Team (SIT) on Black Money, appointed by the Hon’ble Supreme Court, in a letter dated 11.08.2016, to Governor, RBI has impressed upon the imperative need to establish the following institutional mechanism for sharing of data with the RBI in its various data bases with the Enforcement Authorities so that the data could be cross checked with other information available with Enforcement Authorities and illicit financial flows could be curbed :
(a) Foreign Exchange Transactions Electronic Reporting System (FET–ERS):–
FET–ERS was introduced through RBI Circular No.77 dated 13.03.2004. All authorized dealers are obligated to report each foreign exchange transactions (inward and outward remittances in FET–ERS). Access to this database would needs to be given to authorities like Enforcement Directorate and Directorate of Revenue Intelligence, so that the above analysis could be done;
For this, SIT has suggested that FET–ERS data should capture the PAN number of the importer or the exporter and that RBI take necessary steps for the same to get this done on an urgent basis.
(b) Export Outstanding Data:––
In the data provided by RBI to the SIT, huge amounts were found outstanding beyond a period of one year in violation of FEMA. The SIT had noted that the possibility of the concerned Companies having wrongly claimed duty drawback also cannot be ruled out. Further, the possibility of the concerned Companies having availed of various export promotion schemes also cannot be ruled out.
In light of this, the SIT has asked the Enforcement Directorate, Directorate of Revenue Intelligence and Ministry of Commerce to analyze the data of export outstanding and take necessary action in this regard.
RBI maintains export realization data in its EDPMS database. Chairman, SIT in his letter has observed that it is important to co–relate shipping bills with confirmation from banks on the EDPMS database itself rather than Bank Realization Certificate (BRC) which is different database and that RBI may impress upon the banks to inform regarding realization of export proceeds on the EDPMS itself.
(c) Monitoring of Advance Remittances against Imports:––
In wake of the Bank of Baroda scam, the SIT had asked RBI to institutionalize a mechanism for cross checking of advance remittances against Bill of Entry irrespective of value of advance remittances sent. RBI had informed the SIT that huge advance remittances running into billions of dollars were outstanding as on 30th September, 2015 for which Bill of Entry correlation has not been done. SIT had thereafter asked RBI to get this co–relation completed and inform. Chairman, SIT in his letter has asked RBI to complete this exercise at the earliest and send information to SIT. Chairman, SIT in his letter expressed satisfaction that IDPMS (Import Data Processing and Monitoring System) is being set up by RBI which is expected to be launched by the end of September which will enable cross checking of each advance remittance irrespective of value against the Bill of Entry.
Chairman, SIT in his letter requested RBI to develop, in consultation with Department of Revenue, an institutional online mechanism for sharing of data of all the above three databases being managed by RBI i.e. FET–ERS, IDPMS and EDPMS. Chairman, SIT has also asked the Revenue Department to identify a single point agency in the Revenue Department which could access the above three databases and could thereafter disseminate them to various Enforcement Agencies.
In fact, the Special Investigation Team (SIT) on Black Money, appointed by the Hon’ble Supreme Court, is consistently of the view that there should be effective sharing of information between various Government Departments, particularly of Enforcing Agencies. The SIT feels that the data can be shared only by having one agency such as Central Economic Intelligence Bureau (CEIB) or any other agency, as a data warehouse. From the said data warehouse, various agencies can gather the relevant information for taking early appropriate action. This is so since the data available with one agency can be relevant to action expected to be taken by other Law enforcement agency. Presently, RBI holds the information with respect to all types of foreign exchange transactions under various categories as elaborated below
SIT feels that for controlling and tracking illicit financial flows out of the country, use of RBI data by various Law enforcement agencies like Enforcement Directorate, Directorate of Revenue Intelligence and CBDT is of critical importance. The SIT in the past had raised this concern and had requested RBI to provide data on advance remittances sent abroad for which corresponding Bill of Entry has not been received by the authorized dealer. The SIT had also requested RBI to provide details of export outstanding for more than one year. The data provided by RBI on both the above counts clearly showed that there are gaps in monitoring the above trade flows which are used by unscrupulous elements to take out precious capital outside the country, thus damaging the fabric of Indian economy.
The Kolkata bench of the Income Tax Appellate Tribunal recently ruled that the capital gain cannot be determined solely on the basis of the stamp duty against the actual amount received shown by the assessee in his return.
The assessee in the instant case is an individual who sold his property for a total sale consideration of Rs.12,50,000/-. The valuation of the property for the purpose of stamp duty and registration was adopted by the Registrar of Assurances at a sum of Rs.36,05,000/-. While filing the return for the relevant assessment year, the assessee determined his Long Term Capital Gain on the basis of the actual income received by him in respect of the property sold. However, the Assessing Officer completed the assessment by determining the tax liability on the basis of the full value of consideration received on transfer of property. Accordingly, addition was made in the total income of the assessee.
On appeal, the Assessee specifically sought a reference to the DVO. The Commissioner of Income Tax (Appeals), while rejecting the claim of the assessee, upheld the assessment order. Being aggrieved, the assessee approached the Tribunal on second appeal.
The Tribunal noticed the decision of the Calcutta High Court in Sunil Kumar Agarwal vs. CIT, a similar case in which it was held that “Valuation by departmental valuation officer, contemplated u/s. 50C, was required to avoid miscarriage of justice. Legislature did not intend that capital gain should be fixed merely on basis of valuation to be made by District Sub Registrar for purpose of stamp duty. Legislature had taken care to provide adequate machinery to give fair treatment to citizen/taxpayer. No inference could be made as against the Assessee that he had accepted that the price fixed by the District Sub Registrar was the fair market value of the property. Option ought to be given to Assessee to have valuation made by departmental valuation officer contemplated u/s. 50C. It was further held that the A.O, discharging a quasi judicial function, had the bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law.”
Following the above decision, the Tribunal set aside the impugned order and remanded the matter to the assessing authority with a direction to consider the matter afresh.
Read the full text of the order below.
The division bench of the Madras High Court recently opined that the assessee is entitled to set off its business loss even after a business agreement as per which only a part of the business was transferred by the assessee. The Court was considering the legality of the orders passed by the Appellate Tribunal and the Commissioner of income Tax (Appeals), who allowed the set off claim raised by the assessee.
The assessee, in the instant case is engaged in the business of providing automated teller machine (ATMs) infrastructural facilities under outsourcing. The Assessing Officer, while rejecting the return filed by the assessee for the relevant assessment year, observed that the assessee has adjusted his interest income to the business loss. It was further alleged that, in terms with an agreement entered by the assessee with another company, the assessee has transferred its business and was barred from doing business for three years. Thus, the assessment was completed by the AO by holding that in the absence of any business activity, the income in dispute cannot be treated as incidental to business and therefore, it cannot be set off against business loss.
The assessee successfully appealed the above order before the Commissioner of Income Tax (Appeals). Though the Revenue preferred an appeal before the Tribunal, it couldn’t secure any relief. The Tribunal found that “On going through the order of the Commissioner of
Income Tax (Appeals), it is very clear that the assessee has not transferred the entire undertakings but only portion of it was transferred by way of business transfer agreement and the assessee has carried on the business of job work of outsourcing of ATMs business in the financial years 2005-06 and 2006-07 and earned income of Rs.12.81 crores with the very same M/s. eFunds International P.Ltd. to whom part of the business was already sold. It was also the finding of the Commissioner of Income Tax (Appeals) that the assessee has retained portion of employees and infrastructure i.e. Fixed assets like computers, electrical equipments, furniture etc. These employees and infrastructures are capable of running the business either in the same line or in any other business”.
The Tribunal while upholding the findings of the CIT(A), observed that“during the financial year 2007-08 relevant to the assessment year under consideration, the assessee utilizing the said employees, manpower and infrastructural facilities carried out a new contract work for M/s. Cash Link Global Systems (P)Ltd. and earned business income of Rs.7,00,000/-, therefore he concluded that assessee in fact carried on the business even after the business transfer agreement in the year 2005. On going through the above order of the Commissioner of Income Tax (Appeals), we do not find any infirmity in the findings holding that assessee engaged in the business during the assessment year 2008-09 and therefore loss is to be allowed. Thus, we sustain the order of the Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue.”Being aggrieved, the Revenue approached the High Court.
The Court categorically concurred with the findings of the Tribunal, the Court held that “The Tribunal, after going through the entire materials on record, has also categorically concurred with the views of the Commissioner of Income-Tax (Appeals)-II that the assessee was engaged in business, during the assessment year 2008-09 and thus, dismissed the appeal filed by the revenue. As we have already adverted to the details of the orders of the Tribunal, in the earlier paragraphs of this judgment, there is nothing to add, excepting to state, what is sought to be raised before us, is nothing but adjudication of The Tribunal, after going through the entire materials on record, has also categorically concurred with the views of the Commissioner of
Income-Tax (Appeals)-II that the assessee was engaged in business, during the assessment year 2008-09 and thus, dismissed the appeal filed by the revenue.As we have already adverted to the details of the orders of the Tribunal, in the earlier paragraphs of this judgment, there is nothing to add, excepting to state, what is sought to be raised before us, is nothing but adjudication of.”
Read the full text of the Judgment below.
While dismissing an appeal filed by Hindustan Lever Ltd (Hindustan Lever Ltd vs State of Karnataka), the two judge bench of Supreme Court of India observed that, the packing material cannot be regarded as raw material, component parts or inputs used in the manufacture of finished goods in the context of the Karnataka Entry Tax Act read with Schedule I, such packing material is neither exempt nor chargeable at 1%.
The appellant Hindustan Lever Ltd is a public limited company having a tea manufacturing unit at Dharwad and various other units which also manufacture tea. The tea manufactured by the appellant is of three types, namely, packet tea, tea in tea bags, and quick brewing black tea.
The appellants submitted that the Dharwad Unit, as opposed to the other units manufacturing tea, is a new unit and is, therefore, exempt altogether from payment of entry tax on packing material of tea under a notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979.
The Court was considering the question, whether “packing materials” which enter the local area for consumption therein, that is for packing tea that is manufactured by the appellant, can be said to be raw material, components, or inputs used in the manufacture of tea.
The bench comprising of Justice A K Sikri and Justice R F Nariman observed that, “on a perusal of the definition of “goods” in Section 2(A)(4a) of the Entry Tax Act, the said definition is an exhaustive one including all kinds of movable property and livestock. It is obvious from a reading of this definition that marketability does not appear to be a sine qua non for something to qualify as “goods” under the Entry Tax Act, unlike the Central Excise Act, and this basic fact will have to be kept in view while dealing with some of the judgments that have been cited before us. This is for the reason that anything that is tangible, without more, and enters a local area for consumption, sale or use therein is taxable, the taxable event being ‘entry’ and not ‘manufacture’ of goods, which, as has been noticed hereinabove, brings in the concept of marketability in the context of a duty of excise, which is absent in the context of entry tax”.
The Court also added that “Section 2(A)(8a) wherein the “value of the goods” is defined, also makes a distinction between “goods” as such, and “packing material”, making it clear that charges borne by a dealer as cost of packing would have to be included in the “value of goods”. In the context of the Entry Tax Act, the difference between ‘goods’ used in the manufacture of goods and “packing material” is also brought out by Schedule I. Packing materials are separately defined in Entry 66. On the other hand, raw materials, component parts and inputs, which are used in the manufacture of an intermediate or finished product, are separately and distinctively given in Entry 80 thereof. The context of the Entry Tax Act therefore is clear. When raw materials, component parts and inputs are spoken of, obviously they refer to materials, components and things which go into the finished product, namely, tea in the present case, and cannot be extended to cover packing materials of the said tea which is separately provided for by the aforesaid Entry 66”.
The notification dated 23.9.1998 issued under Section 3 uses identical language as that contained in Entries 66 and 80 of Schedule I to the Entry Tax Act. Equally, notification dated 31.3.1993 is an exemption notification issued under Section 11A which also uses the identical language of Entry 80 of Schedule I. This being the case, it is clear that neither notification can be read to include “packing material” as “raw materials, component parts or inputs used in the manufacture” of tea, the bench also said.
The bench while rejecting the contentions of Senior Advocate Arvind P Datar, observed that “Explanation II makes it clear that though packing materials may be liable to tax at 2%, yet if they fall in Explanation II, they would be liable to tax at the rate of 1%. This would fly in the face of the scheme of Schedule I of the statute which, as has been held earlier, makes it clear that in no case can packing materials be said to be raw materials, component parts or inputs used in the manufacture of finished goods. For this reason alone we find it difficult to construe the notification dated 23.9.1998 in the manner suggested by the appellants”.
While upholding Karnataka High Court Judgment, the court observed that, “a manufacturer for the purpose of the said order is specifically a person who produces value added products commercially known as tea. The context of the said definition is for the purpose of registering manufacturers or producers and buyers of tea, having relevance therefore to the sale aspect of tea. As has already been held by us, the context of entry tax being different”.
Read the full text of the Judgment below.
The Mumbai bench of the Income Tax Appellate Tribunal recently upheld the addition of closing stock in respect of conversion value of flat from Capital Asset into stock in trade. The Tribunal observed that the capital gains arising out of converting the investment to closing stock is taxable on the date of such conversion on the sale of such converted stock in trade.
The assessee-company received some built-up flats in terms with a Development agreement, which was treated as part of stock-in-trade in the books of accounts.The main grievance of the Revenue was that the CIT(A) has deleted the addition made by the Assessing Officer on closing stock in respect of conversion value of flat from Capital Asset into stock in trade, by allowing the deduction as claimed by the assessee. The Commissioner of Income Tax (Appeals) has deleted these additions holding that the land is a capital receipt. Further, the profit arising out of such item being anotional profit on conversion of investment into stock in trade was held to be taxable only in the year of sale as per provision of section 45(2) of the Income Tax Act.
On appeal, the Tribunal found that the similar issue has been decided by the Tribunal in a similar case of the assessee. Since the year 1994-95, the assessee is treating the said land and any built on the land as stock-in-trade. In the opinion of the Tribunal, the AO was justified in making addition of the same for the reason that the assessee has not removed the item form closing stock while computing its total income.
Regarding the findings of the CIT(A), that the profit/income on conversion of the investment into stock in trade is taxable only in the year of sale as per provisions of section 45(2) of the Income Tax Act, the Tribunal opined that the assessee is liable to return the corresponding capital gains as on the date of conversion of investment into the stock in trade on the sale of such converted stock in trade as held by the Tribunal in the case of the assessee in its order in 1994-95.
Read the full text of the order below.
Compensation received through award on breach of the contract is a ‘capital receipt’, says ITAT.
The delhi bench of the Income Tax Appellate Tribunal, in a recent decision held that, the compensation received by the assessee for breach of contract promising the assessee to transfer the land is a ‘capital receipt’ within the meaning of the Income Tax Act, 1961. Therefore, the assessee cannot be held liable to pay income tax.
The factual settings of the case are that the assessee-company entered into an agreement to sale with another company promising the assessee to sell the land owned by them. On default of the agreement, the assessee received compensation in terms with the arbitration award through which the matter was settled.The assessee claimed exemption in respect of the amount received by it as compensation. However, the Assessing Officer rejected the claim of exemption on ground that it is a revenue receipt since the compensation received was on account of breach of agreement in the normal course of business of the assessee.
While deciding the issue, i.e, whether the said amount is in the nature of capital or revenue receipt, the Tribunal observed that “It is an established proposition of law that there cannot be a standard test to determine the nature of receipt as to whether it is capital or Revenue in nature. The nature of receipts depend on facts of each case.”
The Tribunal, while while relying up on the decision of Pune ITAT in the case Aquapharm Chemical Co. Ltd. vs. JCIT, held that “in the present case before us also the injury was caused to the profit making apparatus as the land which was profit making apparatus for the assessee was not supplied by JMA Buildcom (P) Ltd. as per the agreement entered into between the assessee and associates, and JMA Buildcom (P) Ltd. Appreciating the same, compensation was awarded in the arbitration proceedings initiated against JMA Buildcom.(P) Ltd. In other words, the basis of award remained the lost profit due to non-supply of the land i.e. profit making apparatus and not on loss of profit. We thus find that the only inference can be drawn is that the compensation received byway of reward due to non-supply of land by JMA Buildcom (P) Ltd. under the agreement was capital receipt.”
Read the full text of the order below.
In a press release issued today, Central Board of Direct Taxes (CBDT) has clarified that, the Income Declaration Scheme 2016 closes on 30.09.2016. The extension of the scheme is out of question.
The Income Declaration Scheme, 2016 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 Scheme has come into effect from 1.6.2016 and is open for declarations up to 30.9.2016.
The Income Declaration Scheme, 2016 Rules have been notified on 19.5.2016. The amount payable under the Scheme can be paid in instalments viz. 25% of the total amount payable by 30.11.2016; another 25% by 31.3.2017 and balance 50% by 30.9.2017.
In order to address concerns of the stakeholders and to clarify the queries relating to the provisions of the Scheme, the Rules have been amended from time to time and six set of circulars (FAQs) have been issued. The following major issues addressed through Rules and FAQs are as under:
Further, vide Circular No. 31 dated 30.8.2016 an option has been provided to the declarants to file the declaration under the Scheme electronically under digital signature with the Commissioner of Income-tax, Centralised Processing Centre, Bengaluru [CIT(CPC)]. In case the declarant exercises the said option the declaration shall not be shared with the jurisdictional Principal Commissioner/Commissioner under the Income Tax Act.
In view of the fact that all the major queries and concerns of stakeholders have already been addressed by issue of circulars (FAQs) and also to provide stability and certainty to the Scheme, it is envisaged that no further clarifications on the Scheme shall be issued.
The Income Tax Appellate Tribunal, Bangalore bench, in recently confirmed the decision of the Commissioner of Income Tax(Appeals) who allowed the assessee, a charitable trust, depreciation in respect of income from other sources. The ITAT, upheld the view of the CIT(A) that depreciation is allowable even if the assessee is not doing any business since it is following the generally accepted principles and practices of accountancy.
The revenue preferred an appeal before the ITAT challenging the order of the Commissioner of Income Tax(Appeals). One of the main contention raised before the ITAT was that the CIT(A) has erred in allowing depreciation to the assessee, which is a charitable Trust, deriving income from other sources and not doing any business. According to the Revenue, the same amounts to double deduction.
Earlier, the Revision order passed by the Commissioner of Income Tax denying depreciation to the assessee-trust was quashed by the CIT(Appeals) relying upon the decision of the Tribunal in an earlier case of the assessee. The CIT(A) clarified that the assessee-trust, like any other entity is entitled to work out its income. It was observed that even if the assessees’ case is not covered by section 32 of the Income Tax Act, it is entitled to deduction in respect depreciation for the reason that it follows the generally accepted principles and practices of accountancy. In is in this context, observed that “The law has prescribed specific rules for computation of income from other sources in Part ‘F’ under Chapter IV of the IT Act, 1961 running from sections 56 to 59 of the Income Tax Act. Section 57 of the Income Tax Act provides for deduction allowable in computing income under other sources. Clause (ii) of section 57 provides for depreciation u/s.32(2) of the Income Tax Act. It shows that even in computing the income from other sources, the assessee is entitled to claim depreciation u/s.32(2).”The Appellate Tribunal confirmed the above view of the CIT(A) by dismissing the appeal.
Read the full text of the order below.
The Delhi bench of Income Tax Appellate Tribunal recently held that the deduction in respect of foreign exchange fluctuation loss arising out of current liabilities is allowable in accordance with the rates and year prescribed in the Accounting Standard-11.
Briefly explaining the factual premises of the case, the appellant, engaged in the business of IT, claimed deduction in respect of the foreign exchange loss which was disallowed by the assessing authority on ground that it is a speculative loss. The AO further relied upon the instruction No. 3/2010 dated 23.03.2010 issued by the CBDT. On appeal, the CIT(A) confirmed the disallowance on ground that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions pertaining to the current year.Being aggrieved, the assessee filed a second appeal before the ITAT challenging the above orders.
Referring to various judicial decisions, the Tribunal found that the loss cannot be called notional since the fall in the exchange rate has already taken place in the accounting year.Further, the Accounting standard 11 provides thatwhen the transaction is not settled in the same accounting period in which it had occurred then in all the intervening period till the transaction is settled, the exchange differences have to be duly accounted for.
Based on the above findings the Tribunal accepted the claim of the assessee and it was observed that “the finding of the ld. CIT(A) that the assessee has claimed foreign exchange fluctuation loss on the entire amount of current liabilities and not on the transactions of the current year, in our opinion, does not stand on sound footings and is liable to be set aside. In the assessment year 2013-14, the department itself has accepted foreign exchange fluctuation loss under identical circumstances vide assessment order u/s. 143(3) dated 30.03.2016. Not only this, the assessee has been following a consistent policy on re-statement of foreign currency payables and whenever there is a gain the same is duly offered to tax as also noted by ld. CIT(A) in a chart at page 31 of the impugned order wherein the gains arising consequent to conversion at closing exchange rate have been duly offered to tax by the assessee. Therefore, the ld. Authorities below are not justified to take different view in the instant year. In view of these discussions, we do not find any justification to support the orders of the authorities below.”
Read the full text of the order below.
