Renegotiation underway for India-Singapore tax treaty; need to guide foreign investors on tax laws to facilitate ease of doing biz.
The government is considering the recommendation of Special Investigation Team (SIT) on black money to ban cash transactions above Rs three lakh, a top Finance Ministry official said at an ASSOCHAM event held in New Delhi today.
“The SIT recommendations are under consideration. As far as the Income Tax Department is concerned, we have put a one per cent TCS (Tax Collected at Source) on cash transactions, we have made PAN quoting mandatory, all these aspects are also part of the SIT recommendation to stop the use of cash in the economy, Rs three lakh and above is under consideration,” said Ms Rani Singh Nair, chairperson, Central Board of Direct Taxes (CBDT) while inaugurating an ASSOCHAM International Tax Conference.
She also informed that the government is holding discussions for the renegotiated India-Singapore tax treaty.
“So now that we have renegotiated Mauritius, Singapore is under discussion. We are discussing it, we hope we will soon have a discussion with them as this is a bilateral treaty, so we have to take the concerns of both the countries and then we will sign,” said Ms Nair.
She said that during the course of past two years, endeavour of the government and the CBDT has been to facilitate investments into India to ensure that the taxpayer pays his taxes with the ease of doing business because ultimately the tax coffers will never be full if there is no business in India.
“For the last two years we have believed that participating in rule-making, law-making will help in making more robust tax laws and with this idea we have every time put all our major initiatives in the public domain and after seeing what people have said, we have even proposed amendments to facilitate the business. This change of thinking, this proactive approach has gone down very well both internally in the country and I can say that this is the way to move forward,” said Ms Nair.
She also said that role of the tax administration is not only limited to tax and it is also to listen and to guide the taxpayer and see that the advice given is correct.
“I have also felt that for international business, for foreigners who are coming to invest in India, we should have a kind of a guide available on the internet, in the market which tells step-by-step what are the tax laws, tax procedures and the way to go forward in doing business in India,” said the CBDT chairperson.
“I have had a lot of interactions with foreign business, with associations who have come to meet me in my stint in the CBDT and they all feel that they are adrift in India because there is not one place that they can go to and get advice and then they can digest that advice and take their own decisions,” she said.
“If we have to make India a place to do business, we have to have this kind of facility not only in the government but in the private space also, where any business which is coming to India comes with a lot of confidence, that the advise they get is complete and comprehensive. I think when we talk of international taxation, this is the one aspect that we need to focus on and we need to see that India becomes a favoured place of doing business,” further said Ms Nair.
On the issue of advancing the date of general budget presentation to January, she said that it will bring in more efficiency in the budget making as two-three months of the financial year will not be lost in the budget process.
“Decision of a Criminal Court is not binding in a Civil Action”.
The division bench of the Calcutta High Court in a recent decision categorically held that the confiscation of the smuggled goods cannot be termed as “business loss” under the relevant provisions of the Income Tax Act, 1961 and therefore, the assessee cannot deduct such amount from his total income. The Court further observed that the acquittal of the assessee from the criminal charge of smuggling, then the decision of the criminal court is not relevant to decide an appeal filed under section 260 of the Income Tax Act for the reason that a decision of a criminal court is not binding in a civil action.
The Customs authority confiscated the goods of foreign origin which were found in the possession of the assessee. The assessee claimed the same to be business loss in the return of income for the relevant assessment year. the Department rejected the contentions and assessed the same as an income from undisclosed source. Accordingly, the amount wasadded to the income of the assessee as income from business.
On appeal, the CIT(A confirmed the addition and therefore, the assessee approached the High Court. the substantial question of law to be decided by the Court was that whether the confiscation of goods from the appellant amounted to a loss in business carried on by the appellant and was allowable under the Income Tax Act.
The division bench, while dismissing the appeal, observed that confiscation is a liability personal to the smuggler. There was nothing to indicate that smuggling was a part of the business activity of the assessee and he also did not admit that it was so. Ultimately the Court held that the confiscation of this smuggled goods could not be treated to be a business expenditure or a business loss for the purpose of deduction of the said amount in course of compensation of the profits and gains from the business of the assessee.
Subsequently, the Customs Authorities initiated criminal proceedings against the assessee for the offence of smuggling. After the trial, the lower court acquitted the accused. On appeal filed by the authorities also, the High Court confirmed the order of acquittal. It is this circumstance, the assessee filed a Review Application before the High Court to re-consider the earlier decision. The petitioner maintained that he is entitled to the income tax benefits since it has been held in the criminal case that it could not be proved beyond reasonable doubt that the watch movements were of foreign origin and there was no satisfactory explanation whether the seized cash was the sale proceed of the smuggled goods, it could not be proved beyond all reasonable doubt that the watch movement fell within the purview of prohibitory orders.
The Court, while rejecting the contention of the assessee found that the finding of the criminal court can be applied to the facts of this courtde hors the contextual aspects. In the view of the Court, the issue before the Income Tax Department was whether return made by the assessee reflectedthe true state of income and he had any undisclosed source of income. Thus, the assessment to tax of the assessee was the issue before the tax authorities and that connected question of undisclosed income and business loss etc. came up for consideration. Since before the assessing official the assessee could not explain the source of acquisition of the watch movements, the assessing official treated the income of the assessee under Section 69A of the Income Tax Act.
The Court, therefore pointed out that “In one case the failure of the assessee to explain acquisition of watch movements led to the assessment by the Income Tax Department and in another case the failure on the part of the prosecution to establish certain facts led to the acquittal of the petitioner. The respondents were different and the subject matter of enquires in two different proceedings were miles apart. The finding of the criminal court cannot be imported into the decision of the tax matter and to review the entire thing on the basis of the decision given by criminal court.”
The Court noticed the decision of the Apex Court in Vishnu Dutta Sharma versus Daya Sapre, in which it was held that “a finding in a criminal proceeding by no stretch of imagination would be binding in a civilproceeding.”
In view of the above findings, the Court observed that “the law on the point is well settled that a decision of a criminal court cannot be relied on as binding in a civil action. The judgment in the criminal court would not be relevant for disposal of an appeal under Section 260A of the Income Tax Act. It can be used only to establish the fact that an acquittal has taken place as a fact in issue in the subsequent civil proceeding. In a civil proceeding the grounds on which the acquittal was based cannot be taken into consideration. The standard of proof for imposing liability is widely different between the two proceedings.”
“And it is well settled that the appeal under Section 260A of the Income Tax Act is a civil proceeding as the proceeding before appellate Tribunal from whose the appeal has been filed is of a civil nature under Section 255(6) of the said Act. That apart, the petitioner’s application for review is also in terms of the Civil Procedure Code.” The Court added.
While upholding the decision of the division bench, the Court held that the confiscation of the smuggled goods which was only a solitary adventure was not part of the series of the activities undertaken by the assessee and this not having been claimed to be a business adventure by the assessee could not be treated as business loss or business expenditure.
Read the full text of the Judgment below.
The division bench of the Madras High Court in a recent decision observed that the amount of profit received by the assessee for the sale of agricultural land which is situated at a distance more than 8 kms from the nearest Municipality is not chargeable to tax under the head “capital gain”since it is exempted under the relevant provisions of the Income Tax Act, 1961.
The assessee, an individual approached the High Court challenging the Assessment order passed against him under the provisions of section 153 of the Income Tax Act by making addition of amount received by the assessee on account of sale of agricultural land under the head “capital gains”. The assessee maintained that he is entitled to get exemption for the sale of such land for the reason that the land in dispute is situated at a distance of more than 8 kms from Municipality. Further, presently, the land is given on lease for doing agricultural operations.According to the officer, the gain received by the assessee in respect of the sale of such land is not eligible for exemption since it was not an agricultural land and it does not satisfy the criteria laid down by the Supreme Court in the case Sarifa bibi Mohamad Ibrahim v. ClT.
On appeal, the Commissioner of Income Tax (Appeals), following the decision in Mrs.Shakunthala Vedachalam v. Mrs.Vanitha Manickavasagam, held that the assessee is eligible for the exemption since the case is covered by the said decision.Relying on the above decision, the CIT(A) set aside the order and held that the assessee’s land in question is an agricultural land situated at a distance of more than 8 Kms from the nearest Municipality and as the profit on sale of such land is not liable to tax.The Appellate Tribunal, on an appeal preferred by the Revenue against the order of the Commissioner of Income Tax (Appeals) also dismissed the Assessment order. Further, the Revenue approached the High Court for relief.
The Court noticed that the case of the assessee is fully covered by the decision in Commissioner of Income-Tax v. Lal Singh.While confirming the orders of the CIT(A) and ITAT, the Court held that “Reverting to the case on hand, and in the light of the decisions of the Courts, considered in the foregoing paragraphs and the question called upon to decide, as to whether, both the fact finding authorities, are right in accepting the reports of the Tahsildar and on the aspect, as to how, the distance between the agricultural land and nearest Municipality has to be measured, the report of the departmental inspector, we are of the view that the decision of the fact finding authorities that there cannot be any justifiable reason to reject the certificates of the Village Administrative Officer, Deputy Surveyor, AmbatturTaluk and General Manager, Metropolitan Transport Corporation (Chennai) Ltd’s, is correct.”
On the issue of determining the distance of the land in dispute from the Municipality, the Court held that due weightage must be given to the reports given by the departmental inspection, certificates of the Village Administrative Officer etc., which proves that the land in dispute is 8 km away from the Municipality. While accepting this, the Court observed that “Therefore, it is not open to the revenue to contend that as per Section 11 of the General Clauses Act, 1857, the distance between the agricultural land and the nearest municipality, has to be measured, only in a straight line or a horizontal plane. In between agricultural land and the nearest municipality, if there is a mountain, or lake or private lands or government properties, and in such other cases, where the public has no access to reach the municipality, the distance has to be measured only through the access road and not in a straight line or horizontal plane.
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The division bench of the Bombay High Court, in a recent decision, held that the word ‘Purchase Price’ referred to in sub-rule 3(a) of rule 41D will not include the amount of Customs Duty paid or payable under the Customs Act, 1962. It was further held that the term ‘Purchase Price’ is applicable only to the purchases effected within the State and is not applicable to the purchases covered by section 75 of the Bombay Sales Tax Act.
The applicants in the case are the Revenue, who raised two important questions of Law before the High court. Firstly, whether the word ‘Purchase Price’ referred to in sub-rule 3(a) of rule 41D will not include the amount of Customs Duty paid or payable under the Customs Act, 1962? Secondly, whether the term ‘Purchase Price’ is applicable only to the purchases effected within the State and is not applicable to the purchases covered by section 75 of the BST Act?
M/s Bajaj Tempo Ltd, the Respondents in the instant case, urged that the customs duty paid by them on goods imported by it from out of the country, for the purpose of the manufacture of their vehicles, should not be included in the definition of the words “purchase price” as set out in section 2(22) of the Bombay Sales Tax Act.
The Sales Tax Tribunal earlier held that the situs of the purchase and import was not within the State and therefore such purchases are not a “purchase” as defined in Bombay Sales Tax Act. On this basis, the Tribunal found that the term “purchase price” as defined under section 2(22) thereof was applicable only to purchases made within the State. It would not be applicable to purchases covered by section 75 of the Bombay Sales Tax Act. Being dissatisfied with the above order, the Revenue approached the High Court raising the above two substantial questions of law.
On behalf of the Revenue, it was contended that the definition of “purchase price” as defined under the BST Act includes the amount of valuable consideration paid or payable by a person for any purchase made, including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery.It was further submitted that Explanation I to the said definition categorically states that the amount of duties levied or leviable on goods inter alia under the Customs Act, 1962 shall be deemed to be a part of the “purchase price” for such goods. Laying heavy stress on this Explanation, it was contended that on a true and correct interpretation of the definition of “purchase price” read with Explanation I thereto, the same would clearly include the amount of customs duty paid or payable under the Customs Act, 1962.
The Court analyzed all the relevant provisions of the BST Act and found that “on a conjoint reading of the aforesaid provisions, it is clear that if the situs of the inter-State purchases and imports is not within the State then such purchases are not a “purchase” as defined under section 2(28) of the BST Act. This being a case, it would therefore logically follow that the term “purchase price” as defined in section 2(22) is applicable only to purchases made within the State and would not be applicable to purchases which take place in the course of import of the goods into the territory of India or export of the goods out of such territory (section 75 of the BST Act). This being the clear position, as can be discerned from the statutory provisions as set out in the BST Act, the customs duty paid on the goods imported into the territory of India by the Respondent herein, cannot be held to be a part of the import purchase price for the purposes of deduction or set off under Rule 41D. We must mention here that this issue has been decided and in our view correctly so, by the MSTT in Second Appeal No.2203 of 2003. The reasoning of the MSTT can be found at paragraphs 10 and 11 of its decision dated 10th February, 2006 and we are in full agreement with the same.”
While concluding the case in favour of the Respondents, the Court added that “Before parting, we must mention that the BST Act is a State Legislation and does not have extra-territorial jurisdiction. This is clear from the preamble of the Act which clearly states that this is a law (BST Act) relating to the levy of tax on the sale or purchase of certain goods in the State of Bombay. Section 1(2) of the Bombay Sales Tax Act clearly stipulates that it extends to the whole of the State of Maharashtra. This is yet another factor which would persuade us to hold that the customs duty paid on purchases which take place in the course of import of goods into the territory of India can never be included in the definition of “purchase price” of the said goods.”
Read the full text of the Judgment below.
The Kolkata bench of the Income Tax Appellate Tribunal, in a recent decision held that the assessee is entitled to get deduction in respect of “Input Tax Reverse” under section 43B of the Income Tax Act, 1961 despite the fact that the assessee has maintained separate VAT & CST accounts and any payment made.
The sole grievance of the assessee, in the instant case was that, the Assessing Officer has made addition in respect of the VAT payment made to the Sales Tax Department on account of tax on assessment made by the sales tax authorities by alleging that the appellant maintained separate VAT & CST accounts and any payment made subsequently is not allowable as deduction even on payment basis. Further, the Commissioner of Income Tax (Appeals) also confirmed the impugned order on an appeal preferred by the assessee. Being aggrieved, the assessee has approached the Income Tax Appellate Tribunal for relief.
The Tribunal found that, a similar issue was earlier brought before the Tribunal by the same assessee for the AY 2008-09. In the earlier case, the Tribunal decided in favour of the assessee by holding that the assessee is entitled for deduction in respect of “Input Tax Reverse” as per section 43B of the Act. The Tribunal, while allowing deduction, pointed out that “the method of accounting followed by the assessee to maintain a separate VAT account to make al l credit and debit entries relating to VAT therein is not relevant to decide the allowability of the amount in question paid by the assessee on account of reversal of Input VAT Credit, inasmuch as the wrong claim of credit for inputs in the earlier years had resulted in short payment of CST/VAT payable by the assessee and the same having been paid during the year under consideration, the assessee, in my opinion, was entitled for deduction of such tax on payment basis under section 43B.”
Following the above observations, the Tribunal allowed the assessee’s claim for deduction on account of “Input VAT Reverse” and thereby, set aside the impugned Orders.
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The two-judge bench of the Supreme Court of India, in a recent decision held that the Notification No. 124/2000 which was issued to amend the Notification No. 37/96 in order to exempt the Special Additional duty from the basic Customs duty has no retrospective effect.
In pursuance to a Treaty between the Government of India with Nepal, the Indian Government issued Notification No. 37 of 1996 dated 23.7.1996 in order to give exemption to specified goods from the Customs duty, when imported into India from Nepal. In the meanwhile, section 3A was incorporated in the Customs Tariff Act for imposition of special additional duty. Accordingly, Notification No. 18/2000-Customs was also issued on 1st March, 2000.
The case of the appellants is that, they were asked to pay Special Additional Duty (SAD), which was paid them under protest. Subsequently,Notification No. 124/2000-Customs was issued on 29.09.2000 amending the Notification No. 37/96-Customs dated 23rd July, 1996, which resulted in exemption of Special Additional Duty from the customs duty. Consequently, the appellant made an application for refund of Special Additional Duty (SAD) paid in respect of the imports made from Nepal during the period 01.03.2000 to 29.09.2000, which was rejected by the authorities.
Before the Tribunal, the appellant M/s Colgate Palmolive (India) Ltd submitted that Notification No. 124/2000 which amended the earlier Notification No. 37/96 and enlarged the scope of exemption from basic customs duty by including SAD, should be considered as retrospective in view of the language employed in the Treaty entered into between the two countries.
The Revenue, on the other hand, submitted that prior to 29.09.2000 SAD was correctly levied in respect of the imports and there is no justification in treating the notification in question as retrospective, more so, when the notification has clearly stated about scope of its applicability.
The Tribunal, while rejecting the contentions of the appellant, observed that the exemption notification could not be considered to be having retrospective effect and any exemption provision which enlarges the scope of earlier notification cannot be considered to be clarificatory. Further, it was pointed out that earlier notification did not even remotely suggest that exemption from basic customs duty also included the exemption from SAD and therefore, the appeal was dismissed.
The Apex Court, on further appeal preferred by the appellant found that, as per the provisions of the Treaty between India and Nepal, the Government of India would provide access to Indian market free from customs duties and quantitative restrictions of all articles manufactured in Nepal subject to conditions and restrictions.
The Court further observed that “It is pertinent to note here that the relief agreed related to duty chargeable under the head of “additional duty”. Clause 4 dealt with “additional duty applicable” on products manufactured by medium or large-scale units in Nepal in which case they were liable to pay additional duty equal tothe effective Indian excise duty rates applicable to similar Indian products. A reading of paragraphs 1, 3 and 4 would indicate that a distinction was made between the “basiccustoms duty” and “additional duty”leviable under the Customs Act and Excise Act on import. “Additional duty”had reference to excise duty payable on the said products when manufactured in India.”
The bench comprising of Justice Dipak Misra and Justice Prafulla C Pant further observed that “It is vivid that the protocol to the Treaty of Trade had made a distinction between the “basic customs duty” and “additional customs duty”. The basic customs duty was granted exemption. However, in respect of “additional duty”provisions of paragraph 3 or 4 were applicable. But, it is significant that the said protocol did not deal with special additional duty. Thus, per se and ex facie it is not possible to accept the position that “special additional duty” was itself exempted under the protocol. Paragraph 1 would not cover the “special additional duty”, which was specific and limited as was clear from the exemption notification dated 23rd July, 1996. It was restricted to the goods specified in column 2 of the First Schedule from the customs duty leviable under the First Schedule to the Tariff Act. In fact, special additional duty was not leviable and enforced when the Treaty of Trade was signed and the protocol was executed. Under these circumstances, it is not possible to accept the position that Clause 1 of the protocol had included and had embraced the “special additional duty”, which was introduced in the form of Section 3A enacted in 1998.”
While dismissing the appeal on the basis of the above findings, the apex Court also held that “The exemption which was granted by notification dated 29th September, 2000 was, therefore, in the nature of specific and new exemption from payment of specialadditional duty, which was otherwise payable in view of the introduction of Section 3A to the Tariff Act. It is difficult to appreciate that the exemption granted vide notification dated 20th September, 2000 to special additional duty was clarificatory or to give effect to the existing protocol. We think so as protocol appended to the Treaty could not have conceived of future levy by way of proposition. In any case, factually it does not. Therefore, the notification of 20thSeptember, 2000 conferred a new benefit which was not earlier stipulated or the subject matter of protocol”.
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The Ahmedabad bench of the Income Tax Appellate Tribunal, in recent ruling opined that the assessee is free to choose the concerns to which it wants to extend the credit facility. The Assessing Officer cannot make suggestions in such matters.
The Tribunal further observed that if the Officer thinks that the assessee has claimed deduction in respect of amount spent by it on interest bearing funds for non-business purpose, the disallowance is justified.
The Assessing Officer passed an assessment order against the assessee under section 143(3) r.w.s. 153A of the Income Tax Act as per which, the officer disallowed interest expenditure on assessees’ two major debtors alleging that the assessee had unnecessarily incurred interest expenditure on these debts which has been given for without any business purpose.
On appeal, the Commissioner of Income Tax (Appeals) dismissed the plea of the assessee and sustained the assessment order. Being aggrieved, the assessee preferred an appeal before the Appellate Tribunal.
The Tribunal noticed that the Supreme Court in Hero Cycles P.Ltd. Vs. CIT, in which the Apex Court observed that, that if the assessee has used funds for the purpose of business, even for the business of sister concern, then, the interest expenditure cannot be disallowed.The Tribunal further noted that the Apex Court, in the above decision, by referring the decision f the Delhi High Court in CIT Vs. Dalmia Cement P.Ltd, observed that businessman cannot be compelled to maximize its profit, and income tax authorities cannot steps into the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.
While allowing the deduction to the assessee, by following the above decision, the Tribunal observed that, “In the present case, the ld.AO, for making disallowance, as made an observation that if M/s.Uday Yarn Twister P.Ltd. was in financial crunch, then that company should have taken loan. To my mind, it is the assessee who has to carry out its business. It is for the assessee to decide to which concern, it can extend credit facility. The ld.AO cannot thrust upon his point of view for conducting the business. If the assessee as simplicitor, siphoned off the interest bearing funds for non-business purpose, then, the AO might be justified, but if certain payments are not being received by the assessee during the course of business or some investment was made keeping in mind future business interest, then the AO can disallow the interest expenditure. Respectfully following the decision of the Hon’ble Supreme Court, I allow this ground of appeal and delete the disallowance.”
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In a recent decision, the division bench of the Bombay High Court, in a petition challenging the constitutional validity of amendment to section 41 of the Bombay Sales Tax Act, made by the Maharashtra government through a notification. While disposing the case in favour of the petitioners on the basis of facts, the Court refused to comment on the constitutional validity of the said amendment.
The petitioners filed a writ petition before the High Court seeking a declaration that section 41D of the Bombay Sales Tax Act, 1959 amended by way of insertion by the Maharashtra Act No. XVI of 1995 called the Maharashtra Tax Laws (Levy and Amendment) Act, 1995 as also Rule 31AAA of the Bombay Sales Tax Rules, 1959 as ultra vires the constitution of India being beyond legislative competence of the Maharashtra State legislature, void and has no legal effect. The petitioners submitted that the Notification No. STR-1195/CR- 80/Taxation-I dated 31st May, 1996 are ultra vires the Constitution of India, beyond the legislative competence of respondent no. 1, violative of Articles 14, 19(1)(g), 265 and 300A of the Indian Constitution.
The assessee-company is registered under the Bombay Sales Tax Act, 1959 and the Central Sales Tax Act. The assesssee is engaged in the business of manufacture and sale of jelly filled telephone cables, submersible insulated winding wires etc.in the year 1986, the assessee-company made an application to the Government of India, Ministry of Industry, Department of Industrial Development, for grant of Industrial Licence under the Industries (Development and Regulation) Act, 1951 for the expansion in manufacture of jelly filled telephone cables which was approved by the Government. In the year 1991, the Government re-endorsed the capacity of the petitioners’ industrial undertaking at village Urse, TalukaMaval, District Pune, for the manufacture of jelly filled telephone cables from 19(Tan) lakh CKM to 12(Twelve) lakh CKM.
Subsequently, the State of Maharashtra,in continuation of past policies, formulated a scheme popularly known as the Package Scheme of Incentives, 1983 with an object to achieve dispersal of industries outside the Bombay–Thane–Pune belt. Applications were invited from eligible units, as per which, the assessee-company also made an application after complying with the requirement of completing all initial effective steps.Thereafter, the assessee-company entered into two agreementswith the Government of Maharashtra in order to enable the petitioners to avail sales tax incentives by way of deferral under the Package Scheme of, 1983 in respect of their new unit at Pune and towards special capital incentives available to the petitioners under the Packaged Scheme of Incentives, 1983. Consequently, the assessee was given with eligibility certificates according to which the maximum entitlement of sales tax incentives by way of deferral was fixed at Rs. 1338.32 lakhs which are valid upto1st April, 1990 to 30thApril, 1995. Subsequently, the Deputy Commissioner of Sales Tax also issued a certificate of entitlement to the assessee. The terms and conditions set out in the certificate of entitlement with regard to the incentives are identical to those set out in the eligibility certificate.
The assessee challenged the assessment order passed against them before the Deputy Commissioner of Sales Tax (Appeals) in which the authority partly allowed the plea of the assessee.In the meanwhile, the Maharashtra Government retrospectively amended section 41D by way of insertion to the BST Act by Maharashtra Act XVI of 1995 called the Maharashtra Tax Laws (Levy and Amendment) Act, 1995. It is in this circumstance, the assessee preferred a writ petition before the High Court.
The court observed that the said notification cannot be applied in the case of the assessee. It was expressed by the Court that “We find much substance in the contentions of the petitioners. Once there was no embargo or prohibition on augmentation or increase in the production capacity and the expansion has been sanctioned, then, the impugned notice, which totally disregards all this, cannot be sustained. The petitioners have pointed out that there is a promise and contained in this package scheme of incentives, which promise can be culled out from the various terms and conditions. The petitioners have submitted and rightly so that they had availed sales tax incentives during the relevant period, namely, 1st April, 1991 to 31st March, 1992. The period of eligibility had not expired nor had the quantum fixed been achieved. It is in these circumstances that the assessing officer allowed the incentives claimed after duly examining the record. Even the appellate order confirms this position. Now, the third respondent desires to restrict the incentives availed of by the petitioners and levy interest under section 36(3)(b) and penalty under section 36(2)(c) read with Explanation II. Respondent no. 3 has observed that the incentives have to be restricted in view of the annual licence/registration/production capacity, which was never envisaged in the package scheme of incentives, the agreement entered in pursuance thereof, the eligibility certificate and the certificate of entitlement. That is why the petitioners have rightly submitted that the revisional powers cannot be exercised so as to defeat the scheme and such a scheme which contains clear assurances and promises on behalf of the State provided the petitioners fulfill the conditions thereof cannot be set at naught by the process undertaken.”
While concluding, the Court added that, “Therefore, after following the above principles and applying them to the present case, we do not think that any larger question much less about the legality and validity of the provisions needs to be considered. We are of the view that the petition must succeed without examining the issue as to whether section 41D and Rule 31AAA can be held to be unconstitutional and ultra vires Articles 14 and 265 of the Constitution of India. We are of the opinion that the amended provisions cannot be invoked and applied in the present factual controversy.”
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The division bench of Bombay High Court held that, the sale of ‘bagasse‘ is exempted from sales tax under section 5 of the Bombay Sales Tax Act covered under schedule entry A-44.
The respondent dealer M/s. Bhima Sahakari Sakhar Karkhana Ltd contended that it is manufacturing sugar. It is purchasing sugarcane for the purpose of manufacturing sugar. The sugarcane is crushed and juice is taken out. Even after the juice extracted and taken out, some of it still remains in the residuary of the sugarcane.
The argument was whether the word ‘sugarcane’ can also include ‘bagasse’. Schedule ‘A’ is titled as “Goods, the sale or purchase of which is free from all taxes”.
The revenue submitted that, whether section 5 of the Bombay Sales Tax Act is covered under Schedule Entry A-44, means that bagasse is tax free or not and that is the question.
The appellant also submitted that from the order passed by the tribunal, both on the second appeals and the reference applications, it would be apparent that the bagasse is leftover of sugarcane after crushing and cannot be called as sugarcane. Bagasse is known to the commercial world as distinct and different. It has different uses. It is used as fuel and raw material for manufacture of paper. It is a fibrous residue from the sugarcane after extracting cane juice and is used to produce steam and power for operation of factories. The bagasse is also used as a bio-fuel for manufacture of pulp.
When sugarcane setts were attempted to be equated with sugarcane and noticing their usage, the division bench found that if sugarcane is asked for, sugarcane setts cannot be supplied by a merchant. It is in these circumstances that sugarcane setts are not sugarcane as is understood in commerce and trade. We have no such material before us.
While disposing the appeal, the division bench comprising of Justice S C Dharmadhikari and Justice B.P.Colabawalla observed that, it is not disputed that section 5 of the Bombay Sales Tax Act refers to and covers such goods on which there arises no liability to pay tax. The sales and purchase of certain goods free from tax is what is provided by section 5. Therefore, so long as the conditions or exceptions, if any, set out against each of the goods specified in column 3 of the Schedule ‘A’ are satisfied, no tax shall be payable on the sales or purchases of the goods specified in that Schedule.
“What we have before us is the Bombay Sales Tax Act and we have definition of the term “goods” appearing in section 2(13). “Goods” means every kind of movable property (not being newspapers, or actionable claim or money, or stocks, shares or securities), and includes growing crops, grass, and trees and plants (including the produce thereof) and all other things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”, the bench said.
It is common ground that sugarcane is used to manufacture sugar. Therefore, ordinarily, the word “goods” as defined in section 2(13) would cover and include sugarcane. In the circumstances, whether bagasse is sugarcane or not was the controversy. It was, therefore, and in that context, held that so long as these are not identifiable and distinctly known goods to the commercial world, they cannot be brought to tax or if they are part and parcel of sugarcane or are a waste or a by-product when sugarcane is crushed, then, that cannot be brought to tax. It is in that context that all the factual circumstances were taken into consideration. It is in that context the common parlance test as to whether these are distinctly known goods to the market and particularly the commercial world was applied universally.
The division bench also opined that, once it has been consistently held that residue or waste of something like sugarcane does not amount to manufacturing a distinct product or goods known to the commercial world, then, we do not think that there was any need for referring the question to this court. The question as proposed and referred by the tribunal cannot be termed as question of law since it was a mixed question. In the opinion of the court, there exists no ambiguity or vagueness nor there is any possibility of the question being answered differently.
Read the full text of the Judgment below.
India, today took another major step in the fight against tax evasion, “round tripping” and “base erosion/profit shifting”. The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for signing of an Agreement and the Protocol between the India and Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.
This step follows the recent amendment of the Double Taxation Avoidance Agreement with Mauritius. As in the case of Mauritius, the treaty with Cyprus had provided for residence-based taxation of capital gains. With the revision of the treaty now approved by the Cabinet, capital gains will be taxed in India for entities resident in Cyprus, subject to double tax relief. In other words, India will have the right to tax capital gains arising in India. The provisions in the earlier treaty for residence-based taxation were leading to distortion of financial and real investment flows by artificial diversion of various investments from their true countries of origin, for the sake of avoiding tax. As in the case of Mauritius, this amendment will deter such activities. Negotiations with Singapore are also underway for similar changes.
The Income Tax Appellate Tribunal, Kochi, recently ruled that the benefit of deduction provided under section 80P of the Income Tax Act, 1961 cannot be denied to an agricultural credit society solely on the ground that the assessee has filed returns after the due date.
The assessee in the present case, Anjarakandi Farmer’s Service Co, is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. The assessee is engaged in the business of providing agricultural credit to its members. It has filed returns for the relevant assessment years by claiming deduction under section 80P of the Income Tax Act. The returns were rejected by the Assessing Officer on ground that the returns were filed after the due date.
On appeal, both the Commissioner of Income Tax (Appeals) and the Appellate Tribunal dismissed the appeals filed by the assessee against the assessment order. However, the High Court of Kerala, on appeal, disposed the appeal filed by the assesseeby remanding the matter back to the Tribunal and observed that the assessee is entitled to get the benefit of section 80P(2).
As per the directions of the High Court, the Tribunal heard the matter again and held that the assessee society is entitled to the benefit of deduction provided under section 80P(2) of the Income Tax Act.
Read the full text of the order below.
The Kochi division of the Income Tax Appellate Tribunal, in A recent decision held that a co-operative rural bank is not entitled to get deduction under section 36(1)(viia) of the Income Tax Act, 1961 on ground that none of its branches can be classified as a “rural branch.”
Coming to the facts of the case, the assessee, Mowancherry Coop Rural Bank, is a co-operative credit society registered under the Kerala Co-operative Societies Act, 1969.During the relevant assessment year, the assessee has 11 branches. The assessee filed returns belated and has claimed deduction under section 80P of the Act along with deduction in respect of bad and doubtful debts of 10% which can be claimed by the Rural Branch. According to the officer, the branches of the assessee are not “rural branches” since as per the last census data, these branches were situated in a village having population more than 10,000. The assessing officer completed the assessment by rejecting the claims of the assessee. The matter was brought before the Appellate Tribunal to decide that whether these disallowances are justified.
Regarding the first issue, the Tribunal, following the decision of the Kerala High Court in similar cases, observed that the assessee is entitled to get the deduction under section 80P despite of the fact that the returns were filed after the due date.
On the issue of disallowance of bad and doubtful debts, the Tribunal found that the Finance Act, 2007 had amended section 36(1)(viia) of the Income Tax Act to extend the deduction in respect of any provision for bad and doubtful debts also to a Cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The said provision allows a total of 7.5% of maximum deduction in respect of bad and doubtful debts and 10% of aggregate average advances made by rural branches of the assessee.
The Tribunal noticed the decision of the Kerala High Court in Lord Krishna Bank Ltd, held that the terms “place” mentioned under section 36(1)(viia) is to be interpreted as the revenue village and not as ward. Further, the Tribunal noticed its earlier decision in Kannur district Co. Bank Ltd, that the ratio of the above decision applies to Co-operative Banks also.
Following the above decisions, the Tribunal held that the assessee is not entitled to the benefit of section 36(1)(viia)since none of the branches of the assessee can be classified as a rural branch.
Read the full text of the order below.
The Central Board of Excise and Customs recently issued a circular to its officials clarifying the service tax liability of contractors providing the service of construction of tube wells to Government.
As per the circular, contractors providing the service of construction of tube wells to a Government, a local authority or a governmental authority are entitled to get exemption from service tax since such services are duly covered under the Notification No.25/2012 Service Tax dated 26.12.2012
Presently, the services provided to the Government, local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation are exempted under the entries at Serial No. 12(e) and 25(a) of notification 25/2012 Service Tax dated 26.12.2012.
The circular clarifies that “the phrase ‘water supply’ is a general phrase. Basically, it will involve providing users access to a source of water. The source may be natural or artificial like tanks, wells, tube wells etc. providing users access to such a source will involve activities like drilling, laying of pipes, valves, gauges etc, fitting of motors etc., so as to eventually result in the supply of water.”It is in this context, the Board directed its officials to grant exemption in respect of service of construction of tube wells to government.
Read the full text of the Circular below.
The division bench of the Supreme Court while rejecting the plea of the appellant-assessee to treat the sales at the hands of the manufacturer as First Sale, has categorically held that, the sale effected by the appellant, bing the brand name holder/trademark holder would be treated as the First Sale U/s. 5[2] of the Kerala General Sales Tax Act, 1963.
The appellant ACC Limited had been in an agreement with M/s. Cochin Cement Limited since 1993, for manufacturing cement and handing over the same to the assessee for sale under the Brand Name. The petitioners contended that the Cochin Cement Limited is the brand name holder of the present appellant and, therefore, the sale at its hand has to be treated as first sale for the purposes of this Act.
While rejecting the contentions, the division bench comprising of Justice Dipak Misra and Justice Rohinton Fali Nariman observed that, “On a conjoint reading of the aforesaid provisions, it is discernible that the Legislature has clearly expressed its intention to treat the sale by the brand name holder or the trade mark holder as the first sale”. The bench relied on the decision of Cryptom Confectioneries Pvt. Ltd. Vs. State of Kerala where a two-Judge Bench of the Supreme Court had observed that, “The aforesaid sub-section commences with a non obstante clause i.e., irrespective of Section 5(1) of the Act or any other provision under the Act. The said sub-section speaks of a sale made by a brand name holder of the trade mark holder within the State. The Legislature deems that such a sale by the brand name holder or the trade mark holder shall be the first sale within the State. In our opinion this is the only possible construction that can be given to sub-section (2) of section 5 of the Act”.
Observing the above decision to be a binding precedent, the Hon’ble Court found that in the earlier decision, Section 5(2) was considered and a view has been expressed and, therefore, it cannot be said that a provision has not been referred to or not considered.
While dismissing the appeal, the division bench also observed that, “What is limpid is that Section 5(2) is an expression of the Legislative intention that the sales at the hands of the brand name holder and trade mark holder would be treated as the first sale. On a perusal of the agreement entered into between the parties, it is not remotely suggestive of the fact that Cochin Cement Limited is a brand name holder or trade mark holder. Hence, the ambitious submission of Mr. Ganesh has to melt as a glacier, and we say so. Ergo, the decision in Cryptom Confectioneries Pvt. Ltd. does not require reconsideration”.
Read the full text of the Judgment below.
The Kolkata bench of the Income Tax Appellate Tribunal, in a recent ruling held that Rule 8D notified by the Board on 24-03-2008 did not have retrospective application and therefore, the expenses at 1% of the total exempt income is reasonable since it is disallowable under section 14A of the Income Tax Act, 1961. The facts of the case are briefly stated below.
The assessee-company is engaged in the business of manufacture and sale of carbon black and generation and sale of power. The assessee, filed its return of income for the relevant assessment year, declaring loss. Further, the assessee claimed deduction in respect of dividend income and interest on tax free bonds etc under section 10 of the Income Tax Act. The assessee in its computation of income has stated that no expenses were incurred for earning the exempt income and submitted no deduction shall be allowed in respect of any expenditure incurred by the assessee in relation to earning income, which was not form part of the total income. The Assessing Officer rejected all the contentions of the assessee by holding that Rule 8D in all proceedings pending on the date of notification. Accordingly, he has completed the assessment by determining the amount of disallowance of expenditure based on Rule 8D.
On appeal, the Commissioner of Income Tax (Appeals) set aside the impugned order by relying upon the decision of the Bombay High Court in Boyce Mfg. Co. Ltd Vs. CIT, in which the Court held that “Rule 8D notified by the Board on 24-03-2008 did not have retrospective application but the Rule was applicable only prospectively and therefore applicable from A.Y 2008-09.” The CIT(A) further directed the AO to restrict the same u/s. 14A to 1% holding that disallowances of interest of Rs.110.56 lacs made under Rule 8D(2)(ii) and expenses of Rs.12.35 lacs made under Rule 8D(2)(iii) was arbitrary and bad and is liable to be deleted. The Revenue challenged the said order before the Appellate Tribunal.
The Appellate Tribunal held that there is no infirmity in the order of the Commissioner of Income Tax (Appeals). Following the above referred decisions, the Tribunal observed that the expenses at 1% of the total exempt income are reasonable as disallowable u/s. I4A of the Act.
Read the full text of the order below.
The Mumbai division of the Income Tax Appellate Tribunal, has recently ruled that the income earned by the assessee on account of sale and purchase of shares will be considered as “capital gain.” The Tribunal observed that consistently investing in shares will not amount to “business income” since the said activity is notan “adventure in the nature of trade.”
Coming to the facts of the case, the assessee, an individual,filed returns of income by declaring its income including the amount received by her on account of Short Term Capital Gain. The Assessing Officer completed the assessment by treating the same as “business income” for the reason that the magnitude of transactions are voluminous in very frequent interval which clearly establish that the motive for transactions was to earn profit by pursuing an adventure in the nature of trade.
The Commissioner of Income Tax (Appeals) on an appeal preferred by the assessee, held that the capital gain on sale of shares as capital gains and not as business income, by following the decision of the Bombay High Court in CIT v. Gopal Purohit (2011) 336 ITR 287(Bom).The Revenue preferred an appeal against the said order.
The Tribunal found that the assessee has purchased and sold the shares for a period of not more than one year for which no borrowings were made and the investments have been made out of her own funds and no interest was paid. The average holding period of the shares was less than 180 days and the shares were reflected as investment in books of accounts and were valued at cost. It was further observed by the Tribunal that the Tribunal has decided the same issue in favour of the assessee in the earlier assessment years by considering the income in dispute as “capital gains”.It was noted by the Tribunal that the Department, in the earlier years, had been accepted the stand that the assessee was consistently investing in shares and the capital gains, offered by the assessee was assessed either as long term gain or short term gain while passing order.
While confirming the order of the CIT(A), the ITAT held that “Respectfully following the afore-stated decision of the co-ordinate Bench of this Tribunal in assessee’s own case in preceding assessment year 2007-08 in ITA no. 6227/Mum/2012 for the assessment year 2007-08 vide orders dated 17-03-2016 , wherein we do not find any difference on facts in the instant year under appeal as compared to the preceding year , thus, keeping in view the principles of consistency to be adopted on similar facts, we are inclined to confirm the orders of the learned CIT(A) in which we do not find any infirmity. Thus keeping in view the facts and circumstances of the instant case and principles of consistency to be followed on similar facts, we therefore hold that the gain arising from the sale of shares held by the assessee for not more than twelve months shall be held to be short term capital gain chargeable to tax under the head ‘Capital Gains’ and not as income from business chargeable to tax under the head ‘Profits and gains of Business or Profession’as was held by the AO. Thus, we uphold and confirm the order of learned CIT(A).”
Read the full text of the order below.
