| LEGAL DIGEST | ||
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The Supreme Court last week dismissed the appeal of Bangalore Club seeking exemption from payment of income tax on the interest earned in the fixed deposits kept with certain banks, which were corporate members of the club, invoking the " doctrine of mutuality". It paid tax on interest earned on fixed deposits kept with non- member banks. The assessing officer rejected the claim holding that there was lack of identity between the contributors and the participators to the fund. He treated the amount received by the club as interest as taxable business income. The appellate authority reversed the finding and stated the doctrine applied to the club. The tribunal upheld that view. But the Karnataka High Court found the view of the assessing officer correct. The club appealed to the Supreme Court which ruled that the doctrine did not apply to the club. "A façade of a club cannot be constructed over commercial transactions to avoid liability to tax," the judgment said. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Disclosure of payment default If an exporter, insured by the Export Credit Guarantee Corporation, does not disclose default in payment by foreign buyers, he cannot make claim under the policy, the Supreme Court ruled last week in the case of Export Credit Corpn vs Garg Sons International. The exporter in this case purchased a policy for insuring shipment to Natural Selection Ltd of UK, and the buyer committed default in making payments. The exporter sought enhancement of credit limit to the tune of ₹ 50 lakh with respect to the defaulting foreign importer. Subsequently, he presented 17 claims. The insurer rejected all the claims on the ground that the insured did not ensure compliance with the clause which stipulated 30 days within which the insurer is to be informed about any default. The exporter moved the state consumer commission and later the National Consumer Commission. The latter ordered payment in some of the claims. Both parties moved the Supreme Court. It ruled that the exporter had failed to comply with the rule to inform the insurer and therefore allowed claim only in two claims where the information was given. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SBI manager's dismissal upheld In a departmental inquiry, the disciplinary authority is expected to prove the charges on "preponderance of probability" and not on proof beyond reasonable doubt as in a criminal case, the Supreme Court stated last week while upholding the dismissal of a manager of State Bank of India and setting aside the judgment of the Allahabad High Court. The high court had ruled that the dismissal was illegal as witnesses were not examined and documents were not given to the officer. He was accused of a dozen charges of serious nature. The disciplinary authority found that the charges were right. But he moved the high court without resorting to alternative remedies. The Supreme Court stated that when the inquiry officer has examined some 40 documents and was convinced of financial irregularities, there was no need for witnesses. The Supreme Court asserted in the case, SBI vs Narendra Kumar, that the high court should not act as an appellate authority and examine facts in detail when the inquiry is conducted without fault. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Brand name matters for excise Cookies with a brand name sold loose from branded pouches cannot claim central excise exemption meant for small- scale units, the Supreme Court stated in the appeal case, Commissioner of Central Excise vs Australian Foods India, Chennai. The company, which is engaged in the manufacture and sale of cookies from branded retail outlets of Cookie Man, argued that sale of its cookies in loose form that do not physically bear a brand name from branded outlets would be exempt from the levy. The commissioner and the Customs, Excise &Service Appellate Tribunal ruled that unless the goods bear the brand name or logo, the exemption cannot be denied. On appeal, the Supreme Court reversed the finding and observed: " The store's decision to sell some cookies without containers that are stamped with its brand or trade name does not change the brand of the cookies." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Order to shift bio- medical waste The Delhi High Court last week directed the state government and Synergy Waste Management Ltd to shift the biomedical waste disposal facility operating 30 metres from a residential colony of the capital to some other place. The site suitable for shifting of the facility would be identified by the Chief Secretary within three months. Bio- medical waste is required to be disposed of in terms of the Bio- medical Waste (Management and Handling) Rules, 1998. On a complaint by residents, a committee was set up which recommended shifting of the facility. The company, which has a collaboration agreement with the government, moved the high court against it arguing that there was no hazard and the contract cannot be breached. It also submitted that many other hospitals in Delhi are committing the same violations. The high court rejected these contentions. MJ ANTONY THINKSTOCK | ||
| Rise above the din to tax inheritance | ||
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All the finance minister has done is to state in public ( he did so even as a home minister bearing the brunt of serious economic disparity) that it is time to think of inheritance tax in the context of the growing social inequity and injustice in India. More recently, he is reported to have been more guarded. After all, this is a subject emotive to the constituency that celebrates and measures economic growth by the movements in stock indices. " I am still hesitant to talk about inter- generational equity and therefore inheritance tax," media reports quote him as having said. However, not surprisingly, the mainstream English media, particularly business newspapers, are suddenly replete with reports and comments about why the Indian rich should not be taxed more and how inheritance tax is a bad idea. Most of these writings talk about how "estate duty" that India had between 1953 and 1985 was a failure. They also focus on how inheritance tax would be a double- tax in that it would tax the assets earned by way of inheritance, although such wealth would have already been subjected to tax when it was generated in the first instance. Most commentators also argue that India should focus on expanding the taxpaying base instead of taxing the superrich. Others suggest that what India needs is the introduction of the general sales tax and reform in indirect taxes — seeming to suggest that taxing inheritance and implementing these other reform measures are mutually exclusive alternatives. The truth, as always, lies somewhere in the middle. It does not need painstaking and very nuanced research to acknowledge the enormous and yet widening disparity of income and economic strength in Indian society. Our dollar billionaires are at an all- time high, and yet, the number of Indians who earn less than a dollar per day is higher than populations of several nations. Economic disparity is leading to social unrest — large parts of socially backward states with pathetic human development indicia are witnessing trends or armed revolution, and a breakdown in law and order. Tax revenues in India represent only 15.5 per cent of the GDP while direct taxes account for only 37.7 per cent of the total tax revenues. The nation barely collects ₹ 15 for every ₹ 100 of national income —a really low tax revenue. Indirect taxes, which burden all members of society at the same rate regardless of capacity to bear the burden, account for an abnormally high component of tax revenues. Direct taxes, which, as taxes on income direct taxes to total revenue. paid by corporates. Access to capital is indeed a differentiator in the ability to compete. Capital that is freely inherited for generations, enables individuals who have had no stake in earning a farthing, getting to deploy that un- earned wealth in competing with more deserving but less fortunate competitors. Indeed, free inheritance across generations without any obligation to share such un- deserved income ( the income flowing only on grounds of genetic descent) with society can kill enterprise and competition. When India threw the baby with the bathwater in 1985, abolishing estate duty, she was in a pathetic state of governance. Recall that India was high on jargon and low on performance then. We had shortages for everything. One had to wait for decades for a car booking to translate into adelivery. One had to book " trunk calls" to call anyone outside one's city. We allegedly had technocrats who pushed for computerising India in public life, but acomputer was a luxury item subject to high import duties. In short, nothing about the India of the period in which we had " estate duty" is comparable with today's Indian society, which reeks of social inequality. The philosophy behind inheritance taxes is that wealth should be created and earned, rather than inherited. Making each man work hard to generate wealth, enjoy the fruits of it, and spend on himself and society is central to the workings of markets and to the spirit of enterprise. An inheritance tax at a moderate rate, taking care to ensure that it kicks in only above high thresholds of inheritance — it is also important to remember that the middle class has started getting economic opportunities only in the past 20 years — can work towards bridging the gap between those who have the fire in their bellies without money in their wallets, and those who have no fire in their bellies to justify the money in their wallets. The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own. Email: somasekhar@ jsalaw. com The philosophy behind inheritance taxes is that wealth should be created and earned, rather than inherited WITHOUT CONTEMPT SOMASEKHAR SUNDARESAN | ||
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Company Secretary, Chennai
email csarengarajan@gmail.com
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