[Attachment(s) from pavan singla included below]
August 28th, 2012
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S. 147 Reopening on "change of opinion" is not permissible
For AY 1999-2000, the assessee claimed a deduction for Rs. 19.86 crores which was allowed by the AO in s. 143(3) assessment. Subsequently, after the expiry of 4 years, the AO reopened the assessment u/s 147 on the ground that the said loss was a "speculative loss" and could not be allowed as a deduction. The assessee filed a Writ Petition to challenge the reopening which was allowed by the High Court (file included) on the ground that though the AO was justified in his analysis that there was escapement of income, there was "nothing new" which had come to the notice of the revenue and that reopening was based on a "mere relook" which was not permissible. On appeal by the department to the Supreme Court, HELD dismissing the appeal:
The assessee had disclosed full details in the Return of Income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the Assessing Officer vide his Order dated 23rd June, 2006, is clearly a change of opinion. In the circumstances, we are of the view that the order re-opening the assessment was not maintainable
CIT vs. Gujarat Flouro Chemicals (Supreme Court)
August 28th, 2012
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The Supreme Court had to consider whether interest is payable by the Revenue to the assessee if the aggregate of instalments of Advance Tax/TDS paid exceeds the assessed tax? The assessee relied upon Sandvik Asia Limited vs. CIT 280 ITR 643 where it was held that the assessee was entitled to be compensated by the Revenue for delay in paying to it the amounts admittedly due. HELD by the Supreme Court:
We have serious doubts about the correctness of the judgement in Sandvik Asia. In our view, the judgement in Modi Industries Ltd correctly holds that advance Tax or TDS loses its identity as soon as it is adjusted against the liability created by the assessment order and becomes tax paid pursuant to the assessment order. If Advance Tax or TDS loses its identity and becomes tax paid on the passing of the Assessment Order, then, is the assessee not entitled to interest under the relevant provisions of the Act? We say no more. With respect, we are of the view that Sandvik Asia has not been correctly decided. In the circumstances, we direct the Registry to place this matter before Hon'ble the Chief Justice on the administrative side for appropriate orders
Income tax - Whether mere earning of income in excess of expenditure by an educational institution, can take away its eligibility for claiming exemption u/s 10(23C)(vi) - NO: HC
CUTTACK, AUG 28, 2012: THE issues before the Bench are - Whether fees charged for placement and training can be considered excess and in violation of exemption granted u/s 10(23C)(vi), even when the same has been allowed under the state legislation enacted in 2007, pursuant to the judgment of Supreme Court - Whether mere earning of income in excess of expenditure by an educational institution, can take away its eligibility for claiming exemption u/s 10(23C)(vi); Whether the status of exemption is lost, if the educational institution indulges in any commercial activity, not incidental to imparting of education; Whether in view of this position, income earned from maintenance of trees on the campus, when applied for maintenance of infrastructure of the educational institution, is also a non educational activity and Whether quantum of such income and its application out of the total income from educational activities, needs to be carefully ascertained, before arriving at any such conclusion. And the verdict goes in favour of the assessee.
Facts of the case
Assessee, petitioner is a Trust registered under the Indian Trust Act and has established two Educational Institutions i.e. Bhubaneswar Institute of Management and Information Technology and Indian Institute of Science and Information Technology for imparting Higher Education in MBA and MCA courses respectively. The aforesaid two institutions have been established with the sole intention to provide higher education only without having any profit motive. Therefore, these institutions came within the scope of exemption u/s 10(23C)(vi). As per the said provision, the assessee filed an application in Form No.56-D with the Chief Commissioner for grant of exemption which was rejected following an enquiry by the CIT, at the behest of the Chief Commissioner. After receipt of the report from the CIT, the Chief Commissioner issued notice to the assessee for hearing and several necessary documents were produced during the hearing. Though the assessee contended that the activities were in consonance with the law and thus making them entitled for the exemption, but the Chief Commissioner rejected the application.
AR submitted that the aforesaid two institutions have been duly approved by the AICTE for conducting the courses. The placement and training fees were collected in accordance with the notification of the Government of Orissa, Industries Department. The said notification were in lines with the provisions of the Orissa Professional Educational Institutions (Regulation of Admission and Fixation of Fee) Act, 2007 and consequent upon the interim order dated 01.06.2007 passed by the Supreme Court and in three others and interim order of the Supreme Court dated 18.06.2007 envisaging a Fee Structure Committee to be constituted for determination of fee. It was further argued that in Islamic Academic of Education and others vs. State of Karnataka, it was held that two Committees for monitoring the admission procedure and determining fee structure in professional Educational Institutions were permissible as regulating measures. Thereafter, the Supreme Court in P.A. Inamdar and others vs. State of Maharashtra, held that it was for the Central Government or for the State Governments, in absence of a central legislation, to come out with detailed thought out legislation on the subject. Thus, the State of Orissa had enacted the Act, 2007 in line with the observations of the Supreme Court. The Act, 2007 was challenged before this Court in writ petition of 2007 and this Court by judgment declared it unconstitutional. The said judgment of this Court was challenged by the State before the Supreme Court and by order dated 01.06.2007, the Supreme Court constituted the policy planning body and so also the "Fee Structure Committee" and directed that other provisions of the Act shall continue to be in force. In the aforesaid background the notifications of the Government of Orissa Industries Department was published for the Academic Session 2007-08. The said notification was holding the field and the law insofar as the collection of fees under different heads were concerned. The Chief Commissioner has relied on the Government of India Resolution for fee structure, 1997 and the Government of Orissa Industries Department Resolution dated 17.09.1998, to conclude that fees collected towards placement and training were in excess of what was prescribed by the said resolutions. However, these resolutions were no more valid in view of the Act, 2007 and the order of the Supreme Court dated 01.06.2007 and subsequent notification issued by the Industries Department. Therefore, the said fee collection was for educational purpose only and entitled for the exemption.
It was also argued that the placement and training fees were optional and in lines with the subsequent notification dated 20.09.2010 The placement fee comes within the category of "other fee" collection of which had the approval of the Fee Structure Committee. Therefore, placement and training was a mandatory condition for grant of approval and collection of the fee for it is a part of the curriculum and an educational activity of the Institution. It was finally submitted that case needed reconsideration by the said authority in the interest of justice.
Having heard the parties, the High Court held that,
++ a plain reading of Section 10(23C)(vi) of the I.T. Act makes it amply clear that in order to be eligible for exemption under Section 10(23C)(vi) of the I.T. Act, the following conditions are to be satisfied: (i) there must be an educational institution, (ii) such university or other educational institution must exist solely for educational purposes, (iii) it should not exist for the purposes of profit, and (iv) approval by the prescribed authority. The prescribed authority as per Rule 2CA(1) of the Income Tax Rules, under sub-clause (vi) of Section 10(23C) shall be the Chief Commissioner or Director General, to whom application shall be made. At this juncture, it is necessary to know some of the relevant provisos of Section 10(23C)(vi) of the I.T. Act for our present purpose. The first proviso provides that the other educational institution shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of exemption or continuance thereof. The second proviso provides that the prescribed authority before approving the other educational institution may call for such documents including audited annual account or information from the educational institution as it thinks necessary in order to satisfy itself about genuineness of the activities of other educational institution. The prescribed authority may also make such inquiries as it deems necessary in that behalf. The third proviso provides that the income of a university or educational institution should be applied or accumulated for application wholly and exclusively to the objects for which it is established. Clause (b) of the third proviso states that the cash must be invested or deposited in one or more of the forms or modes specified in sub-section (5) of Section 11. The seventh proviso to Section 10(23C) provides that nothing contained in sub-clause (vi) shall apply in relation to any income of the university or educational institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business. The 12th proviso provides that where the other educational institution does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under Section 12AA or to any fund or trust or institutions or any university or other educational institution or hospital or other medical institutions shall not be treated as application of income to the objects for which such fund or trust or institution or university or other educational institution or hospital or other medical institutions as the case may be is established;
++ the Supreme Court referring to its earlier decision in the case of Surat Art Silk, considered the provision of Section 10(23C)(vi) in American Hotel & Lodging Association Educational Institute vs. CBDT, and observed that it is only if the prerequisite condition of actual existence of the educational institution is fulfilled, the question of compliance with requirements in the provisos would arise. To make the section with the proviso workable, monitoring conditions in the third proviso like application/utilization of income, pattern of investments to be made, etc., could be stipulated as conditions by the prescribed authority subject to which approval could be granted. While imposing stipulations subject to which approval is granted, the prescribed authority may insist on certain percentage of accounting income to be utilized/applied for imparting education in India. However, the prescribed authority must give an opportunity to the petitioner-institution to comply with the monitoring conditions which are stipulated for the first time as mentioned in the third proviso to Section 10(23C) of the I.T.Act. After grant of approval, if it is brought to the notice of the prescribed authority that conditions on which approval was given have been breached or that circumstances mentioned in the thirteenth proviso exist, then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The Supreme Court further held that on the issue of deciding whether an institution is existing for profit or not, the mere excess of income over expenditure cannot be decisive. An institution cannot be considered to be existing for profit, if some surplus is generated over expenditure. According to the Supreme Court, it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit'
++ the Supreme Court in the case of Oxford University Press vs. CIT, has held that non profit qualification in Section 10(23C)(vi) of the I.T. Act has to be tested against Indian activities. In Section 10(23C)(vi) of the I.T. Act, emphasis has been given on the word "solely" for educational purposes. Solely means exclusively. Thus, the expression "solely" appearing in Section 10(23C) (vi) makes it clear that only the income of the institution established solely for educational purposes and not for commercial activities is entitled for exemption. Therefore, the Supreme Court in the case of American Hotel & Lodging Association Educational Institute, held that even when one of the objects enables the institution to undertake the commercial activities, it will not be entitled to approval under Section 10(23C)(vi) of the I.T. Act. The Supreme Court in the case of Aditanar Educational Society, held that in deciding the character of the recipient of the income, it is necessary to consider the nature of the activities undertaken. If the activity has no co-relation to education, exemption has to be denied. The recipient of the income must have the character of an educational institution to be ascertained from its objects;
++ the Chief Commissioner in his order has quoted that another objective of the petitioner-Trust is that the Managing Trustee or with the consent of the Managing Trustee the trustees may manage or supervise the management of any lands, hereditaments, and premises of the Trust Estate or any part thereof with power to erect, pull down, rebuild, add to, alter and repair houses, etc,. The Chief Commissioner further held that the petitioner trust is not existing solely for educational purposes. The trust has been created with other aims and objectives which are clearly in the nature of business. However, from the impugned order, it does not reveal whether the petitioner trust has carried on any activities against the activities enumerated in the Trust deed. The Chief Commissioner, in his order, has observed that on verification of the audited income and expenditure statements for financial years 2008-09 and 2007-08 it is seen that the assessee was engaged in non-educational activities like horticulture and generating income from the same. But the said order is totally silent as to what is the nature and magnitude of horticultural activities carried on by the assessee and what is its annual income and how it is utilized by the assessee. With regard to horticultural income, the contention of the assessee is that there were standing coconut and mango trees in the land acquired by the petitioner for establishment of the educational institution. In order to maintain a salubrious and green environment the trees were not cut down but maintained. The petitioner has reflected the receipt in its income and expenditure account. Amount of Rs.15,000/- received has been utilized in the educational activities of the institutions and for infrastructural development. Therefore, it cannot be treated that the profit was earned for non-educational activities. The stand of the petitioner needs examination by opposite parties with regard to quantum of income and utilization of the same;
++ the other reason given by the Chief Commissioner for refusing to grant exemption under Section 10(23C)(vi) of the Act, 1961 is that the petitioner has collected fees under the head "placement and training" from the students which is not in conformity with the fees prescribed. Referring to the judgment of the Supreme Court in the case of Islamic Academic of Education, Chief Commissioner has held that if any amount is charged other than the fee prescribed by the Committee under any head or guise, the same would amount to capitation fee. As it appears from the impugned order, the Chief Commissioner has relied on the Government of India resolution providing for fee structure, 1997 and the Government of Orissa Industries Department Resolution dated 17.09.1998 to come to a conclusion that the fees collected towards "placement and training" is in excess of what was prescribed by the said resolutions. Petitioner's case is that the resolution relied upon by the Chief Commissioner no more holds the field in view of the Act, 2007 and the order of the Supreme Court dated 01.06.2007 and subsequent notification issued by the Industries Department. The resolution of 1997 and 17.09.1998 relied upon by the Chief Commissioner as aforesaid has become redundant and non-est. The concept and recommendation for charging a "placement and training fee" came with effect from 2007 and is very much for educational purpose and cannot be held otherwise and in the least can ever be considered as a profit earning by the petitioner's institution. Therefore, the said fee collection is for educational purpose only as envisaged under Section 10(23C)(vi) of the Act, 1961. The institutions are obliged to see the placements of their students as per the AICTE Guidelines and train them accordingly. The fee for the same has been permitted to be collected which is for educational purpose;
++ the next question that arises and needs to be determined is as to whether the collection of money made under the head "placement and training" is for educational purposes. It is to be further examined by the Chief Commissioner that how the income earned under head "placement and training" is utilized, i.e., whether for educational purpose or non-educational purpose. Recording of findings on the above issues by the Chief Commissioner is very much necessary to decide as to whether the petitioner is entitled to the grant of exemption in terms of Section 10(23C)(vi) of the Act, 1961. In view of the above, the order of the Chief Commissioner is set aside and the matter is remitted back to the said authority to re-examine the case of the petitioner in the light of the observations made above and pass appropriate order in accordance with law within a period of six weeks from the date of receipt of a copy of this judgment.
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To: Kanigalla <kanigalla@hotmail.com>
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Sent: Tuesday, 28 August 2012 2:26 AM
Subject: FAQ on Reverse Charge
From: CA. V.M.V.SUBBA RAO <vmvsrao@gmail.com>
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Sent: Tuesday, 28 August 2012 2:26 AM
Subject: FAQ on Reverse Charge
Reverse charge for Directors & security services - FAQ
VIDE notifications 45 & 46/2012 ST Dated 07.08.2012, services provided by non employee directors to the Companies and security agencies have also been subjected to the levy of service tax. In this connection, the following questions are often raised.
1. Is service tax applicable for all directors of a Company?
Whole time directors and Managing Directors of the companies are considered as employees of the company in which they are directors. The definition of service itself excludes services provided by the employees to employers. Hence, there is no service tax in respect of such employee directors. Service tax will apply only in case of non employee directors.
2. Does reverse charge apply for all service recipients?
In respect of services provided by directors, obviously, the service recipient should be a company established under the Companies Act, like Private Limited Company, Public Limited Company, Government Company. In case of security agency services, the service recipient should be a business entity registered as a body corporate. Only in such cases reverse charge will apply.
3. If the service recipient is a partnership firm, whether reverse charge will apply for security services received by it?
No. Partnership firm is not a body corporate. Similar would be the case in case of other reverse charge liabilities, viz., manpower supply, works contract service and renting of vehicle services. But in case of support services provided by Government, Advocates, reverse charge will apply if the service recipient is "business entity" and they need not be body corporates.
4. What about the liability for the period 1 st July 2012 to 7th August 2012?
It may be noted that the services of Directors to the companies and security agency services are normally continuously provided for more than a period of 3 months. Hence, they would be "continuous supply of service" as defined in Point of Taxation Rules, 2011. As per first proviso under Rule 4 of the said Rules, the point of taxation in case of continuous supply of services has been defined as "in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service".
For example, if the security agency has already raised their invoice for the services provided by them during July 2012, before 7 th August 2012, the service recipient's liability to make the payment is recognized on the date of invoice and hence the point of taxation shall be the date of such invoice. Hence, if invoice has been raised by the security agency before 7 th August 2012, reverse charge will not apply, even if the payment is made by the service recipient after 7 th August 2012. But, if the invoice for the services provided from 1 st August to 31 st August 2012 is raised on 31 st August 2012, the date of invoice, i.e. 31 st August 2012 would be the point of taxation and hence the service recipient would be liable to make the payment of his portion of service tax liability under reverse charge, though part of the service has been provided before 7 th August 2012. In other words, there is no need to split up the liability into pre / post 7 th August 2012.
Similar would be the case in respect of services provided by the Directors to the Companies. If the liability to make the payment to the Director is recognized after 7 th August 2012, reverse charge will apply and if such liability is recognized by the company before 7 th August 2012, reverse charge will not apply.
If the services provided by the directors and security agencies does not qualify as continuous supply of service, then the point of taxation shall first be determined for the services provided. If the point of taxation is on or after 7 th August 2012, reverse charge will apply and if the point of taxation is before 7 th August 2012, reverse charge will not apply.
5. Whether the Directors have to obtain registration and pay service tax for the month of July 2012?
Yes. But, till 1 st July 2012, the services provided by them was not a taxable service. Hence, if the value of other taxable services rendered by them, if any, during the financial year 2011-12 is less than Rs. 10 lakhs, they can claim exemption upto Rs.10 lakhs, during 2012-13 if the value of services provided by them to the companies and other taxable services, if any provided by them, is upto less than Rs.10 lakhs. This exemption is contained in notification 33/2012 ST Dated 20.06.2012 and subject to the conditions prescribed therein.
6. What is the portion of service tax payable under reverse charge?
In case of directors, the entire service tax liability has to be paid by the company. In case of security agencies, 75 % of the service tax liability (9%) shall be paid by the service recipient and 25 % of the service tax liability (3%) shall be paid by the security agencies.
7. Whether the security agencies can pay 3 % service tax in all cases?
No. Reverse charge will apply only if the service recipient is a business entity registered as a body corporate. In case of the services of security agencies are provided to other than business entities or to business entities who are not registered as body corporates, the entire service tax has to be paid by the security agency and no reverse charge will apply.
8. Whether the service tax thus paid under reverse charge can be availed as cenvat credit?
Entitlement to cenvat credit of service tax is to be decided with reference to the definition of input service under the Cenvat Credit Rules, 2004. Normally, the services of Directors and security agencies would be an eligible input service for a manufacturer and a service provider. Further, security service is specifically covered in the definition of input service. Hence, cenvat credit would normally be entitled subject to other conditions under the Cenvat Credit Rules, 2004.
9. What is the document based on which cenvat credit can be taken?
In case of service tax paid directly by the service recipient under reverse charge, the challan evidencing payment of service tax by the service recipient would be the relevant document to avail cenvat credit. In respect of the portion of service tax paid by the security agency, the invoice issued by the security would be the relevant document.
10. Whether the directors have to issue an invoice?
As per the provisions of the Service Tax Rules, 1994 every service provider must raise an invoice within 30 days of completion of the service.
By G Natarajan, Advocate, Swamy Associates
Best Wishes
CA. V.M.V.SUBBA RAO
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