Service Tax On Road Construction/Repair.

Service Tax department has now come with a innovative clarification on the subject of service Tax on the construction & repairs of Road .Details about services related to Road has been mentioned in following two services.



Commercial Or industrial Construction Service [section 65(105)(zzq)]10.09.2004
Works Contract [section 65(105)(zzzza)]01.06.2007
Services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams has been specifically excluded from the definition/scope of above service ,though above services had been added in service tax on 10.09.2004 and 01.06.2007.Means govt intend isto exempt these(road dams etc) services from the service tax.

Definitions as per both the above section has been given below

section 65(105)(zzq)
“commercial or industrial construction service” means —


(a) construction of a new building or a civil structure or a part thereof; or

(b) construction of pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is —

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in,



commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;


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section 65(105)(zzzza)



to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.



Explanation.—For the purposes of this sub-clause, “works contract” means a contract wherein,—

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

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In above sections services provided in respect of Roads has been specifically exempted without mentioning repair of Road or construction of road but department in his circular (given below )110 dt 23.02.2009 has clarified that though the road repair has not been covered under zzq or zzzza but there is no such exemption under clause zzg (to any person, by any person in relation to management, maintenance or repair;) so repair of road is taxable service .Further classification of various activities related to road, which are covered and which are not has been given.However this view is not binding on assessee or adjudicating authorities.Iintention of, the Legislature is to exclude this service from tax net. In Dr. Lal Path Lab (P.) Ltd.v. CCE (2006) 5 STT 171 (CESTAT), it was held that if a service has been specifically excluded from definition of one service, it cannot be covered under another taxable service.



Please Comment.



Full Text of the circular is given here under.



Circular No. 110/4/2009-ST.



F. No. 345/ 17 /2008-TRU

Government of India

Ministry of Finance

Department of Revenue

Tax Research Unit

*****

New Delhi, the 23rd February, 2009.



Subject: Reference from Commissioner Nashik seeking clarification in respect of levy of service tax on Repair/ renovation/ widening of roads – Regarding.



Representations have been received by the Board pointing out divergent practices being followed by field formations with regard to levy of service tax on maintenance and repair of roads.



2. Commercial or industrial construction service [section 65(105) (zzq)] specifically excludes construction or repairs of roads. However, management, maintenance or repair provided under a contract or an agreement in relation to properties, whether immovable or not, is leviable to service tax under section 65(105) (zzg) of the Finance Act, 1994. There is no specific exemption under this service for maintenance or repair of roads etc. Reading the definitions of these two taxable services in tandem leads to the conclusion that while construction of road is not a taxable service, management, maintenance or repair of roads are in the nature of taxable services, attracting service tax.



3. The next issue requiring resolution is the types of activities that can be called as ‘construction of road’ as against the activities which should fall under the category of maintenance or repair of roads. In this regard the technical literature on the subject indicate that the activities can be categorized as follows,-

(A) Maintenance or repair activities:

I. Resurfacing

II. Renovation

III. Strengthening

IV. Relaying

V. Filling of potholes

(B) Construction Activities:

I. Laying of a new road

II. Widening of narrow road to broader road (such as conversion of a two lane road to a four lane road)

III. Changing road surface ( graveled road to metalled road/ metalled road to blacktopped/ blacktopped to concrete etc)



4. The cases may be decided/ revenue should be protected based on the above classification. Suitable Trade and Public notices may be issued for information of the trade and field formations.



5. Receipt of this Circular may please be acknowledged.



6. Hindi Version will follow.



Yours faithfully,



(Unmesh Sharad Wagh)

Under Secretary (TRU)

Excise Duty notifications to reduce effective rate of excise duty from 10% to 8%

NOTIFICATION NO 4/2009-Central Excise,

Dated : February 24, 2009

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby directs that each of the notifications of the Government of India in the Ministry of Finance (Department of Revenue), specified in column (2) of the Table hereto annexed shall be amended or further amended, as the case may be, in the manner specified in the corresponding entry in column (3) of the said Table, namely :-

TABLE

S. No. Notification number and date Amendments
(1) (2) (3)
1. 3/2006-Central Excise, dated the 1st March, 2006 In the said notification, in the Table, in column (4), for the entry “10%”, wherever it occurs, the entry “8%” shall be substituted.
2. 4/2006-Central Excise, dated the 1st March, 2006 In the said notification, in the Table, in column (4), -

(i) for the entry “10% or Rs.290 per tonne, whichever is higher”, wherever it occurs, the entry “8% or Rs.230 per tonne, whichever is higher” shall be substituted;

(ii) for the entry “10% of the value of such gold potassium cyanide excluding the value of gold used in the manufacture of such goods”, wherever it occurs, the entry “8% of the value of such gold potassium cyanide excluding the value of gold used in the manufacture of such goods” shall be substituted;

(iii) for the entry “10% of the value of material , if any, added and the amount charged for such manufacture”, wherever it occurs, the entry “8% of the value of material , if any, added and the amount charged for such manufacture” shall be substituted.

3. 5/2006-Central Excise, dated the 1st March, 2006 In the said notification, in the Table, in column (4), for the entry “10%”, wherever it occurs, the entry “8%” shall be substituted.
4. 6/2006-Central Excise, dated the 1st March, 2006 In the said notification, in the Table, in column (4), -

(i) for the entry “10%”, wherever it occurs, the entry “8%” shall be substituted;

(ii) for the entry “10% + Rs.10,000 per chassis”, wherever it occurs, the entry “8% + Rs.10,000 per chassis” shall be substituted.

5. 2/2008-Central Excise, dated the 1st March, 2008 In the said notification, in the Table, in column (3), -

(i) for the entry “10%”, wherever it occurs except, for the entry occurring against S. No. 14, 16 and 18, the entry “8%” shall be substituted;

(ii) for the entry “10% + Rs.10,000 per chassis”, wherever it occurs, the entry “8% + Rs.10,000 per chassis” shall be substituted.


F. No.354/210/2008-TRU (Part)

[Unmesh Sharad Wagh]

Under Secretary to the Government of India

Note. -

(1) The principal notification No.3/2006-Central Excise, dated the 1 st March, 2006 was published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i) vide number G.S.R.93 (E), dated the 1st March, 2006, and was last amended by notification No. 58/2008-Central Excise, dated the 7 th December, 2008 published vide number G.S.R. 840(E), dated the 7 th December 2008.

(2) The principal notification No.4/2006-Central Excise, dated the 1 st March, 2006 was published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i) vide number G.S.R.94 (E), dated the 1st March, 2006, and was last amended by notification No. 64/2008-Central Excise, dated the 24 th December, 2008 published vide number G.S.R. 887(E), dated the 24 th December, 2008.

(3) The principal notification No.5/2006-Central Excise, dated the 1 st March, 2006 was published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i) vide number G.S.R.95 (E), dated the 1st March, 2006, and was last amended by notification No. 58/2008-Central Excise, dated the 7 th December, 2008 published vide number G.S.R. 840(E), dated the 7 th December 2008.

(4) The principal notification No.6/2006-Central Excise, dated the 1 st March, 2006 was published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i) vide number G.S.R.96 (E), dated the 1st March, 2006, and was last amended by notification No. 58/2008-Central Excise, dated the 7 th December, 2008 published vide number G.S.R. 840(E), dated the 7 th December 2008.

(5) The principal notification No.2/2008-Central Excise, dated the 1 st March, 2008 was published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i) vide number G.S.R.130 (E), dated the 1 st March, 2008, and was last amended by notification No. 58/2008-Central Excise, dated the 7 th December, 2008 published vide number G.S.R. 840(E), dated the 7 th December 2008.

UTILIZATION OF INFORMATION IN THE AIRs RELATING TO F.Y. 2007-08 & SUBSEQUENT YEARS

UTILIZATION OF INFORMATION IN THE ANNUAL INFORMATION RETURNS (AIRs) RELATING TO FINANCIAL YEAR. 2007-08 (ASSESSMENT YEAR 2008-09) AND SUBSEQUENT YEARS - REG.


INSTRUCTION NO. 01/2009, DATED 12-2-2009

The Board has considered the issues relating to the above and has decided that the information from the AIRs pertaining to financial year 2007-08 (Assessment year 2008-09) and subsequent years should be utilized in the manner laid down in paragraphs 2 to 8 below.

2 AIR information where PAN of the transacting party is available and return is filed:

(a) (a) The AIR data with PAN has been or shall be placed on the NCC by the DIT (Systems) and has been or shall be used under regular cycles of CASS as per CASS instructions issued by the Directorate of Income-tax (Systems).

(b) (b) Depending upon feedback on scrutiny assessment in a case for a particular assessment year, the Assessing Officers may resort to proceedings under section 148 for earlier assessment years in that case on the basis of AIR information available, if any, if they have reasons to believe that income has escaped assessment.

(c) (c) After issuance of notice under section. 143(2)/148, as the case may be, the Assessing Officers shall forward a list of such cases, along with value of criterion, to their Range Addl./Joint Commissioner for the purpose of monitoring.

3. AIR information with PAN where there is no information of returns filed:



(a) To identify the non-filers, CIT(CO)/CIT(in-charge) of each RCC/CC will run the application in the AIR module to generate the list of individual cases or persons who are non-filers and shall intimate the list of non-filers to the concerned Assessing Officers in respect of these cases.

(b) Further Action thereon: After identification of the non-filers, query letters (in the format as given in Annexure 5) shall be issued by jurisdictional Assessing Officers to all Non-Government transacting persons.

(i) if it is intimated by the tax payer that a return has already been filed before issue of the letter, the jurisdictional Assessing Officer shall immediately process the return on the system, if not processed so far, so that the same can be considered for scrutiny selection under CASS under a fresh cycle, which would be run by the Directorate of Income-tax (Systems).

(ii) If the letter is returned unserved, the case should be referred by the Assessing Officer to the DIT (CIB) of his Region with full details (including PAN, RRR No. and Line No. of the AIR transaction, name/address and TAN of the AIR filer etc.), and further action would be taken by the DIT (CIB) as indicated in paragraph 4(f) below.

(iii) If the assessee furnishes a return in response to the letter, the case should be compulsorily assessed under section 143(3)/144 after issue of notice under section 142(1)/143(2), as the case may be.

(iv) If the assessee does not furnish a return in response to the letter or does not respond to the served letter, the case should be assessed under section 143(3)/144/147 after issue of notice under section 142(1)/143(2)/ 148,, as the case may be.

(v) The jurisdictional Assessing Officer shall maintain a register of action taken on such AIR information in the format as per Annexure 4, which should be inspected every quarter by the Range head and the CIT concerned.

4. AIR information without PAN
(a) In respect.of the non-PAN cases, the data has been or shall be sent (by Directorate of Systems) in CDs to the 18 Cadre Controlling CCsIT (based on addresses of the transacting parties as given in the AIR) along with the party-wise details of transactions contained in the AIR and the information source.

(d) (d) The CCsIT shall sort and pass on the AIR information to the designated Assessing Officers (DAOs) [as notified by the Cadre Controlling CCsIT in terms of para 10(d) of the instruction No. 6 of 2006 ]. The DAOs shall issue query letters thereon (in the format as given in Annexure 5) to all Non-Govrnment transacting parties. If, on the basis of reply to the letter, it is found that the person is an existing assessee, the letter along with the reply/return and the AIR information should be transferred by the designated Assessing Officer to the jurisdictional Assessing Officer, who shall deal with these cases as follows:

(i) issue notice under section 142(1) to such assessee, if the assessee has not filed a return earlier for the relevant assessment year.

(ii) if return is filed in response to the query letter or in response to the notice issued under section 142(1), the jurisdictional Assessing Officer shall assess the case under section 143(3)/144.

(iii) if return was filed prior to issue of the query letter, the jurisdictional Assessing Officer shall manually apply such criteria (as per Annexure 1) to select such cases for scrutiny,

(iv) Where no return has been filed either prior to or after issue of query letter/notice under section 142(1) or where the time for issuance of notice under section 143(2) has expired, the jurisdictional Assessing Officer may consider issuance of notice under section 148 as per law, after recording reasons therefor, if he/she has reasons to believe that income has escaped assessment.

(c) Where the person is not an existing assessee (has never filed a return of income earlier) or does not respond to the served letter, the designated Assessing Officer shall assess the case under section 144/147/143(3), after issuance of notice under section 142(1)/ 148 /143(2), as the case may be, as per due process of law.

(d) The designated Assessing Officer and the jurisdictional Assessing Officer shall maintain a register of action taken on such AIR information in the format as per Annexure 4. which should be inspected every quarter by the Range head and the CIT concerned.

(e) After issuance of notice under section 143(2)/148, as the case may be, the Assessing Officers shall forward a list of such cases, along with value of criterion, to their Range Addl./Joint Commissioner for the purpose of monitoring.

(f) The designated Assessing Officers shall take all possible steps to locate and serve the query letter and subsequent notice, if required. In case the letter is returned unserved or if the assessee is not traceable at the address mentioned in the AIR, he shall send full details (including the RRR No. and Line No. of the AIR transaction, name and address of the AIR filer etc.) to the DIT (CIB) of his Region who shall contact the AIR - filer for getting the correct address of the assessee. The DIT (CIB) shall, after obtaining the correct address, intimate the same to the designated Assessing Officer for taking further action. In this regard, DIT (CIB) may also consider invoking the provisions of section 285BA(4) and section 271FA.

5. Updating PAN in non-PAN AIR information
On the basis of replies received from the transacting parties of the non-PAN AIR information, the designated Assessing Officer shall intimate PAN of concerned transacting parties, to DIT(CIB) of his region, who shall then update PAN in non-PAN AIR information through AIR module of ITD application.

6. Where time limit for issue of notice under section 143(2) is over
In a case of AIR information with or without PAN, where the time for issuance of notice under section 143(2) has expired, the jurisdictional or the designated Assessing Officers may consider issuance of notice under section 148 as per law, after recording reasons therefor, if they have reasons to believe that income has escaped assessment. However, the initiation of proceedings under section 148 should not be done in a routine manner, and should normally be resorted to only in cases where there is a sound basis for the same, and only after recording the reasons in an elaborate manner in each such case, mentioning the facts thereof, which should stand the test of law.

7. Monitoring
CCsIT shall closely monitor the progress of work and ensure security and confidentiality of the AIR information by following the need-to-know principle. The CsIT and Addl.CslT/JCsIT shall closely monitor the action taken on such information.

The jurisdictional Assessing Officer and the designated Assessing Officer shall maintain a register of action taken on AIR information in the format as per Annexure 4, which should be inspected every quarter by the Range head and the CIT concerned.

Summary of the actionable points is enclosed as Annexure 2. The flow chart is enclosed as Annexure 3.

8 Dissemination
This instruction should be immediately brought to the notice of all officers working in your Region for taking appropriate action.

Bharti gets Rs. 50 cr Income Tab bill for non-payment of tax

The Income Tax Department has slapped a bill of Rs50 crore on leading private telecom company Bharti Airtel for “non-payment of taxes on interest paid on loans taken by it” and allegedly furnishing wrong information to the tax department.

Bharti has contested the claim, but has also paid more than Rs40 crore to the department, an IT department official said.

The Indian firm was accused of non-payment of taxes on the interest paid by it on loans procured from ABN Amro Bank Stockholm Branch, the official said.

Contesting the claim of the tax department, Bharti said it was in full compliance of the interim orders passed in this case and awaits finality through the defined legal process.

The telecom firm had informed the IT department that interest on loans from ABN Amro Stockholm branch were exempt from taxation in India as per the India-Sweden tax treaty but the department found that the lender (ABN Amro) was a tax resident of the Netherlands, thus holding the company’s claim for exemption to be incorrect.

Bharti had claimed that the interest payment was exempt from taxes as the loan was guaranteed by the Swedish Export Credit Guarantee Board, but the information was found incorrect as the authorities found that Bharti Tele-Venture, a holding company of Bharti stood guarantee for the loan.

Bharti Airtel, according to the tax department, gave certificates through undertakings and chartered accountants, mentioning that interest on loans were exempt from taxation in view of treaty between India and Sweden.

The certificates by the company also mentioned that the loan was guaranteed by the Swedish Export Credit Guarantee Board, based on which the exemption of tax on interest paid on loan was claimed.

Bharti Airtel had said, “This is a case where both the contention of the revenue authority and the resultant demand raised by them are being contested by the company.”

The matter is currently pending before the 1st Appellate Authority for adjudication, a Bharti spokesperson said.

Company undergoing liquidation not liable to clear property tax

The Supreme Court last week ruled that the buyer of assets of a company in liquidation had no liability to clear the arrears of property tax, setting aside the judgment of the high court in the case, Champdany Industries Ltd vs The Official Liquidator. In this case, Wool-Combers of India Limited went in liquidation.

The firm bought its assets for a consolidated sum of Rs 7 crore. Later, the Bhatpara Municipality claimed arrears of property tax amounting to Rs 47 lakh. The company contended that it had no liability to pay the dues and the same had to be adjusted from the sale proceeds.

The SC agreed and said: “The municipality was an unsecured creditor. In that capacity it cannot stand on a higher footing than an ordinary unsecured creditor who is required to stand in queue with all others similarly situated for the purpose of realisation of their dues from the sale proceeds.”

Nature of work important criterion for considering regularisation: SC

The Supreme Court has set aside the ruling of the Allahabad High Court in the case, Panki Thermal Station vs Vidyut Mazdoor Sangthan, in which contract workers demanded regularisation on the ground that they were doing the same work as done by the unskilled regular workers.

They asked for equal pay, dearness allowance and other benefits. The labour commissioner accepted their arguments and asked the company to pay them equal wages. The tribunal, however, held that they were not entitled to regularisation. The high court accepted the commissioner’ s view.

The SC held that crucial issues regarding the employment of the contract workers, like the nature of the work, were not considered and therefore directed the commissioner to review his decision.

Workmen compensation requires causal connection between work, injury

Damages under the Workmen Compensation Act can be claimed only if the death or injury suffered by a person had a casual connection to his employment, the Supreme Court stated in the case, Malikarjuna vs Oriental Insurance Co. Ltd. In this case, the driver of a truck died when he was taking goods and people for the benefit of the owner of the vehicle.

He slipped and drowned while resting at a temple pond during the journey. The commissioner under the law ruled that his wife was entitled to compensation and asked the insurance company to pay Rs 2.2 lakh to her. On appeal, the Karnataka High Court exonerated the insurance company from the liability, but asked the owner of the vehicle to meet the liability.

He appealed to the SC. It held that there was no connection between his employment and his death. Therefore the owner was also not liable to pay the compensation.

SC dismisses Customs Commissioner appeal in Malwa Industries’ case

The Supreme Court has dismissed the appeal of the Commissioner of Customs against the ruling of the appellate tribunal granting duty exemption to Malwa Industries Ltd. The company, which is in the textile manufacturing business, imported certain goods as raw materials.

The revenue authorities charged additional duty in terms of Section 3 of the Customs Tariff Act. The company challenged the additional duty arguing that in view of a notification on March 1, 2006, no duty was payable. The authorities contended that the duty exemption was available only if the raw material was a product of the same factory.

This argument was rejected by the tribunal. On appeal, the SC upheld the tribunal’s view, observing that when the goods are imported, it would not be manufactured in the same factory. It would be absurd to insist that the goods should be manufactured in the same factory in such cases.

SC dismisses appeal by Carpenter Classic Exim Ltd

The Supreme Court has dismissed the appeal of M/s Carpenter Classic Exim (P) Ltd and some of its executives who were charged by the Commissioner of Customs, Chennai, with undervaluation of goods which it had imported. Earlier, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) had upheld the penalty imposed on the company and the officers, who imported goods from Italy by floating a front company.

Service tax on Theatre owners on activity of screening of films supplied by Film Distributor

Circular No. 109/03/2009, dated 23-2-2009

A query had been raised by the field formation as to whether the activity of screening of film supplied by a film distributor would fall under any of the taxable services and accordingly, whether the theatre owners are required to pay service tax on amount received by them from distributors. Divergent views have been expressed on this issue. One view is that the activity of screening of films supplied by a film distributor falls under the taxable service category of “renting of immovable property”; while an alternative view is that such activity falls under the category of ‘Business Support Service’.

2. The matter has been examined. Normally a producer of a movie sells the rights of showing the movies in a region to a distributor. The distributor in turns enters into agreement with theater owners. This agreement can be of different types. Thus it is necessary to examine different types of arrangements under which a movie is screened, in order to determine whether any tax liability arises on the activities undertaken by a theater owner and a distributor. Typical types of arrangements normally entered into between a theater owner and a distributor are as under:-

2.1. Under one type of arrangement, the distributor leases out the hall for screening of the movie. Here, the theater owner gets a fixed rent from the distributor. The profit or loss from exhibiting the film is borne by the distributor. In such a case, the theatre owner provides the taxable service of ‘Renting of immovable property for furtherance of business or commerce’ and is accordingly liable to pay service tax.

2.2. Another type of arrangement is where the contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting parties act on principal-to- principal basis and one does not provide service to another. Hence, in such an arrangement the activities are not covered under service tax.

2.3. In yet another type of arrangement, the theater owner buys the print/CD of the film on payment of a fixed price and thereafter screens it in his theater. This transaction is also not subject to service tax being in the nature of sale of goods.

2.4. The arrangement most commonly entered into between a theater owner and a distributor is that the theater owner screens the movie for fixed number of days under a contract. The proceeds earned through sale of tickets go to the distributor but the theatre owner receives a fixed sum depending upon the number of days of screening. In this arrangement, the advertisement and display of posters etc. is done by the distributor. Under this arrangement, the fixed amount contracted is given to the theater owner by the distributor irrespective of the fact whether the movie runs well or not. However, there is no rental arrangement between the theater owner and the distributor as in the arrangement at paragraph 2.1 above. A view has been expressed that in this arrangement, the theater owner provides ‘Business Support Service’ to the distributor and hence is liable to pay service tax on the fixed amount received by the theater owner.

2.5. The matter has been examined. By definition ‘Business Support Service’ is a generic service of providing ’support to the business or commerce of the service receiver’. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provider. In the instant case the theatre owner screens/exhibits a movie that has been provided by the distributor. Such an exhibition is not a support or assistance activity but is an activity on its own accord. That being the case such an activity cannot fall under ‘Business Support Service’.

3. In the light of above , it is clarified that screening of a movie is not a taxable service except where the distributor leases out the theater and the theater owner get a fixed rent. In such case, the service provided by the theater owner would be categorized as ‘Renting of immovable property for furtherance of business or commerce’ and the theater owner would be liable to pay tax on the rent received from the distributor. The facts of each case and the terms of contract must be examined before a view is taken.

4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

Notificcation No. 19/2009- Custom Duty amending various Notification and Provisions

Member-CAs to be punished if found guilty in Satyam scam:ICAI

Apex body of CAs, the Institute of Chartered Accountants of India said severe punishment would be meted out to its member-accountants if they are found guilty in the Rs 7,800-crore accounting fraud at Satyam Computer Services.

“If any of the CAs, who are the members of the institute, are found guilty in the auditing, exemplary punishment would be waiting for them,” ICAI President Uttam Prakash Agarwal said.

Stating that nothing had come on record so far suggesting the involvement of chartered accountants in the Satym scam, he said the probe by high power committee of ICAI would find out any lapse on the part of the auditors.

Determination of annual value of a IInd house which is not let out

CASE LAW DETAILS

Decided by: ITAT, AGRA BENCH, AGRA
In The case of: Ramesh Chand v. ITO
Appeal No. : ITA NO. 171/AGR/2007
Decided on: SEPTEMBER 12, 2008


SUMMARY OF CASE LAW

The annual value of the house property in question would necessarily have to be computed under section 23(1)(a) of the Income-tax Act because the property being not actually let out, there is no basis for presuming either a lesser or a higher rental value than its FRV, i.e. the sum for which the property might reasonably be expected to be let from year to year; the moment the assessee has more than one house property falling under section 23(2) read with section 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not.

RELEVANT PARAGRAPHS:

4.3 Both the authorities below have taken a view that though section 24(b) does not draw any distinction between a property that is self-occupied and one that is not, the assessee having not disclosed any income (annual value) there-against, and which can only be in respect of one house property, which stands already specified by him (the residential property at Shalimar Enclave, Agra), the assessee’s claim for deduction u/s. 24(b) is not maintainable. The Id. A.R., before us, was at pains to emphasize that though, admittedly, the annual value of the impugned self-occupied property could not be taken as nil, in view of the clear provision of section 23(4X8), the assessee’s case falls under section 23(4)(b), and which provision has not been considered by the authorities below. Deeming the second (Lawyer’s Colony, Agra) property to have been let u/s. 23(4)(b), the provision of section 23(1) (i.e., for determination of the annual value in its respect), would come into operation. Section 23(1)(c) clearly provides for the adjustment of the annual value of a property (or a part of a property) which is let, for the period for which the same remains vacant, and as a result of which the rent actually received or receivable falls short of the amount that could be realized there-from, i.e., but for the vacancy. Once the property is deemed to be let, its annual value would have, without doubt, to be determined considering it as so, i.e., as let, so that the provision of section 23(1)(c) would also apply in equal measure thereto, i.e., as to a property which stands actually let out and, therefore, being vacant for the entire period of its ownership during the relevant previous year, its annual value u/s. 23(1) would be nil. Thai precisely states me assessee’s case.

4.4 We, however, are unable to agree with the assessee’s claim. The provision of section 23(l)(c) applies only to a property which is let, in whole or in part, i.e.. failing u/s. 23(1)(b) of the Act, and which (the latter) provision becomes operational only where the amount of actual rent received or receivable upon letting is in excess of the sum referred to in s. 23(1)(a), i.e.. the fair rental value (FRV) (defined as the sum for which the property might reasonably be expected to be let from year to year), and not otherwise, in which (latter) case, the annual vaiue__of even a let out properly would be computed u/s. 23(1)(a) at its FRV. This basic or qualifying condition for the attraction of section 23(1)(b) being not met or satisfied in the present case, the further question of applicability of s. 23(I)(c) does not arise. Put differently, the annual value of a let out property, depending on the facts of the case, could be computed under any of the clauses of s. 23(1), and it is not necessary that the same would be computable only with reference to section 23(l)(b) or section 23(l)(c), as the case may be.

4.5 It may well be argued, however, that section 23(1)(b) represents an independent or distinct provision, i.e., from section 23(l)(c); each of the three clauses - (a), (b) and (c) of sub-section (I) of section 23 - representing independent and distinct situations, as also borne out by the fact of the said clause being marked or separated by the word or so that the law contemplates either of the three scenarios as obtaining for a given property during the year or part thereof. As such section 23(l)(c) is not an adjunct to, or a sub-set of, section 23(l)(b) and, therefore, the qualifying condition therefore, i.e., of the rent received or receivable being in excess of the fair rental value (FRV) would not be applicable to, or hold for, a property which, though let, remains vacant (for the whole or part of the year) and, consequently, falls under, or is covered by, section 23(1 )(c). Secondly, even so, the property falling u/s. 23(4)(b), being only deemed to have been let out, and not actually so, how could it be presumed to have been let at less than its FRK ie., it may well be presumed at more than the FRV, so that the condition for the application of section 23(1)(b) stands theoretically met, to, of course, no consequence, as the entire rental income is unrealized on account of the property being vacant and, thus, stands to be adjusted in full in the computation of its annual value, and which would therefore work to nil amount. In other words, the annual value, irrespective of the amount at which it is reckoned, is only notional; the property being vacant throughout, and thus immaterial i.e.. even if its quantum were to be taken as relevant for the purpose of application of s. 23(l)(c).

The argument(s), though appearing attractive at first blush, is not at all warranted by the provision of s. 23(1) of the Act. Section 23(1)(b) applies only to a property (or part thereof) that stands let for rent, while section 23(1)(c) applies to one that though let, remains vacant for the whole or part of the year. As such, the two provisions are, by definition, linked. Only a property that is let, could be vacant, so that the concept of vacancy is intrinsically linked with the state of actual letting, or only applicable to a property imbued with the character or condition of being let while sub-sections 23(2) and 23(3), under which the property under reference falls, only refer to a property that is self-occupied by the assessee, with rent (which would arise only from actual letting) or any other benefit being not derived there-from, so that the provision of section 23(l)(b) or s. 23(1)(c) could not apply thereto, i.e., to a property falling under section 23(2) read with
section 23(3) and this underscores the fallacy in the assessee’s argument/case. Section 23(1)(c), thus, represents or provides for a further qualification qua the property that is actually let, as contemplated under section 23(1)(b), yielding benefit to its owner, though, whose annual value, for the purposes of section 23, would have to be computed by factoring in the factum of its vacancy during the year. This, to our mind, sums up the scope of s. 23(1)(c), which only provides for the manner of computation of the annual value, under the condition of the property being qualified to be so valued. As such, to contend that clauses (b) and (c) of sub-section 23(1) would apply also to a property falling u/s. 23(4Xb) (implying antecedent satisfaction of sub section 23(2) and 23(3)), or that the condition for the application of s. 23(l)(b) would not apply to one covered u/s. 23(l)(c) would be presumptuous and inconsistent with the express provisions of the Act. It needs to be appreciated that in cases like the present one the property remains vacant
throughout, i.e., since the assumption of its ownership by the assessee, so that how could it be said to have been let at any time during the year, or, for that matter, at any paint of time of its ownership.

And which brings us the to next objection, which argues of the stale of letting us being only one by virtue of the legal fiction of section 23(4)(b), and which should therefore be taken to its logical end by presuming a rental value. True, but then the deemed rental value, that would logically follow the condition of deemed letting, would only be equal to the FRY, i.e., as postulated by s. 23(l)(a) neither less nor more, so that in case of a deemed letting under section 23(4)(b), as in the present case the annual value of the relevant house properly would necessarily have to be computed u/s. 23(l)(a). And this is only for the reason that the property being not actually let out, rather stands proscribed for being so, but only deemed to be so, in terms of the provisions of the Act, there is no basis for presuming either a lesser or a higher rental value than its FRV i.e., the sum for which the property might reasonably be expected to be let from year to year. In our opinion, in fact, inherent in the mandate of section 23(1)(a) is the state of deemed letting, with the clauses (h) and (c) of section 23(1) covering the state of actual letting.

Further, it is wrong to suggest that the Revenue has only considered the provision of 23(4)(a) while the assessee’s case falls u/s. 23(4)(b). The two clauses, `(a)’ and `(b)’ of section 23(4) are only two limbs of the same provision, which sub-section would be incomplete or inchoate without either, so that the question of the non-consideration of s. 23(4)(b) does not arise. The moment the assessee has more than one house property falling u/s. 23(2) r/w s. 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not, so that section 23(4)(b) is only an enabling provision. However, that would not mean that a condition that is incapable of being met being associated only with the condition of actual letting, i.e., vacancy, would be deemed to be satisfied. In fact, an actual letting, even if presumed (though it could not be a matter of presumption) , i.e., for the sake of argument, so as to validate the notion of vacancy, would at once take it (the relevant property) outside the ambit of 23(4).

Computation of depreciation in cases covered by Rule 8 of Income Tax Rules, 1962

CASE LAW DETAILS

Decided by: ITAT, AGRA BENCH, AGRA
In The case of: Ramesh Chand v. ITO
Appeal No. : ITA NO. 171/AGR/2007
Decided on: SEPTEMBER 12, 2008


SUMMARY OF CASE LAW

The annual value of the house property in question would necessarily have to be computed under section 23(1)(a) of the Income-tax Act because the property being not actually let out, there is no basis for presuming either a lesser or a higher rental value than its FRV, i.e. the sum for which the property might reasonably be expected to be let from year to year; the moment the assessee has more than one house property falling under section 23(2) read with section 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not.

RELEVANT PARAGRAPHS:

4.3 Both the authorities below have taken a view that though section 24(b) does not draw any distinction between a property that is self-occupied and one that is not, the assessee having not disclosed any income (annual value) there-against, and which can only be in respect of one house property, which stands already specified by him (the residential property at Shalimar Enclave, Agra), the assessee’s claim for deduction u/s. 24(b) is not maintainable. The Id. A.R., before us, was at pains to emphasize that though, admittedly, the annual value of the impugned self-occupied property could not be taken as nil, in view of the clear provision of section 23(4X8), the assessee’s case falls under section 23(4)(b), and which provision has not been considered by the authorities below. Deeming the second (Lawyer’s Colony, Agra) property to have been let u/s. 23(4)(b), the provision of section 23(1) (i.e., for determination of the annual value in its respect), would come into operation. Section 23(1)(c) clearly provides for the adjustment of the annual value of a property (or a part of a property) which is let, for the period for which the same remains vacant, and as a result of which the rent actually received or receivable falls short of the amount that could be realized there-from, i.e., but for the vacancy. Once the property is deemed to be let, its annual value would have, without doubt, to be determined considering it as so, i.e., as let, so that the provision of section 23(1)(c) would also apply in equal measure thereto, i.e., as to a property which stands actually let out and, therefore, being vacant for the entire period of its ownership during the relevant previous year, its annual value u/s. 23(1) would be nil. Thai precisely states me assessee’s case.

4.4 We, however, are unable to agree with the assessee’s claim. The provision of section 23(l)(c) applies only to a property which is let, in whole or in part, i.e.. failing u/s. 23(1)(b) of the Act, and which (the latter) provision becomes operational only where the amount of actual rent received or receivable upon letting is in excess of the sum referred to in s. 23(1)(a), i.e.. the fair rental value (FRV) (defined as the sum for which the property might reasonably be expected to be let from year to year), and not otherwise, in which (latter) case, the annual vaiue__of even a let out properly would be computed u/s. 23(1)(a) at its FRV. This basic or qualifying condition for the attraction of section 23(1)(b) being not met or satisfied in the present case, the further question of applicability of s. 23(I)(c) does not arise. Put differently, the annual value of a let out property, depending on the facts of the case, could be computed under any of the clauses of s. 23(1), and it is not necessary that the same would be computable only with reference to section 23(l)(b) or section 23(l)(c), as the case may be.

4.5 It may well be argued, however, that section 23(1)(b) represents an independent or distinct provision, i.e., from section 23(l)(c); each of the three clauses - (a), (b) and (c) of sub-section (I) of section 23 - representing independent and distinct situations, as also borne out by the fact of the said clause being marked or separated by the word or so that the law contemplates either of the three scenarios as obtaining for a given property during the year or part thereof. As such section 23(l)(c) is not an adjunct to, or a sub-set of, section 23(l)(b) and, therefore, the qualifying condition therefore, i.e., of the rent received or receivable being in excess of the fair rental value (FRV) would not be applicable to, or hold for, a property which, though let, remains vacant (for the whole or part of the year) and, consequently, falls under, or is covered by, section 23(1 )(c). Secondly, even so, the property falling u/s. 23(4)(b), being only deemed to have been let out, and not actually so, how could it be presumed to have been let at less than its FRK ie., it may well be presumed at more than the FRV, so that the condition for the application of section 23(1)(b) stands theoretically met, to, of course, no consequence, as the entire rental income is unrealized on account of the property being vacant and, thus, stands to be adjusted in full in the computation of its annual value, and which would therefore work to nil amount. In other words, the annual value, irrespective of the amount at which it is reckoned, is only notional; the property being vacant throughout, and thus immaterial i.e.. even if its quantum were to be taken as relevant for the purpose of application of s. 23(l)(c).

The argument(s), though appearing attractive at first blush, is not at all warranted by the provision of s. 23(1) of the Act. Section 23(1)(b) applies only to a property (or part thereof) that stands let for rent, while section 23(1)(c) applies to one that though let, remains vacant for the whole or part of the year. As such, the two provisions are, by definition, linked. Only a property that is let, could be vacant, so that the concept of vacancy is intrinsically linked with the state of actual letting, or only applicable to a property imbued with the character or condition of being let while sub-sections 23(2) and 23(3), under which the property under reference falls, only refer to a property that is self-occupied by the assessee, with rent (which would arise only from actual letting) or any other benefit being not derived there-from, so that the provision of section 23(l)(b) or s. 23(1)(c) could not apply thereto, i.e., to a property falling under section 23(2) read with
section 23(3) and this underscores the fallacy in the assessee’s argument/case. Section 23(1)(c), thus, represents or provides for a further qualification qua the property that is actually let, as contemplated under section 23(1)(b), yielding benefit to its owner, though, whose annual value, for the purposes of section 23, would have to be computed by factoring in the factum of its vacancy during the year. This, to our mind, sums up the scope of s. 23(1)(c), which only provides for the manner of computation of the annual value, under the condition of the property being qualified to be so valued. As such, to contend that clauses (b) and (c) of sub-section 23(1) would apply also to a property falling u/s. 23(4Xb) (implying antecedent satisfaction of sub section 23(2) and 23(3)), or that the condition for the application of s. 23(l)(b) would not apply to one covered u/s. 23(l)(c) would be presumptuous and inconsistent with the express provisions of the Act. It needs to be appreciated that in cases like the present one the property remains vacant
throughout, i.e., since the assumption of its ownership by the assessee, so that how could it be said to have been let at any time during the year, or, for that matter, at any paint of time of its ownership.

And which brings us the to next objection, which argues of the stale of letting us being only one by virtue of the legal fiction of section 23(4)(b), and which should therefore be taken to its logical end by presuming a rental value. True, but then the deemed rental value, that would logically follow the condition of deemed letting, would only be equal to the FRY, i.e., as postulated by s. 23(l)(a) neither less nor more, so that in case of a deemed letting under section 23(4)(b), as in the present case the annual value of the relevant house properly would necessarily have to be computed u/s. 23(l)(a). And this is only for the reason that the property being not actually let out, rather stands proscribed for being so, but only deemed to be so, in terms of the provisions of the Act, there is no basis for presuming either a lesser or a higher rental value than its FRV i.e., the sum for which the property might reasonably be expected to be let from year to year. In our opinion, in fact, inherent in the mandate of section 23(1)(a) is the state of deemed letting, with the clauses (h) and (c) of section 23(1) covering the state of actual letting.

Further, it is wrong to suggest that the Revenue has only considered the provision of 23(4)(a) while the assessee’s case falls u/s. 23(4)(b). The two clauses, `(a)’ and `(b)’ of section 23(4) are only two limbs of the same provision, which sub-section would be incomplete or inchoate without either, so that the question of the non-consideration of s. 23(4)(b) does not arise. The moment the assessee has more than one house property falling u/s. 23(2) r/w s. 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not, so that section 23(4)(b) is only an enabling provision. However, that would not mean that a condition that is incapable of being met being associated only with the condition of actual letting, i.e., vacancy, would be deemed to be satisfied. In fact, an actual letting, even if presumed (though it could not be a matter of presumption) , i.e., for the sake of argument, so as to validate the notion of vacancy, would at once take it (the relevant property) outside the ambit of 23(4).

Recovery of sales tax and recovery of dues to Public Works Department not permissible without consent of BIFR

.V.V. Paper Industries Ltd. vs. Commercial Tax Officer [(2008) 145 Comp. Cas 815 (Mad])

The Petitioner Company became side and a reference was filed before the Board for Industrial & Financial Reconstruction (BIFR) u/s. 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) for declaring the company a sick company and also for effecting rehabilitation. The Board by an order dated 9-5-2001, declared the Petitioner company a sick company.

In respect of sales tax dues to the extent of Rs.5,05,30,050/ -, the Commercial tax Officer issued a distraint order exercising the powers u/s. 8 of the Tamil Nadu Revenue Recovery Act, 1864. The Executive Engineers, Public Works Department, had also issued an order dated 20-5-2004, directing the Petitioner company to pay Rs.49,34,032/ - being the amount for having drawn water from Amarawathi river.

The question that arose for consideration in the writ petition filed by the Petitioner seeking to quash the orders of the Respondent was whether the Respondent could recover the amount due from the assets of the company without obtaining necessary permission from the BIFR wherein the matter was pending.

His Lordship of the Madras High Court, allowing the petitions, that the Respondents could not proceed with either distress action initiated by the Commercial Tax Department or for recovery of amount by the Public Works Department unless consent was obtained from the Board. It was open to the Respondents in these cases to take necessary steps to implead themselves before the Board and seek permission for the purpose of recovery of the amount from the assets of the Petitioner Company.

Taxman gears up to move apex court on its tax claims of around Rs 2,000 crore

The Income Tax department is all set to move the Supreme Court for a final judgement on its tax claims of around Rs 2,000 crore (Rs 20 billion) in cases involving dividend stripping prior to 2002-03. The taxman had lost the case in the Bombay high court last year.

Though the government in 2005 put an end to dividend stripping by enacting a law, disallowing the sale of mutual fund units within nine months if they were purchased three months prior to the dividend record date, the I-T department has been trying to recover taxes from several assessees, who exploited this loophole prior to the enactment of the new law and evaded tax.

Dividend stripping is a method of avoiding tax by buying securities or mutual fund units just before the record date and selling them soon after. By buying those instruments, the investor used to get dividends and by selling them at a lower ex-dividend price, s/he used to book a short-term capital loss. This loss used to be neutralized by the short-term capital gain, thereby reducing the tax liability.

The I-T department will file its appeal in the case against Mumbai-based Wallfort Shares & Stock Brokers, which has become a benchmark for some “dividend-stripping” transactions. One of the longest-heard financial cases, it will have a wider implication on tax claims of around Rs 2,000 crore (Rs 20 billion).


Giving a major blow to the I-T department in the case, the Bombay HC last year ruled that any loss arising out of purchase and subsequent sale of mutual fund units, soon after receiving dividend, could be allowed as an expense for deduction from taxable income.

Following the ruling, even other investors in similar cases did not pay tax, which ran into around Rs 2,000 crore.

For the assessment year 2001-02, Wallfort had purchased 4.55 billion units from Chola MF on March 23, 2000 at Rs 17.57 per unit, totaling Rs 8 crore (Rs 80 million). On the same day, Chola MF distributed a dividend of Rs 1.8 crore (Rs 18 million) at 40 per cent per unit.

On March 27, 2000, the assessee (Walfort) sold the units by way of redemption and Chola MF repurchased them at Rs 12.97 each and paid Rs 5.90 crore (Rs 59 million).

The assessee had also received Rs 2.3 crore (Rs 23 million) as an incentive for purchase and sale of such units. So, on an investment of Rs 8 crore (Rs 80 million), the assessee received Rs 7.96 crore or Rs 79.6 million (in the form of dividend income, incentive income and sale consideration).

At the same time, on the units sale, the broking firm made a loss of around Rs 2.1 crore or Rs 21 million (Rs 8 crore or Rs 80 million minus Rs 5.90 crore or Rs 59 million). Since the dividend income was exempt from tax under Section 10(33) of the I-T Act, the assessee claimed business loss of around Rs 2.1 crore (Rs 21 million) to be set off against other income.

However, the I-T department maintained that the loss was created through a pre-designed set of transactions to avoid paying tax and added it back to the trading income of the assessee.

While the department called such transactions as ‘coloured’ and losses arising out of it as ‘artificial’ to evade taxes, the HC in its ruling said that such transactions needed to be seen with reference to Section 94(7) that dealt with tax avoidance transactions.

The section provided that where the units were purchased and sold within a stipulated time, the income from such units was exempt. So, while computing losses of such persons, the losses to the extent of the income received should be ignored. Thus, losses in excess of the income should be allowed for deduction.

However, the I-T department has now sent a final proposal to the finance ministry to fight this case in the apex court and the appeal is likely to be registered early next month, said a source close to development.

Date which is material and relevant for purposes of computing limitation period in certain cases under IT Act

CASE LAW DETAILS
Decided by: ITAT, PUNE BENCH `A’ : PUNE
In The case of: Prakash Bhalaji Bafna v. ACIT
Appeal No. : ITA NO. 845/PN/2005
Decided on: APRIL 25, 2008

SUMMARY OF CASE LAW

The date of receipt of the order of the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, by the Chief Commissioner or the Commissioner, as the case may be, is material and relevant for the purposes (i) filing an appeal to the Tribunal by the Commissioner against the order of the first appellate authority, (ii) filing an appeal by the Chief Commissioner or the Commissioner to the High Court against the order of the Appellate Tribunal, (iii) for the purposes of computing the period of limitation in making fresh assessment on its remand by the Commissioner (Appeals) or by the Appellate Tribunal, as the case may be (iv) computing the limitation period of six months for passing the order of penalty under Chapter XXI of the Act and not the date of receipt of the order by the Assessing Officer or the date on which the Assessing Officer gives an appeal effect to the appellate order passed by the Commissioner (Appeals) or by the Appellate Tribunal, as the case may be.

RELEVANT PARAGRAPHS:

7. There was a search and seizure action against the assessee on 10-10-1995. In pursuance thereto, the A.0 initiated proceedings u/s 158BC of the Act. Notice u/s 158BC read with section 158BD dated 10-9-1996 was issued to the assessee requiring the assessee to prepare and file the return of income in the prescribed form setting forth his total income including the undisclosed income for the block period from 1-4-1985 to 10-10-1995. Notice u/s 158BC issued by the A.O was served on the assessee on 11-9-1996. The assessee had filed a return of income for the block period in form no. 2B on 30-12-1996. In the block return, the assessee declared undisclosed income at Rs. nil. After examining the facts of the case and after hearing the assessee, the A.O prepared a draft block assessment order on 25-9-1997, by determining the total undisclosed income at Rs. 40,44,250, a copy of which was forwarded by the A.O to the assessee vide letter no. PN.AC.Cir.3( 3)/ /97-98 dated 25-9-1997 with an intimation to the assessee that the assessee may seek an opportunity of being heard before Hon’ble Commissioner of Income-tax, Prapikar Sadan, 60/61 Erandawane, karve Road, Pune-411 004 at 11.30 a.m. on 26-9-1997. After taking the approval from the aforesaid CIT, the A.O completed the block assessment u/s 158BC on 30-9-1997 determining the total undisclosed income of the assessee at Rs. 70,18,180A. Being aggrieved with the A.O’s block assessment order dated 30-9-1997, the assessee preferred an appeal before the Tribunal. The appeal so filed before the Tribunal was registered as IT(SS) A. No. 131/PN/1997. In this appeal, the Asstt. CIT Cir. 3(3) was made as the respondent being the A.O who passed the block assessment order on 30-9-1997. After hearing both the parties and after considering the facts and circumstances of the case, the Tribunal disposed off the appeal by setting aside the A.O’s assessment order and by restoring the entire matter back to the A.O for passing fresh order after conducting further probe and detailed investigation in accordance with the provisions of law and after providing a reasonable opportunity to the assessee vide its order dated 05-03-2003. The Tribunal also identified certain points which the A.O would consider while making a further probe and investigation in accordance with law de novo while passing fresh assessment proceedings. The A.O was given liberty to conduct the detailed probe and further investigation in the manner as he may consider proper by giving copies of the entire material to the assessee and by providing the assessee adequate and Reasonable opportunity to make his submissions and to lead evidence in rebuttal thereto and also provide the assessee an opportunity to cross examine all the persons on whosestatements the A.O intended to place reliance. It was thus ordered that the A.0 would pass a fresh order in accordance with the provisions of law and after providing an adequate and reasonable opportunity to the assessee. The Tribunal’s order is dated 5-3-2003. The Tribunal’s order dated 5-3-2003 was sent on 24-03-2003 (outward No. 136 dated 24-03-2003 of the Registry) by Regd. A.D. post to the CIT Karve Road, Pune-4, being the concerned CIT, who had jurisdiction over the assessee’s case as per the information available from the impugned assessment order, which was a subject matter of appeal before the Tribunal. A copy of the Tribunal’s order was also served on the Senior Departmental Representative on 21-03-2003.

9. In the light of the provisions contained in sub-section (3) of section 254 as it stands after the amendment made by the Finance (No. 2) Act, 1991 with effect from 27-9-1991, the Appellate Tribunal is required to send a copy of any order passed by it u/s 254 of the Act to the assessee and to the Commissioner. Rule 35 of the Income-tax (Appellate Tribunal) Rules, 1963 also prescribes the same thing. It is pertinent to note that between 1-4-1988 and 26-9-1991 u/s 254(3) of the Act, the Appellate Tribunal was required to send a copy of any order passed u/s 254 to the assessee and to the Chief Commissioner or the Commissioner. As a result of the amendment effective from 27-9-1991 of section 254(3) by the Finance (No. 2) Act, 1991, the position as it prevailed prior to 1-4-1988 has been restored. The Legislature has omitted the word “Chief Commissioner or” from section 254(3) which was earlier inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1988, by the amendment made by the Finance (No. 2) Act 1991 with effect from 27-9-1991 on the analogy that the reference to the “Chief Commissioner” as well as “the Commissioner” in provisions of sub-section (3) of section 254 has resulted in some of the reference applications filed by the department u/s 256 being held as time-barred by the Appellate Tribunal because of reckoning the period of filing an application from the date of service of the order on the Chief commissioner and not the concerned Commissioner though section 256 of the Act provided that the Commissioner may, within 60 days on receipt of the order of the Appellate Tribunal, by an application, required the Tribunal to refer to the Hon’ble High Court any question of law arising out of such order. In the present case, we are concerned as to the position of law effective from 27-9-1991 requiring the Tribunal of sending a copy of any orders passed u/s 254 of the Act only to the Commissioner and not the Chief Commissioner. A reading of sub-section (2) and (3) of section 253 of the Act would indicate that the Commissioner may, if he objects to any order passed by the CIT(A), direct the A.O to appeal to the Appellate Tribunal against the impugned order, and such appeal shall be filed within 60 days of the date on which the order sought to be appealed against is communicated to the Commissioner. The assessee is also permitted to file an appeal to the Appellate Tribunal against the CIT(A)’s order as would be clear on reading the sub-section (1) of section 253 of the Act, and such appeal shall also be filed within 60 days of the date of order sought to be appealed against is communicated to the assessee. An appeal to be filed by the assessee or by the Commissioner to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner. The prescribed form is Form no. 36 as provided under Rule 47(1) of the IT. Rules in Form No. 36 at column 4, the details as to the A.O passing the original order is to be provided. In the cause title, the details of the appellant and the respondent are to be given. Thus, the expression Commissioner” occurring in sub-section (2) of section 253 and in sub-section (3) of section 254 would mean the Commissioner having jurisdiction over the assessee or the matter in respect of which the original order was passed by the concerned A.O, the designation of which is mentioned in the memorandum of appeal unless otherwise modified or amended subsequently by any application filed either by the appellant or by the respondent before the Tribunal.

10. It is also pertinent to note that if the Chief Commissioner or Commissioner is aggrieved of any part of the order passed by the Tribunal may file an appeal to the High Court as provided in sub-section (2) of section 260A of the Act, and such appeal by the Chief Commissioner or Commissioner shall be filed within 120 days from the date on which the order appealed against is received by the Chief Commissioner or Commissioner. It is thus clear that for the purpose of computing the limitation period of 120 days for filing the appeal to the High Court by the department, the relevant date is the date on which the order passed by the Tribunal is received by the Chief Commissioner or the Commissioner and not the date on which the order of the Tribunal is received by the concerned A.O or the date on which the concerned Officer has given effect to the Tribunal’s order. What is material is the date on which order of the Tribunal is received by the Chief Commissioner or the commissioner for the purposes of filing an appeal by the department to the High Court. Similarly, if the commissioner is aggrieved of any of the order passed by the first appellate authority, section 253(2) empowers the Commissioner to direct the A.O to prefer an appeal to the Tribunal against such order and such appeal shall be filed within 30 days from the date on which the order of the first appellate authority is received by the Commissioner as would be clear on reading the provisions contained in sub-section (2) and sub-section (3) of section 253 of the Act. The right to file an appeal to the Tribunal as well as to the High Court is granted to both the assessee as well as to the Commissioner. The right is granted u/s 253(2) to the Commissioner to direct the A.O to appeal to the appellate Tribunal against the order of the first appellate authority which would make it clear that the person who has right to appeal to the Appellate Tribunal against the order of the first appellate authority is the Commissioner and not the A.O. When A.O files an appeal under the directions of the Commissioner performs merely a ministerial functions. The use of the expression “the Commissioner” or the “the A.O” in section 253(2) denotes that the Commissioner or the A.O referred to is that Commissioner or the A.O who has jurisdiction over the assessee or the matter at the time when the appeal was sought to be filed by the department. Consequently on disposal of the appeal by the Tribunal, the Tribunal shall send a copy of any order passed by it u/s 254(1) to the commissioner who had jurisdiction over the assessee or the matter as so mentioned in the memorandum of appeal unless the same is changed or modified by an application filed either by the appellant or by the respondent before the Tribunal. The provisions of the Act relating to the (i) communication of the order passed by the CIT(A), (ii) a right of appeal given to the department to file an appeal to the Tribunal against the order of the first appellate authority’ (iii) communication of the order passed by the Tribunal and (iv) right of appeal given to the department to file an appeal to the High Court against the order of the Tribunal are set out as under:-

(i) Section 250(1) - provides that the Commissioner (Appeals) shall communicate the order passed by him to the assessee and to the Chief Commissioner or the Commissioner.

(ii) Section 253(2) and 253(3) - provide that the Commissioner may direct the A.O to file an appeal to the Appellate Tribunal against the order of the first appellate authority within 60 days of the date on which the order sought to be appealed against was communicated to the Commissioner.

(iii) Section 254(3) provides that the Appellate Tribunal shall send a copy of any orders passed by the Appellate Tribunal to the assessee and to the Commissioner.

(iv) Section 260A(2) and sec. 260A(2)(c) provide that the for the Chief Commissioner or the commissioner may file an appeal to the High Court against any order passed by the appellate Tribunal within 120 days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner.

11. In the light of the scheme of the Act contained in the aforesaid provisions, it is amply clear that the date of receipt of the appellate order appealed against by the Commissioner or Chief Commissioner, as the case may be, is material for the purposes of filing an appeal by the Commissioner to the Appellate Tribunal and by the Chief Commissioner or Commissioner to the High Court and for the purposes of computing the period of limitation for filing such appeal. Identical provisions as analogous to the provisions contained in section 253(3) and 260A(2)(a) have been made by the Legislature with reference to the time limit provided for completing the fresh assessment by the A.O on its remand either by the CIT(A) or by the Appellate Tribunal or by any authority as mentioned in sub-section (2A) of section 153 of the Act, and also with reference to the provisions providing for the time limit to pass a penalty order under Chapter XXI of the Act as mentioned in section 275(1 )(a) of the Act. In section 153(2A) of the Act, the time limit for passing a fresh assessment order is provided as one year from the end of the financial year in which the order passed by the first appellate authority u/s 250 or by the Appellate Tribunal u/s 254 is received by the Chief Commissioner or the Commissioner or as the case may be , the order _u/s 263 or 264 is passed by the Chief Commissioner or the Commissioner. For the purposes of sub-section (2A) of section 153 what is material is the date on which the order passed by the Commissioner (Appeals) under section 250 or the order passed by the Appellate Tribunal under section 254 is received by the Chief Commissioner or the Commissioner has similarly provided for the purposes of filing an appeal by the department to the Appellate Tribunal u/s 253(3) and to the High Court u/s 260A(2)(a) of the Act. Under section 275(1)(a) also the material date is the date on which the order of the Commissioner (Appeals) or the as the case may be, the appellate tribunal is received by the Chief Commissioner or the Commissioner to compute the limitation period of six months.

12. In the light of the aforesaid provisions contained in section 250 (7), 253(2), 253(3); 254(3), 260A(2)(a), 153(2A) and 275(1)(a) as discussed above, we hold that the date of receipt of the order of the Commissioner (Appeals) or of the Appellate Tribunal, as the case may be, by the Chief Commissioner or the Commissioner, as the case may be, is material and relevant for the purposes (i) filing an appeal to the Tribunal by the Commissioner against the order of the
first appellate authority, (ii) filing an appeal by the Chief Commissioner or the Commissioner to the Hon’ble High Court against the order of the Appellate Tribunal, (iii) for the purposes of computing the period of limitation in making fresh assessment on its remand by the Commissioner (Appeals) or by the Appellate Tribunal, as the case may be. (iv) computing the limitation period of six months for passing the order of penalty under Chapter XXI of the Act and not the date of receipt of the order by the Assessing Officer or the date on which the Assessing Officer gives an appeal effect to the appellate order passed by the Commissioner (Appeals) or by the Appellate Tribunal, as the case may be.

Empanelment of CA Firms with Serious Fraud Investigation Office (SFIO)

Serious Fraud Investigation Office has invited applications from Chartered Accountants empanelled with the office of C&AG and who may like to be associated with SFIO for carrying out forensic examination of records of companies ordered for investigation by the government.

Serious Fraud Investigation Office, Ministry of Corporate Affairs intends to outsource certain Forensic Audit services in cases under investigation. The interested firms/ individuals empanelled with the CAG office or the Cost Auditing firms with expertise in forensic investigation field may apply immediately furnishing therewith, their expertise in the area of Forensic Accounting and audit including Cyber Forensic, the software that will be used and details of any Government/Public Sector or other undertaking where their services had been used. The interested firm shall be paid at the rate of Rs. 5000/- per day, for a team consisting of at least five individuals, with service tax and government dues extra.

Those interested may write at the following address:

Director
Serious Fraud Investigation Office (SFIO)
Paryavaran Bhawan
2nd Floor, CGO Complex
Lodhi Road
New Delhi- 110 003

For any query please contact:
Shri Sharad K Sharma
Joint Director
Tel: 011-2436 9251
Fax: 011-2436 5809

Empanelment of CA Firms with Serious Fraud Investigation Office (SFIO)

Serious Fraud Investigation Office has invited applications from Chartered Accountants empanelled with the office of C&AG and who may like to be associated with SFIO for carrying out forensic examination of records of companies ordered for investigation by the government.

Serious Fraud Investigation Office, Ministry of Corporate Affairs intends to outsource certain Forensic Audit services in cases under investigation. The interested firms/ individuals empanelled with the CAG office or the Cost Auditing firms with expertise in forensic investigation field may apply immediately furnishing therewith, their expertise in the area of Forensic Accounting and audit including Cyber Forensic, the software that will be used and details of any Government/Public Sector or other undertaking where their services had been used. The interested firm shall be paid at the rate of Rs. 5000/- per day, for a team consisting of at least five individuals, with service tax and government dues extra.

Those interested may write at the following address:

Director
Serious Fraud Investigation Office (SFIO)
Paryavaran Bhawan
2nd Floor, CGO Complex
Lodhi Road
New Delhi- 110 003

For any query please contact:
Shri Sharad K Sharma
Joint Director
Tel: 011-2436 9251
Fax: 011-2436 5809

Bangalore IT park defrauds Rs 75.8cr to Income Tax Department

On paper, this tech park had 37 units functioning on its premises — all entitled to income tax concessions. What they turned out to be were nothing less than maintenance rooms located in the car park! And the tech park owner stashed away Rs 75.8 crore that he had claimed as tax concessions for three assessment years.

In a classic example of gross misuse of incentives doled out by the government, a big tech player, who is the kin of a Congress bigwig, got approval through the automatic route under the state’s industrial park scheme 2002, by fudging documents — right from non-existent company names to fictitious MoUs — and claimed tax benefits.

The tech park owner had claimed income tax concessions for 2004-05, 2005-06 and 2006-07 on profits earned through leasing and renting out space to various units.

The case, cracked by the Income Tax sleuths, has assumed importance in the light of incentives being given to industrial units all over the country. Following a raid on the IT park at CV Ramanagar, it was found that the owner, in his application, had shown that 37 units were functioning in the industrial park. As per the provisions of industrial park scheme, income tax concession can be allowed only if all the units specified in the application are located and are operational.


On a tip-off, IT sleuths conducted a raid and found that only eight units were located even as the managing director of the tech park company maintained that the industrial park had 37 operational units. When he was asked to physically identify the units, the MD claimed that the locked rooms in the multi-level car park were the office spaces allotted to those units. When the rooms were opened, it turned out to be empty maintenance rooms!

In the face of hard evidence collected during the raid, the assessee eventually withdrew the concession claim aggregating to Rs 75.8 crore. The search and subsequent probe brought to light that the internal auditor was paid Rs 2 lakh to arrange for bogus company names for MoUs.

The investigations were carried out by Bangalore circle investigation wing comprising Abhay Kumar, director, SVSS Prasad, additional director, and B L Guru Prasad, deputy director.

Section 14A: Method for determining amount of expenditure in relation to income not includible in total income.

NOTIFICATION NO 45/2008, Dated: March 24, 2008

In exercise of the powers conferred by Section 295 of the Income-tax read with sub-section (2) of Section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income Tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2008.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income Tax Rules, 1962, after rule 8C, the following rule shall be inserted, namely:-

“Method for determining amount of expenditure in relation to income not includible in total income.
8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-

(a) the correctness of the claim of expenditure made by the assessee; or

(b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:-

(i) the amount of expenditure directly relating to income which does not form part of total income;

(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-

A x B
C

Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year;

B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;

C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;

(iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.”

3. For the purposes of this rule, the ‘total assets’ shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.

F.No. 134/09/2007-TPL

(Sambit Tripathy)
Under Secy.

Note: The principal rules were published vide notification number S.O. 969(E), published in the Gazette of India, Part-II, Section 3, Sub-section (ii) dated the 26th March, 1962 and last amended by Income-tax (Fourth Amendment) Rules, 2008 vide Notification No. S.O. 493(E) dated 13th March, 2008.

Section 90 (3) DTAA Notification

NOTIFICATION NO. 91/2008, DATED 28-8-2008

In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax or as the case may be, avoidance of double taxation, provides that any income of a resident of India “may be taxed” in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement.

CBDT Circular on charitable institutions and mutual organisations

Exemption under section 11 in case of assessee claiming both to be charitable institutions as well as mutual organisations

Circular No. 11/2008, dated 19-12-2008

Definition of Charitable purpose under section 2(15) of the Income-tax Act, 1961

Section 2(15) of the Income Tax Act, 1961 (Act) defines charitable purpose to include the following:-

(i) Relief of the poor
(ii) Education
(iii) Medical relief, and
(iv) the advancement of any other object of general public utility.

An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of

(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to any trade, commerce or business;

for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity.

2. The following implications arise from this amendment

2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities.

2.2. Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that

(i) the business should be incidental to the attainment of the objectives of the entity,and
(ii) separate books of account should be maintained in respect of such business.

Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.

3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants.

Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15).


3.2. In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.

AO directed to decide “jurisdictional issue” as a “preliminary issue” and assesee entitled to challenge the same

Where the assessee, a Dutch company, purchased shares of a Cayman Company (which in turn held shares of an Indian company ‘Hutch Essar’) from another foreign company (HTIL) and the AO issued a notice asking the assessee why it should not be treated as an assessee in default for failure to deduct tax at source and the assessee filed a writ petition to challenge the same on the ground that a transaction between two foreign companies did not attract the provisions of the Act, HELD dismissing the writ petition that:

(a) Prima facie, the subject matter of the present transaction between the assessee and HTIL is nothing but transfer of interests, tangible and intangible in Indian companies and not an innocuous acquisition of shares of a shell Cayman Islands Company;

(b) As there was admittedly a transfer of controlling interest in the Indian company by the transferor in favour of the transferee, there was an “extinguishment of rights” and “relinquishment” by the transferor in the shares of the Indian company which constituted a “transfer”;

(c) Apart from controlling interest the assessee had acquired other interests and intangibles rights in India such as an interest in a joint venture between HTIL and the Essar group and became a co-licensee with the Essar group to operate mobile telephony in India;

(d) In this case, the shares in the Cayman company were merely the mode or the vehicle to transfer the assets situated in India. The choice of the assessee in selecting a particular mode of transfer of such assets will not alter or determine the nature or character of the asset;

(e) As the assessee had wilfully failed to produce the primary/original agreement and other prior and subsequent agreements/documents it was impossible to appreciate the true nature of the transaction and the constitutional validity of Income-tax provisions could not be gone into;

(f) It is settled law that a writ cannot be entertained against a mere show-cause notice unless the Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts. The assessee has not been able to demonstrate absolute want of jurisdiction in the AO.

Case Law : Vodafone International vs. UOI (Bombay High Court)

Judgements not cited by parties during the hearing should not be referred to in deciding the appeal.

Where the ITAT decided the appeal against the assessee by relying on judgements that had not been cited by the Departmental Respresentative and without giving the assessee an opportunity to explain why those judgements had no application to the assessee’s case, the High Court set aside the order of the Tribunal for a fresh hearing.

Note: The order of the Tribunal is reported as Naresh Pahuja v DCIT (2008)12 DTR 436 (2008), 17 SOT 636, 118 TTJ 319.

Also See: Vindhya Telelink Ltd v JCIT (2008) 15 DTR 238 (Jab) (TM) and Lakhmini Merwal Das v ITO 84 ITR 649 (Cal) (659) and Hon’ble President’s Guidelines to Hon’ble Members for drafting orders.

No Permanent Establishment if only personnel supplied.

(1) Where a Malaysian company supplied technical personnel to the assessee (a Dutch company) on terms that the personnel would remain under the control of the assessee and that the Malaysian company would have no role to play in the execution of the Project and the question arose whether the recipient had a “supervisory activities” PE under Article 5 (4) (a) and the sums received was assessable as business profits (there being no provision for FTS in the India-Malaysia DTAA), HELD that as the Malaysian company’s role ended with the supply of personnel, it could not be considered to be carrying on supervisory activities in India and there was no PE. Consequently, the business profits were not chargeable, s. 195 did not apply and disallowance u/s 40(a)(i) in the hands of the payer was not permissible;

(2) Where the employees of the assessee’s foreign head office worked partly for the Indian Project and the question arose whether such part of the expenses as were allocable to the Indian project was hit by s. 44C of the Act, HELD s. 44C did not apply to all expenses incurred by the HO but was confined to “executive and general administration” expenses. Salary paid to technical personnel did not constitute either “general administrative” expenses nor “executive” expenses. The latter term applies only to managerial personnel;

(3) Where the assessee paid a UK company for deployment of their personnel for the supervision of the Indian project and recipient fell within the ambit of Articles 5 (2)(j) (supervisory activities exceeding 6 months in connection with a building site etc) and 5 (2) (k) (furnishing of services through personnel for more than 90 days) and the question arose as to which of the two would prevail to determine whether there was a PE, HELD that the provision that was more beneficial to the assessee (Art. 5(2)(j)) would apply.

Case Laws : DDIT vs. Stock Engineer Contractor (ITAT Bombay)

Effect of retraction of statement of confession.

Where during FERA search proceedings the accused-appellant allegedly confessed to violations of the law and later filed an affidavit retracting his confession and the Tribunal and the High Court rejected the retraction on the basis that the onus was on the accused to show that the confession was obtained from him by threat, coercion or force, HELD reversing the lower authorities that:

(i) It is trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon;

(ii) The initial burden to prove that the confession was voluntary in nature would be on the Department. The special or peculiar knowledge of the person proceeded against would not relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It may only alleviate that burden to discharge and very slight evidence may suffice;

(iii) A person accused of commission of an offence is not expected to prove to the hilt that confession had been obtained from him by any inducement, threat or promise by a person in authority. The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of securing a conviction.

(iv) With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which has since been retracted, the Court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such.

Case Law : Vinod Solanki vs. UOI (Supreme Court)

Sec 115JA assessment is not liable for advance tax interest u/ss 234B and 234C.

(i) Where an assessment is made u/s 115JA of the Act, an assessee is not liable to pay interest for non-payment/shortfall of advance tax u/ss 234B and 234C of the Act. CIT v. Kwality Biscuits Ltd 284 ITR 434 (SC) followed;

(ii) There is a difference between dismissal of a Special Leave Petition and dismissal of an Appeal. While the dismissal of a SLP does not result in merger of the judgment of the High Court with that of the Supreme Court and there is no affirmation, the dismissal of an Appeal results in an affirmation and merger of the order of the High Court into that of the Supreme Court.

Note: In CIT v. Kwality Biscuits Ltd 284 ITR 434 (SC) the Court was concerned with s. 115J of the Act.

Case : Snowcem vs. DCIT (Bombay High Court)

Advances to sister concerns must be presumed to have come out of own funds and not borrowed funds.

Where the assessee had its own funds as well as borrowed funds and it advanced funds to its sister concerns for allegedly non-business purposes and the question arose whether the AO was justified in disallowing the interest on the borrowed funds on the ground that they had been used for non-business purposes, HELD:

Where an assessee has his own funds as well as borrowed funds, a presumption can be made that the advances for non-business purposes have been made out of the own funds and that the borrowed funds have not been used for this purpose. Accordingly, the disallowance of the interest on the borrowed funds is not justified.

Case : CIT vs. Reliance Utilities (Bombay High Court)

Reopening notice even if served after limitation period is valid.

Where the AO issued a notice under section 147 of the Act and also tried to serve it on the assessee within the limitation period of six years but the assessee claimed that same was served only after the expiry of the limitation period and the question arose whether the notice was valid, HELD:

(i) S. 149, which imposes the limitation period, requires the notice to be “issued” but not “served” within the limitation period. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the AO to proceed to reassess. Service is not a condition precedent to conferment of jurisdiction but it is a condition precedent to the making of the order of assessment;

(ii) S. 27 of the General Clauses Act, 1897 creates a rebuttable presumption of due service or proper service if the document sought to be served is sent by properly addressing, prepaying and posting by registered post to the addressee and such presumption is raised irrespective of whether any acknowledgment due is received from the addressee or not. This means that the addressee to whom the communication is sent must be taken to have known the contents of the document sought to be served upon him without anything more. Similar presumption is raised under illustration (f) to S. 114 of the Indian Evidence Act whereunder it is stated that the Court may presume that the common course of business has been followed in a particular case, that is to say, when a letter is sent by post by pre-paying and properly addressing it the same has been received by the addressee. These presumptions are rebuttable but in the absence of proof to the contrary the presumption of proper service or effective service on the addressee would arise;

(iii) On facts, the assessee had refused to accept the notice at three addresses belonging to her. Accordingly, the statutory presumption that she had been validly served had to be drawn.

Source : Mayawati vs. CIT (Delhi High Court)