Chartered Accountant Finance: [aaykarbhavan] Judgments and other information on service tax

1. Mr.X has Loss from sale of share with STT paid is assesssable @ 15. He also has short term capital gain which is assessable @ 30% from a cpital asset. He set off loss from sale of shares against profit from sale of capital asset. Logically incorrect. Further there are specfic provisions in the Act for not allowing loss from long capital asset against any other income. However though CBDT introduced rate of 10% and subsequently increased to 15% , no specific provisions have been provided to prohibit such kind of loss set off.

(Loss of share transactions(with STT) should be set off against profit from similar kind of transactions.)

2. Section 147 needs to be amended to make it more wide. Even if issues on which 147 was done, is not tenable ,but there other other valid issues on which Assessing Officer makes addition , then 147 should not be quashed. However contraru has been held in case of Jet Airways by Bombay High court which has been followed by Delhi High court , Uttrakhand High court etc.

3.Assessee has been option for indexation in case of shares. He may not opt for indexation and loss though assessable @ 10% can be set off against profit of 20@. The Act needs to specifcally prohibit this by providing relevant provisions in the Act.

4. Sec.80IA needs to amend to define intial assessment year.(full material enclosed)

Attachment(s) from pavan singla

Introduction :

In recent times, companies have been installing windmills mainly for two reasons (a) to garner green electrical energy from non-conventional sources availing various incentives offered by the government including allowing captive consumption, and (b) as a tax planning measure due to availability of higher depreciation in first 3,4 years of its installment and tax-free income for subsequent ten years u/s.80-IA out of total fifteen years. Many issues arise while availing tax benefits u/s.80-IA. This article attempts to highlight the main issue of notional carry forward and set-off of loss from eligible undertaking. Though 'windmill' is taken as the 'eligible undertaking' as an example, the discussion is applicable for all other undertakings u/s.80-IA. The discussion is based on the recent order of the Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT, (2010) 38 DTR 57 which overruled the judgment of the Ahmedabad Special Bench in case of Goldmine Shares and Finance (P.) Ltd [2008] 113 ITD 209 ITAT AHMEDABAD (SPECIAL BENCH) .

Notional brought forward of loss of the earlier years u/s.80-IA(5) :

This is an important issue in determining the eligible profit of the windmill and the available period of deduction u/s.80-IA. The provisions of S. 80-IA(5) are analysed accepting that the notional loss is to be set off and that the provisions of S. 80-IA (5) are not redundant.

The Income-tax Act provides for deduction of 100% of income of a windmill u/s.80-IA for a period of ten consecutive years out of fifteen years. One possible interpretation is that the loss of the undertaking of the windmill from the year in which it starts generating electricity is to be notionally carried forward for setting off against the profits from windmill in the subsequent years and only after the entire loss is absorbed by the income from windmill, deduction u/s.80IA is available. The other interpretation is that only the loss incurred in any year after first time deduction is claimed is required to be set off before deduction can be claimed in any subsequent year.

Analysis of S. 80-IA(5) :

S. 80-IA(5) reads as under :

"Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of Ss.(1) apply shall for the purpose of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." (Emphasis supplied).

There was controversy between various benches of ITAT's regarding applicability of provisions of sec. 80IA(5) of the Act.

The decision of the Tribunal, Bombay Benches, in the case of M. Pallonji & Co. (P.) Ltd. v. Jt. CIT [2006] 6 SOT 287 is in favour of the assessee and it held that unabsorbed depreciation of eligible project could not be set off against profit of eligible business for the purposes of deduction under section 80-IA which unabsorbed depreciation stood already adjusted against profits of assessee from other business. Whereas, another Bench of the Tribunal in Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160 (Mum.) is stated to have held against the assessee by observing that for the purpose of applying the provisions contained in section 80-IA of the Act, the profits or gains of the eligible business are to be computed as if the eligible business were the only business of the assessee right from the initial year, brought forward losses of the unit have to be set off against the profits and in the absence of profit from the eligible units after set off of brought forward losses of the said units, deduction under section 80-IA could not be allowed. The Tribunal, Kolkata Benches, in the case of ITO v. Kanchan Oil Industries Ltd. [2005] 92 ITD 557 has concluded that in view of sub-section (7) of section 80-IA, for computing deduction under section 80-IA, brought forward losses and unabsorbed depreciation of ineligible business cannot be deducted from the income of eligible business and only the unabsorbed depreciation/brought forward losses of eligible business can be so deducted.

To resolve this controversy, a reference was made by revenue for constitution of Special Bench.

Because of the cleavage of opinion between the Benches of Tribunal viz., Mumbai and Kolkata the President, Income-tax Appellate Tribunal, has constituted this Special Bench for considering the following issue:

"Whether in view of the provisions of section 80-IA(5) of the Income-tax Act, 1961, the profit from the eligible business for the purpose of deduction under section 80-IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years."

The Special Bench in below mentioned case

Assistant Commissioner of Income-tax*, Circle-4, Ahmedabad v/s

Goldmine Shares and Finance (P.) Ltd [2008] 113 ITD 209 ITAT AHMEDABAD (SPECIAL BENCH) decided the issue in favour of revenue by holding that "Section 80IA of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after certain dates/infrastructure undertakings - Assessment years 1997-98 to 2002-03 - Whether in view of specific provisions of section 80-IA(5), profit from eligible business for purpose of determination of quantum of deduction under section 80-IA has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set-off against other income in earlier years - Held, yes"

The provision is analysed with the following example :

The assessee has a spinning mill division.
It has installed windmill (windmill division) which is eligible for deduction u/s.80-IA in A.Y. 2002-03 (first year of generation of power).
The loss from windmill division has been set off against the profit of the spinning mill division for the first three years.
As there was loss from the windmill division, no deduction has been claimed u/s.80-IA for these three years i.e., till A.Y. 2004-05.
When the operations of the windmill division resulted in profit after setting of its loss against the profit of the spinning mill division, the assessee claimed deduction u/s.80-IA from the fourth year i.e. A.Y. 2005-06 (first year of claim).

Method I :

One method of working would be to set off the loss of windmill division against the income from the spinning mill division and once the loss of windmill is fully set off against either income from the windmill or the spinning mill division, then start claiming deduction u/s.80-IA. By this method, the assessee would be in an advantageous position since he can claim the deduction in respect of windmill from an earlier point of time and also for the entire period of ten consecutive years within the span of 15 years. Working under this method is given in Table 1.

Method-II

Other alternative would be to treat the windmill division as the only source of income from the first year, notionally carry forward the loss including the unabsorbed depreciation and set off against the income from windmill division till that entire loss is fully set off and then start claiming deduction u/s.80-IA. Working of the total income of the assessee in that case is given in Table 2.

PARTICULARS	TABLE 1 (Considering FIRST year of CLAIM as INITIAL YEAR)			TABLE 2 (Considering FIRST year of PRODUCTION as INITIAL YEAR)
	Year ended 31/03/2005
	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	7,25,680	8,90,820	16,16,500	7,25,680	8,90,820	16,16,500
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	41,102	0	41,102	41,102	0	41,102
Depreciation	46,26,141	10,68,437	56,94,578	46,26,141	10,68,437	56,94,578
SUB TOTAL	53,92,923	19,59,257	73,52,180	53,92,923	19,59,257	73,52,180
LESS: I TAX DEPRECIATION	24,02,442	2,22,13,454	2,46,15,896	24,02,442	2,22,13,454	2,46,15,896
NET PROFIT	29,90,481	(2,02,54,197)	(1,72,63,716)	29,90,481	(2,02,54,197)	(1,72,63,716)
Year ended 31/03/2006
PARTICULARS	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	21,40,784	41,93,324	63,34,108	21,40,784	41,93,324	63,34,108
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	2,35,590	0	2,35,590	2,35,590	0	2,35,590
Depreciation	48,08,648	41,10,493	89,19,141	48,08,648	41,10,493	89,19,141
SUB TOTAL	71,85,022	83,03,817	1,54,88,839	71,85,022	83,03,817	1,54,88,839
LESS: I TAX DEPRECIATION	15,79,870	2,65,47,219	2,81,27,089	15,79,870	2,65,47,219	2,81,27,089
NET PROFIT	56,05,152	(1,82,43,402)	(1,26,38,250)	56,05,152	(1,82,43,402)	(1,26,38,250)
LOSS B/F					(2,02,54,197)
TOTAL LOSS C/F					(3,84,97,599)
Year ended 31/03/2007
PARTICULARS	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	2,16,820	38,11,877	40,28,697	2,16,820	38,11,877	40,28,697
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	5,81,200	0	5,81,200	5,81,200	0	5,81,200
Depreciation	16,06,552	41,10,493	57,17,045	16,06,552	41,10,493	57,17,045
SUB TOTAL	24,04,572	79,22,370	1,03,26,942	24,04,572	79,22,370	1,03,26,942
LESS: I TAX DEPRECIATION	16,55,840	53,09,444	69,65,284	16,55,840	53,09,444	69,65,284
NET PROFIT	7,48,732	26,12,926	33,61,658	7,48,732	26,12,926	33,61,658
LOSS B/F					(3,84,97,599)
TOTAL LOSS C/F					(3,58,84,673)
Year ended 31/03/2008
PARTICULARS	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	3,15,252	37,08,531	40,23,531	3,15,252	37,08,531	40,23,531
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	6,33,091	0	6,33,091	6,33,091	0	6,33,091
Depreciation	18,47,904	41,21,754	59,69,658	18,47,904	41,21,754	59,69,658
SUB TOTAL	27,96,247	78,30,285	1,06,26,532	27,96,247	78,30,285	1,06,26,532
LESS: Allowable Expenses	2,13,929	0	2,13,929	2,13,929	0	2,13,929
I TAX DEPRECIATION	18,07,315	10,61,889	28,69,204	18,07,315	10,61,889	28,69,204
NET PROFIT	7,75,003	67,68,396	75,43,399	7,75,003	67,68,396	75,43,399
LOSS B/F					(3,58,84,673)
TOTAL LOSS C/F					(2,91,16,277)
Year ended 31/03/2009
PARTICULARS	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	3,89,984	1,05,64,218	1,09,54,202	3,89,984	1,05,64,218	1,09,54,202
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	1,45,582	0	1,45,582	1,45,582	0	1,45,582
Depreciation	22,77,853	41,21,754	63,99,607	22,77,853	41,21,754	63,99,607
SUB TOTAL	28,13,419	1,46,85,972	1,74,99,391	28,13,419	1,46,85,972	1,74,99,391
LESS: Allowable Expenses	6,81,927	0	6,81,927	6,81,927	0	6,81,927
I TAX DEPRECIATION	16,97,001	2,12,378	19,09,379	16,97,001	2,12,378	19,09,379
NET PROFIT	4,34,491	1,44,73,594	1,49,08,085	4,34,491	1,44,73,594	1,49,08,085
LOSS B/F					(2,91,16,277)
TOTAL LOSS C/F					(1,46,42,638)
Year ended 31/03/2010
PARTICULARS	Normal Profit	Wind Mill Profit	TOTAL PROFIT	Normal Profit	Wind Mill Profit	TOTAL PROFIT
NP as per P&L A/c	(4,49,415)	59,70,330	55,20,915	(4,49,415)	59,70,330	55,20,915
ADD: DISALLOWABLE ITEMS
Disallowable Expenses	1,06,059	0	1,06,059	1,06,059	0	1,06,059
Depreciation	35,55,964	41,10,493	76,66,457	35,55,964	41,10,493	76,66,457
SUB TOTAL	32,12,608	1,00,80,823	1,32,93,431	32,12,608	1,00,80,823	1,32,93,431
LESS: I-TAX DEPRECIATION	24,05,481	42,475	24,47,956	24,05,481	42,475	24,47,956
NET PROFIT	8,07,127	1,00,38,348	1,08,45,475	8,07,127	1,00,38,348	1,08,45,475
LOSS B/F					(1,46,42,638)
TOTAL LOSS C/F					(46,04,335)
LESS: DEDUCTION u/s 80IB		1,00,38,438	1,00,38,438		NIL	NIL
TOTAL INCOME			8,07,127			1,08,45,475

Issues :

The question here is which method is the correct one for claiming deduction u/s.80-IA in respect of income from the windmill. In order to analyse this further, we may consider the following issues :

1. Whether the 'initial assessment year' referred in S. 80-IA(5) is the first year of commencement of production or the first year claim of deduction u/s.80-IA ?

2. Whether the fiction, namely, 'eligible business was the only source of income' u/s.80-IA(5) is to be applied only from the second year of the claim or from the second year of the commencement of operation of the windmill?

Issue 1 : Initial Assessment Year :

S. 80-IA as it stands presently does not define the term 'initial assessment year'. However, S. 80-IA as it stood prior to 31-3-2000, defined the term 'initial assessment year' basically in two ways depending on the type of deduction available. Erstwhile S. 80-IA provided for the following two types of deductions :

(i) Ten or fixed consecutive years starting from the first year of commencement — like an undertaking engaged in cold storage plant, ship or hotel;

(ii) Ten years out of twelve/fifteen years starting from the first year of commencement — like an undertaking engaged in the business of developing, maintaining and operating any infrastructure facility;

For undertakings falling under (i) above, the initial assessment year was defined as the first year of commencement of production or operation pursuant to the definition under erstwhile S. 80IA(12)(c) (1), (3), (4) and (5). For undertakings falling under (ii) above, the initial assessment year was defined to be the first year of claim under erstwhile S. 80-IA(12)(c)(2) which reads as under :

"Initial assessment year, in the case of an enterprise carrying on the business of developing infrastructure facility means the assessment year specified by the assessee at his option to be the initial assessment year not falling beyond twelfth assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility." (Emphasis supplied)

Relevant contents of erstwhile S. 80-IA (12) are tabulated in Table 3.

Sub-cl. (12)(c)	Nature of undertaking — Ss.(4)	Period of deduction — Ss.(6)	Initial Asst. Year — Ss.(12)(c)
(1)	Cold storage plant, ship or hotel	Ten years	Year in which it begins to manufacture
(2)	Infrastructure facility	Ten out of Twelve years	Year specified by the assessee at his option
(3)	Scientific research	Five years	Year of approval by the prescribed authority
(4)	Telecommunication service	Ten years	Year in which service begins
(5)	Industrial park	Ten years	Year of starting of the park
(6)	Production of mineral oil	Seven years	Year of commencement of commercial production

Power-generating undertakings, namely, windmills are similar to category (2) of the above viz. infrastructure facilities and accordingly the initial assessment year in the case of windmills should be the first year of claim.

New S. 80-IA w.e.f. 1-4-2000 :

The Finance Act, 1999, w.e.f 1-4-2000 substituted the erstwhile section S. 80-IA with two sections, namely, 80-IA and 80-IB. While doing so, the undertakings originally eligible for deduction for a fixed block of years like the one stated in clause (i) above, namely, the cold storage plant, ships, etc. are covered by S. 80-IB and undertakings which have the option to claim deduction for ten consecutive years within a block of twelve or fifteen years, like the infrastructure undertakings, are retained under the new S. 80-IA. A brief comparison is given in Table 4.

Erstwhile S. 80-IA effective up to 31.3.2000	Present S. 80-IA	New 80-IB (Similar to old 80-IA)
Eligible period of deduction varied from undertaking to undertaking, industry to industry.	Deduction is available for ten years in a block of fifteen years for all undertakings (Ss.2).	Eligible period of deduction varies from undertaking to undertaking.
Initial assessment year varied from undertaking to undertaking as defined in Ss.(12)(c).	Not defined.	Initial assessment year is defined for each type of undertaking separately.

Contents of Form 10CCB :

Whenever a confusion of this kind arises, a reference to the form prescribed may at times throw more light to clarify the confusion. In the present case also, the contents and language of Form 10CCB are relevant. Relevant extracts from Form 10CCB, under the Rule 18BBB are reproduced below :

(a) Clause 8 — "Date of commencement of operation/activity by the undertaking"

(b) Clause 9 — "initial assessment year from when the deduction is being claimed".

From the above clauses it is clear that the term the 'initial assessment year' under the present S. 80-IA is the first year of claim and not the first year of operation/commencement of production.

Issue 2 : Applicability of the fiction u/s.80-IA(5) :

There is no dispute that Ss.(5) creates a fiction. The fiction mandates a notional carry forward of loss from eligible business presuming that the eligible business is the only source of income. The moot issue is the year of applicability of the fiction. For easy analysis, Ss.(5) is divided into phrases as below :

(a) for the purpose of determining the quantum of deduction;

(b) for the assessment year immediately succeeding the initial assessment year;

(d) during the previous year relevant to the initial assessment year;

(e) and to every subsequent assessment year up to and including the assessment year for which the determination is to be made;

Phrase (c) introduces the fiction 'eligible business was the only source of income' and phrase (d)

Further MADRAS HIGH COURT in latest judgment in case of VELAYUDHASWAMY SPINNING MILLS (P) LTD v/s ACIT . 38 DTR 57 (2010) , overruled the Ahmedabad Special Bench decision and upheld the judgment of Chennai Bench in case of MOHAN BREWERIES & DISTILLERIES LTD v/s ACIT(2008) 114 TTJ 532 which has held that

"Section 80IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2004-05 - Whether section 80-IA(2) gives an option to assessee with effect from 1-4-2000 to claim relief under section 80-IA for any 10 consecutive assessment years out of 15 years beginning from year ending in which undertaking or enterprise develops or begins to operate any infrastructure facility, etc., and it does not mandate that first year of 10 consecutive assessment years should be always first year of set-up of enterprise - Held, yes - Whether provision of section 80-IA(5), treating eligible undertaking as a separate sole source of income, is applicable only when assessee chooses to claim deduction under section 80-IA and same cannot be applied to a year prior to year in which assessee opted to claim relief under section 80-IA for first time - Held, yes - In respect of profits of eligible units established during assessment years 1996-97 and 1999-2000, assessee claimed deduction under section 80-IA for first time in assessment year 2004-05 - Assessing Officer held that notional brought forward loss incurred by those units in earlier years was to be first set-off against their income of current assessment year and, thereafter, if any remaining profit was available then deduction under section 80-IA had to be given - Whether since assessee had opted to claim deduction under section 80-IA only in assessment year 2004-05, in view of section 80-IA(5), there was no question of setting-off notionally carried forward unabsorbed depreciation or loss of earlier years against profits of units and assessee was entitled to claim deduction under section 80-IA on current assessment year's profit - Held, yes

The High Court has held that as initial year is not defined in section 80IA as compared to 80IB where it is specifically provided that the year of commencement of business will be the initial year for the purpose of claiming the deduction .However as initial year is not defined in sec. 80IA , the year of option (method-ii)has to be treated as initial assessment year for the purpose of section 80IA.

If METHOD I is adopted Dept will LOOSE Tax as under
TOTAL AMOUNT of LOSS
31-03-2005	2,02,54,197)
31-03-2006	(1,82,43,402)
	(3,84,97,599)
TOTAL AMOUNT of PROFIT
31-03-2007		26,12,926
31-03-2008		67,68,396
31-03-2009		1,44,73,594
31-03-2010		1,00,38,348	30.00%	30,11,504.40
		3,38,93,264
		46,04,335	30.00%	13,81,300.50
				43,92,804.90

Now in view of above discussions , it is advised that same may be brought to the notice of CBDT for immediate amendment in sec.80IA,i.e just including one explanation- The initial year for claim of deduction u/s 80IA will be year of commencement of business/undertaking.

Otherwise it will be disastrous for revenue because now when assessee has loss from the eligible business, same will be set off against the income from other sources and assessee will save tax during first 4,5 years .When the eligible unit starts earning profit, he will opt for deduction and will again save tax.

*In favour of revenue.

IT : Each residential block in a housing project is a 'housing project' in itself for purpose of claiming deduction under section 80-IB(10)

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[2013] 29 taxmann.com 19 (Madras)

HIGH COURT OF MADRAS

Viswas Promoters (P.) Ltd.

Assistant Commissioner of Income-tax, Circle 1, Madurai*

MRS. CHITRA VENKATARAMAN

AND K. RAVICHANDRABAABU, JJ.

T.C. (APPEAL) NOs. 1014 OF 2009, 857 OF 2010

& 190 TO 192 OF 2012

W.A. NO. 471 OF 2010

M.P. NOS. 1,1,1,2 AND 2 OF 2012†

NOVEMBER 2, 2012

Section 80-IB, read with section 80HHBA, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings - Housing Project - Assessment years 2004-05 to 2008-09 - Assessee, a developer, undertook several housing projects containing blocks of different sizes; some were of less than 1500 square feet area and other more than that - Assessee claimed proportionate deduction under section 80-IB(10) for those blocks which were of less than 1500 square feet area - Assessing Officer denied proportionate deduction on ground that each block could not be considered as a separate 'housing project' - Whether going by definition of 'housing project' as given in section 80HHBA each block in a larger project had to be taken as an independent 'housing project' for purpose of claiming deduction under section 80-IB(10) - Held, yes - Whether, therefore, assessee was entitled to have benefit of deduction for residential flats satisfying less than 1500 square feet condition - Held, yes [Paras 13 and 14] [In favour of assessee]

Words & Phrases : Expression 'housing project' occurring in section 80HHBA of Income-tax Act

FACTS

Facts

• Assessee was engaged in the business of development and construction of flats.

• It undertook four projects viz., Agrini, Vajra, Porkudam Phase I and Porkudam Phase II. In Agrini and Vajra, assessee had constructed and sold flats measuring less than 1500 sq.ft. as well as flats which were more than 1500 sq.ft.

• The assessee claimed deduction under section 80-IB(10) in respect of flats measuring less than 1500 sq.ft. of built-up area and did not claim deduction in respect of those flats which exceeded 1500 sq.ft. limit.

• The Assessing Officer declined the deduction under section 80-IB in respect of Agrini and Vajra Projects on the ground that deduction under section 80-IB is the deduction for the project as a whole and all the residential units in the project must satisfy the conditions therein, namely, the built-up area be less than 1500 sq.ft.

• On appeal by the assessee, the Commissioner (Appeals) allowed the claim of the assessee and reversed the order of Assessing Officer.

• On appeal by the revenue, the Tribunal confirmed the order of the Assessing Officer.

• Being aggrieved by the order of the Tribunal assessee preferred instant appeal.

Assessee's contention

• Competent authority had given the sanction for each of the blocks comprising in Vajra and Agrini projects and each block was a project in itself and claim under section 80-IB(10) was restricted to only those units which were less than 1500 sq.ft.

Issue involved

• Whether Tribunal was right in law in holding that in a consolidated residential units having both more than 1500 sq.ft. flats and less than 1500 sq.ft. flats, proportionate deduction under section 80-IB(10) could not be allowed for flats less than 1500 sq.ft. area.

HELD

Whether assessee has to lose deduction in respect of entirety of projects, solely for reasons that certain blocks in projects exceeded 1500 square feet limit?

• It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of 'Agrini' and 'Vajra' is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under section 80-IB(10) by reason of some of the blocks not satisfying the condition under section 80-IB(10). [Para 11]

Expression 'housing project' is not defined in section 80-IB but in section 80HHBA

• There is no definition of the expression 'housing project' under section 80-IB. The said expression is defined under Explanation to section 80HHBA. [Para12]

Each block are 'housing projects' as defined in section 80HHBA

• Going by the definition of 'housing project' under section 80HHBA, to mean the construction of 'any building' and going by the deduction available under section 80-IB to be hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project complying with the condition, each block in the larger project by name 'Agrini' and 'Vajra', has to be taken as an independent building and hence a housing project, for the purpose of considering a claim of deduction. The undertaking qualifying for deduction under section 80-IB is an 'undertaking developing and building housing projects' and the deduction is in respect of 'profits and gains derived from' such housing project, satisfying the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area. [Para 13]

Assessee is eligible for deduction under section 80-IB(10) on a proportionate basis in respect of those blocks which are of less 1500 square feet area

• It is held that the Tribunal is not correct in its view, that by reason of the Units being in excess of 1500 sq.ft., the entire claim of the assessee in respect of the two projects would stand rejected under section 80-IB(10). Thus, going by the definition of 'housing project' under Explanation to section 80HHBA as to the construction of 'any building' and the wordings in section 80-IB(10), the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under section 80-IB(10)(c), the assessee would be eligible for grant of relief under section 80-IB(10) on a proportionate basis. Thus it is held that the assessee is entitled to succeed both on the principle of proportionality as well as by reason of the construction on the meaning of the expression 'housing project' as referring to construction of any building and the wordings in section 80-IB(10). In the circumstances, it is held that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq.ft. per se, would not result in nullifying the claim of the assessee for the entire projects. Consequently, in respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement under section 80-IB(10)(c). [Para 14]

• In the light of the above reasoning, the substantial questions of law is answered in favour of the assessee as to that the assessee is entitled to the claim of deduction in respect of all the blocks forming part of the projects called Agrini and Vajra, but to the extent of each of the blocks satisfying the conditions under section 80-IB(10) the assessee would be entitled to the relief on a proportionate basis. [Para 15]

• In the result the appeals are allowed. [Para 16]

CASES REFERRED TO

Bengal Ambuja Housing Developments Ltd. v. CIT [IT Appeal No. 1595 (Kol.) of 2005, dated 24-3-2006] (para 4), CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289 (Bom.) (para 14) and CIT v. Vandana Properties [2012] 206 Taxman 584/19 taxmann.com 316 (Bom.) (para 14).

C.V. Rajan and R. Sivaraman for the Appellant. T.R. Senthil Kumar for the Respondent.

JUDGMENT

Mrs. Chitra Venkataraman, J. - The assessee is on appeal as against the order of the Tribunal relating to the assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 in T.C. No. 1014 of 2009, T.C. No. 857 of 2010 and T.C. Nos. 190, 191 and 192 of 2012 respectively. Although a composite question of law is raised in these Tax Cases, since the issues relate to the same transaction, the substantial questions of law framed in respect of the assessment year 2004-05 in T.C. No. 1014 of 2009 extracted herein, fit in with the questions raised in the other cases too and hence, is apposite to other Tax Cases. The substantial questions of law raised in respect of assessment year 2004-05 read as under:

(i) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in denying under Section 80IB(10) in respect of project Agrini and Vajra for flats less than 1500 sq.ft. on proportionate basis?

(ii) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that in a consolidated residential units having more than 1500 sq.ft. And less than 1500 sq.ft., proportionate deduction under Section 80IB(1)(c) cannot be allowed for flats less than 1500 sq.ft.?

2. The assessee herein is engaged in the business of development and construction of flats. There were four projects to its credit by name Agrini, Vajra, Porkudam Phase I and Porkudam Phase II. Of these four projects, in Agrini and Vajra, the assessee had constructed and sold flats measuring less than 1500 sq.ft as well as more than 1500 sq.ft. The assessee claimed deduction under Section 80IB(10) of the Income Tax Act (hereinafter referred to as "the Act") in respect of flats measuring less than 1500 sq.ft. of built up area and did not claim deduction in respect of flats exceeding an extent of 1500 sq.ft., i.e., for 32 flats in Agrini and one flat in Vajra exceeding 1500 sq.ft.

3. On a notice issued by the Officer as to why the claim of the assessee under Section 80IB of the Act on a proportionate basis should not be disallowed on account of the violation of the conditions laid down under Section 80IB(10)(c) of the Act, the assessee pointed out that it had claimed deduction only on a proportionate basis in respect of flats less than 1500 sq.ft. of built-up area; that they were marking separate records for different units and that they had not violated the conditions. The Assessing Officer viewed that the deduction under the Section being for the project as a whole and all the residential units in the project must satisfy the conditions therein, namely, built up area to be less than 1500 sq.ft., on the admitted facts as to the units having built-up area more than 1500 sq.ft., the assessee was not eligible for deduction for the entire projects Agrini and Vajra, but was only eligible for deduction in respect of the other two projects namely, Porkudam Phase I and Porkudam Phase II, where there was no violation.

4. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), wherein it was specifically pointed out by the assessee that all these four independent projects were commenced at different points of time; each project was an identifiable independent project having separate plan. The assessee had not claimed any deduction in respect of the residential units having plinth area of more than 1500 sq.ft. The assessee claimed that there was no violation to reject the claim of the assessee with reference to the Units satisfying the conditions under Section 80IB of the Act in respect of each block. The Commissioner of Income Tax (Appeals) pointed out that in respect of each of the projects, separate blocks are identifiable; out of the total built-up area of 2,81,900 sq.ft. in the two housing projects, only an area of 50,610 sq.ft related to units in excess of 1500 sq.ft., which come to 19.36%. Referring to Section 80IB(10)(c) of the Act, he held that within the composite building project, if there were both eligible and ineligible Units, the assessee would be eligible to claim deduction in respect of eligible Units. Relying on the decision of the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. v. CIT [ITA No.1595/Kol/2005, dated 24.03.2006], the Commissioner of Income Tax (Appeals) pointed out that the assessee was entitled to succeed in respect of Units which satisfied the conditions of 1500 sq.ft as given under Section 80IB(10)(c) of the Act, that proportionate deduction was available to the eligible units.

5. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal, which pointed out that the assessee had formulated four schemes, namely, Agrini, Vajra, Porkudam Phase II and Porkudam Phase II. These four schemes were approved by the local authorities. The Tribunal viewed that a project could not be approved in piecemeal; that the approval was for the entire project; and blocks of residential units were parts of a project and not project by itself. Since in respect of a block, the assessee did not comply with the conditions stipulated under Section 80IB(10) of the Act, all the blocks comprising in that particular project would lose the relief. Aggrieved by this, the assessee is on appeal before this Court.

6. Learned counsel appearing for the assessee placed before us the sanction given by the competent authority in respect of each of the blocks in each project and submitted that the consistent case of the assessee had been that each block is a project by itself and that the claim itself was restricted only to those Units which are less than 1500 sq.ft. Thus the view of the Tribunal that each block of residential units could not be considered as a separate project, is erroneous in law. He further pointed out that a similar relief, as had been claimed by the assessee, was granted by the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. (supra), which was confirmed by the Calcutta High Court in ITA No. 458/2006 by order dated 05.01.2007. In the light of the decision of the Calcutta High Court, the Tribunal's order is wrong. Learned counsel pointed out that having regard to the decision of this Court in T.C. Nos. 1348 and 1349 of 2007 dated 10.10.2012, the assessee has to succeed on the principle of proportionality to the extent of the units satisfying Section 80IB(10)(c) of the Act in the matter of granting deduction.

7. Per contra, learned Standing Counsel appearing for the Revenue countered the claim of the assessee and placed reliance on the decision of the Tribunal.

8. Heard learned counsel appearing on either side and perused the material placed on record.

9. It is seen from the narration of facts before the Commissioner of Income Tax (Appeals) as well as before the other authorities, that in the project under the name "Agrini", separate blocks were there, the details of which read as follows:

Sector	Name	Plinth area (in sft)	No. of Units	Land area allocated
Sector-I	SREENIDHI	2140	48	04.65 acres
Sector-1A	SREENIDHI	1690	4	-
Sector-II	VIMAL1	1265	40	01.04 acres
Sector-IIIA	MITHRA	1050	160	03.08 acres
Sector-IIIB	MITHRA DELUXE & NIRMAL DELUXE	1095	36	-
Sector-IV	NIRMAL	875	240	03.53 acres
Sector-V	VAANYA	650	150	01.41 acres

10. It is not denied by the Revenue that as far as the project "Vajra" is concerned, as in the case of Agrini, there are six blocks consisting of 24 flats. The dispute in these cases herein is on an issue as to whether the assessee has to lose the deduction in respect the entirety of the projects "Vajra" and "Agrini", solely by reason of the fact that one of the blocks developed by the appellant in this project, had flats exceeding 1500 sq.ft.

11. It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of "Agrini" and "Vajra" is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under Section 80IB(10) of the Act by reason of some of the stocks not satisfying the condition under Section 80IB(10) of the Act.

12. It is not denied by the Revenue that there is no definition of the expression "Housing project" under Section 80IB of the Act. The said expression is defined under Explanation to Section 80HHBA of the Income Tax Act, which reads as under:

"Section 80HHBA. - Deduction in respect of profits and gains from housing projects in certain cases.

Explanation : For the purposes of this section, - (a) "Housing project" means a project for - (i) The construction of any building, road, bridge or other structure in any part of India "

13. Section 80IA of the Act is a specific provision which deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the development of infrastructural facilities such as roads, bridges and other structure as regards the grant of deduction in respect of development and construction of a housing project. Section 80IB is a specific provision in respect of profits and gains from undertakings engaged in developing and constructing housing projects other than infrastructure development undertakings. Thus, housing projects considered herein under Section 80IB refers to any building other than road, bridge or other structure. Thus, going by the definition of "housing project" to mean the construction of "any building" and the deduction under Section 80IB of the Act is hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project complying with the condition, each block in the larger project by name "Agrini" and "Vajra", has to be taken as an independent building and hence a housing project, for the purpose of considering a claim of deduction. Section 80IB(10) begins by stating:

"(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,

(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,

**"

Thus the undertaking qualifying for deduction under Section 80IB of the Act is an "undertaking developing and building housing projects" and the deduction is in respect of "profits and gains derived from" such housing project, satisfying the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area.

14. On the facts admitted by the Revenue, in the projects "Agrini" and "Vajra", there are number of flats which are below 1500 sq.ft., and the relevant built-up area requirement is specified under Section 80IB(10)(c) of the Income Tax Act. Thus, the built-up area in some of the flats in both these projects are in excess of 1500 sq.ft., i.e., 32 flats in Agrini and only one flat in Vajra and that the assessee had not claimed any deduction on this. We hold that the Tribunal is not correct in its view, that by reason of these Units being in excess of 1500 sq.ft., the entire claim of the assessee in respect of these two projects would stand rejected under Section 80IB(10) of the Income Tax Act. Thus, going by the definition of "housing project" under Explanation to Section 80HHBA of the Act as referred to above as the construction of "any building" and the wordings in Section 80IB(10) of the Act, the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under Section 80IB(10)(c) of the Act, we have already upheld the case of the assessee in T.C. Nos.1348 and 1349 of 2007 dated 10.10.2012 for grant of relief under Section 80IB(10) of the Act on a proportionate basis, by following the decision of the Bombay High Court in CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289. Thus applying the decision of this Court in T.C. Nos. 1348 and 1349 of 2007 dated 10.10.2012, we hold that the assessee is entitled to succeed both on the principle of proportionality as well as by reason of the construction on the meaning of the expression "housing project" as referring to construction of any building and the wordings in Section 80IB(10) of the Act. In the circumstances, we hold that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq.ft, per se, would not result in nullifying the claim of the assessee for the entire projects. Consequently, in respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement under Section 80IB(10)(c) of the Act. In so holding, we also agree with the decision of the Bombay High Court in CIT v. Vandana Properties [2012] 206 Taxman 584/19 taxmann.com 316, which was decided by the Bombay High Court on similar lines as in the assessee's case before us.

15. In the light of the above reasoning, we have no hesitation in allowing the cases filed by the assessee in respect of assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09, thereby answering the substantial questions of law in favour of the assessee, that the assessee is entitled to the claim of deduction in respect of all the blocks forming part of the projects called Agrini and Vajra, but to the extent of each of the blocks satisfying the conditions under Section 80IB(10) of the Act, the assessee would be entitled to the relief on a proportionate basis.

16. In the light of this Court allowing the Tax Case Appeals, nothing survives in the writ appeal filed by the assessee, viz., W.A.No.471 of 2010 as against the dismissal of the writ petition filed for rectification of the error in the order passed by the Tribunal. In the result, the Tax Case Appeals stand allowed and the Writ Appeal stands closed. Connected M.P. Nos. 1, 1, 1, 2 and 2 of 2012 stand closed. No costs.

Exemptions under Service Tax

There is paradigm shift in the levy of Service Tax from 1-7-2012 wherein Negative List based levy is introduced in place of selective levy. Service Tax is now chargeable on all activities defined in the law [S.65B (44)] except the activities given in the Negative List. In place of various service based exemptions, a mega exemption list is given under Notification No. 25/2012-ST dated
20-6-2012. These activities are exempt from service tax. The purpose behind giving a separate exemption list over and above the Negative List is that the exemptions can be amended or deleted by issue of notifications whereas amendment to the Negative List requires parliamentary approval. The exemptions list contains 39 items, many of them are having multiple entries and the notification also provides for the definitions of the terms contained therein. An attempt is made in this article to critically examine the exemptions.

1. Service provided to the United Nations or specified international organisations

It can be seen that service provided to only specified international organisations are exempt. The international organizations are specified by the Central Government in pursuance of S. 3 of the United Nations (Privileges & Immunities) Act, 1947. An illustrative list is given in the Education Guide is issued by CBEC. It is pertinent to note that service provided by such international organisations may be liable to tax, if otherwise covered under the law.

2. Health Care Services by a clinical establishment, an authorised medical practitioner or para-medic

Under this exemption, all treatment or diagnosis or care for any illness, injury, deformity, abnormality or pregnancy by a clinical establishment is covered. Authorised medical practitioners in any recognised branch of medicine like private medical practitioners (doctors), physiotherapists are also exempted from service tax. The term para – medico is not defined in the Act. However, it has been clarified in the Education Guide that Paramedics are trained health care professionals, for example nursing staff, physiotherapists, technicians, lab assistants etc. Services by them in a clinical establishment would be in the capacity of employee and not provided in independent capacity and will thus be considered as services by such clinical establishment. Similar services in independent capacity are also exempted.

Such treatment or care of patient could be in any recognised system of medicines in India like Allopathy, Naturopathy, Ayurdeva, Homeopathy, or Unani. These systems of medicines are recognised in terms of cl. 2(h) of the Clinical Establishments Act, 2010. Any other system of medicine that may be recognised by the Central Government is also been entitled for this exemption. However, it does not include hair transplant or cosmetic or plastic surgery, except that such surgery is undertaken to restore or reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.

Transportation of patient to and from a clinical establishment is also covered under the exemption. The clinical establishment would mean any hospital, nursing home, clinic, sanatorium or any other institution by whatever name called in India. It could be a place established as a part of an establishment or any private diagnostic centre like x-ray clinic, pathological laboratory or any diagnostic or investigative center.

3. Services by a veterinary clinic in relation to health care of animals or birds

Like in case of human beings, health care of animals or birds by a veterinary clinic is also exempt from service tax.

4. Services by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) by way of charitable activities

First of all, the exemption is limited to the entities registered u/s. 12AA of the Income-tax Act. The activities of such trust should be related to the following:

a) Public health – Care or counselling of terminally ill persons or persons with severe physical or mental disability, persons affected with HIV, or persons addicted to narcotics drugs, alcohol.

b) public awareness of preventive health, family planning or prevention of HIV infection;

c) advancement of religion or spirituality;

d) advancement of educational programmes or skill development relating to, –

(i) abandoned, orphaned or homeless children;

(ii) physically or mentally abused and traumatised persons;

(iii) prisoners; or

(iv) persons over the age of 65 years residing in a rural area;

e) preservation of environment including watershed, forests and wildlife; or

f) advancement of any other object of general public utility up to a value of

` 18.75, lakhs for the year 2012-13 and ` 25 lakhs in any other financial year. This exemption is subject to the condition that total value of such activities had not exceeded twenty five lakh rupees during the preceding financial year.

The term, general public is defined as, 'body of people at large sufficiently defined by
some common quality of public or impersonal nature'.

The monetary limitation prescribed above is applicable only to "advancement of any other object of general utility" as in case of Income-tax. However, it can be seen that the exemptions to charities is restricted to a great extent and even the activity relating to relief to poverty is not covered. Further, the educational activities are also restricted compared to Income-tax exemption even after taking into account Negative List based exemption in relation to education.

5. Services by a person by way of – a) renting of precincts of a religious place meant for general public; or b) conduct of any religious ceremony

"Religious place" is defined as a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation or spirituality. Any activity in relation to performing rituals, poojas by any person would be covered under the exemption. However, renting of precincts of religious place not meant for general public would not be covered under the exemption.

It has been clarified that religious ceremonies are life-cycle rituals including special religious poojas conducted in terms of religious texts by a person so authorized by such religious texts. Occasions like birth, marriage and death involve elaborate religious ceremonies.

6. a) Services provided by an arbitral tribunal to i) any person other than a business entity and ii) the business entity having turnover up to rupees ten lakh in the preceding financial year

b) Services by an individual as an advocate or a partnership firm of advocates by way of legal services to i) an advocate or partnership firm of advocates providing legal services; ii) to any person other than a business entity; or iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

c) a person represented on an arbitral tribunal to an arbitral tribunal

In this exemption, service provided by an arbitral tribunal or an individual advocate or partnership firm of advocates by way of legal service to a person other than a business entity having turnover upto

` 10 lakhs in the preceding financial year is exempted. The term "business entity" is defined as any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. However, what would be included for the purpose of limit of turnover of ` 10 lakhs is not clear and hence the meaning of turnover in commercial parlance is to be adopted. Further, the term "legal service" is defined as any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational service before any court, tribunal or authority. The term advocate has meaning assigned to it in S. 2(1)(a) of the Advocates Act, 1961. The exemption therefore covers legal service provided by advocates only and any person other than advocate providing legal service or any advocate providing a service other than the legal service would not be covered in the exemption. It is to be kept in mind that in relation to service by way of arbitral tribunal or legal service by advocate, the business entity having turnover above ` 10 lakhs in preceding financial year would be liable to pay tax under reverse charge mechanism [R. 2(1)(d)(D) of Service Tax Rules, 1994].
7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India.

For the purpose of this exemption, the following conditions needs to be satisfied:

a. service should be by way of technical testing and analysis;

b. should be in relation to newly developed drugs, vaccine or herbal remedies;

c. testing service should be on human participants

d. the clinical research organisations should be approved to conduct such trial by the Drug Controller General of India.

8. Services by way of training or coaching in recreational activities relating to arts, culture or sports

In this, exemption is provided to training or coaching in recreational activities relating to all forms of dance, music, painting, sculpture making, theatre, sports, etc. In this category, choreographers, sport coaches would be covered.

9. Services provided to or by an educational institution in respect of education exempted from service tax, by way of a) auxiliary educational services; or b) renting of immovable property

In this, exemption is provided to or by an educational institution in relation to,

a. Auxiliary education service, i.e. any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge – enhancement activity,

b. Such service may be for the students or the faculty,

c. Any other outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution;

It is important that the educational services imparted by the education institution are exempted from service tax. In order to have comprehensive understanding if is to be noted that the exemption to the following educational service is provided in Negative List:

pre-school and upto higher secondary or equivalent education (certification like IB schools

education as a part of curriculum for obtaining a qualification recognised by any law for the time being in force (in India) – conduct of degree courses by colleges, universities or institutions leading to grant of qualification recognised by law would be covered, but private coaching or
training institutes would not be covered in this.

education as a part of an approved vocational education course – a course run by an institute or training centre affiliated to the National Council for vocational training offering courses in designated trades notified under the Apprentice Act, 1961 or a Modular employable skill course approved by National Council of vocational training run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, GOI and a course run by National Skill Development Corporation set-up by GOI.

It may be noted that, education institutes such as IIT, IIMs offering campus recruitment by charging fees from prospective employers are not covered in the exempted category.

10. Services provided to a recognised sports body by

an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognised sports body;

another recognised sports body.

In this, exemption is provided to service by specified persons, a player, a referee, an umpire, a coach or a team manager to recognise sport body for participation in a sporting event. Further, service by a recognised sport body to another is also exempt. However, the exemption is not available to selectors, commentators, curators, technical experts, etc. The recognised sport bodies are specified in sub-clause (za) of the Exemption notification.

11. Services by way of sponsorship of sporting events organised, by certain sport bodies

In this exemption is provided to sponsorship of sporting events organised by (a) a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone, (b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat, (c) by Central Civil Services Cultural and Sports Board,(d) as part of national games, by Indian Olympic Association and (e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme. However, the sponsorship should be in relation to any sporting event organized by the above mentioned organisations would only enjoy the exemption. Notable example of exclusion in exemption is cricket major like BCCI, IPL, etc.

12. Services provided to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

canal, dam or other irrigation works;

pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act.

In this, exemption is provided to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or restoration of the specified structures.

The condition is that they should be predominantly for use other than for commerce, industry or any other business or profession. However, the exemption would not be denied if the structure is also used incidentally for say, commercial purpose.

In this exemption, roads, hospitals, educational institutions would be covered. However, the exemption is recipient centre which means only service provided to the Government or local authority or Governmental authority would get covered. A sub-contractor would not be covered even if he provides service to the main contractor, who in turn provides service to Government in relation to the specified structures. This will add-up the cost of the main contractor.

13. Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of

a road, bridge, tunnel, or terminal for road transportation for use by general public;

a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;

a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased.

In this, exemption is provided to private persons also apart from the Government, local authority or Governmental authority. Unlike the previous one, this exemption is activity centric. The activities covered are similar to that provided to the Government in the previous exemption. The condition of exemption for construction of road, bridge, tunnel or road transport terminal is that it should be for use of general public. "General public" is defined to mean the body of people at large sufficiently defined by some common quality of public or impersonal nature. It is a moot question that whether a road in an industrial estate which is used by the owners of various industrial units or their employees or other visitors would qualify as general public. Further, the question may arise for private roads within the port, SEZ, etc., wherein the permission is required or fees to be paid for access. It is highly doubtful to exclude from exemption, such roads, bridges, tunnels or road transport terminals by treating them as not for the use of general public.

Exemption is also made available to the original works pertaining to the schemes under JNURM or RAY and the charitable trust buildings registered under S. 12AA of Income-tax Act predominantly for religious use by general public. It is to be noted that charitable trust buildings meant for charitable activities is not covered under the exemption. Further, a pollution control or effluent treatment plant would get exempted, however, if the same is located as a part of factory, no exemption is allowed. A general effluent treatment plant outside an industrial estate or industrial writ will fit into this exemption. It is doubtful if a separate structure or a structure outside the factory would be eligible for this exemption. A structure built for funeral, burial or cremation of deceased is exempted.

Since, the exemption is activity centric and the definition of "service" is also based on any activity carried out by a person for another for consideration, it can be argued that the sub-contractor providing pure labour service in relation to the activities defined under the exemption may also get exempted unlike in the previous exemption. However, Cl.(1) of S. 66F provides that reference to a service by nature of description in the Act will not include reference to a service used for providing such service. It has been clarified in the Education Guide that services such as architect, consulting engineer, etc. used by the contractor in construction of roads, airport, transport terminals, railways, bridges, tunnels, dams, etc., would not get exemption unless the activities carried out by the sub-contractor independently and by itself falls within the ambit of the exemption.

14. Services by way of construction, erection, commissioning, or installation of original works pertaining to –

an airport, port or railways, including monorail or metro;

a single residential unit otherwise than as a part of a residential complex;

low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

post-harvest storage infrastructure for agricultural produce including cold storages for such purposes; or

mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.

This exemption is also activity centric and therefore service provided to any person for construction, erection, commissioning or restoration pertaining to the specified original works gets exempted. Private airports, ports, railways including mono rail or metro are exempt. Low cost houses upto carpet area of 60 sq. mtrs per house in approved housing project by the Ministry of Housing and Urban Poverty Alleviation, GOI and single residential unit otherwise than as a part of residential complex is exempt. Therefore, construction of a bungalow for self-use gets exempted but not a residential unit in a residential complex. The "residential complex" is defined to mean any complex comprising of a building or buildings having more than one single residential unit. A "single residential unit" is defined to mean a self-contained residential unit which is designed for use, wholly or principally, for residential purpose of one family. Further, harvest storage infrastructure for agriculture produce including cold storage for such purpose and mechanised food grain handling system, machinery or equipment for processing of agriculture produce as foodstuff excluding alcoholic beverages would also get exempted. In this case also the discussion in the previous exemption in relation to a sub-contractor providing service to the main contractor who provides main service would apply.

15. Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films

Temporary transfer of copyright relating to original literary, dramatic, musical, artistic work or cinematographic films is specifically exempted. When a composer of song having copyright on his song allows recording of such song by a music company on payment of royalty is covered u/s. 13(1)(c) of Indian Copyright Act, 1957. Further, person having copyright of a cinematographic film would also be exempt for amount received from film exhibitors in cinema theatres.

16. Services by a performing artiste in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artiste as a brand ambassador

A performing artiste in folk or classical form of music, dance or theatre is exempt unless he is acting as brand ambassador. The activities like performance of western music or dance, performance of actors in films or television serials would be liable to tax. Further, activities in still art forms like painting, sculpture making, etc. are taxable.

17. Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India

In this exemption, only specified news agencies and independent journalists collecting or providing news are covered.

18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent

Accommodation service by a hotel, inn, guest house, club, campsite or other commercial places for residential or lodging purpose, having declared tariff of

` 1000/- or above per day would be liable to be taxed. Further, such places for commercial use would also be liable without any monetary limit.
19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages

Services by a restaurant etc. not having the facility of air-conditioning or centralised heating in any part of the establishment at any time during the year and not having license to serve alcoholic beverages is exempt.

20. Services by way of transportation by rail or a vessel from one place in India to another of the following goods

a. petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

b. relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap;

c. defence or military equipments;

d. postal mail or mail bags;

e. household effects;

f. newspaper or magazines registered with the Registrar of Newspapers;

g. railway equipments or materials;

h. agricultural produce;

i. foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or

j. chemical fertilizer and oilcakes.

Service by rail transportation or a vessel from one place in India to another place is exempt for specified goods.

21. Services provided by a goods transport agency by way of transportation of –

fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or

goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty.

In this, the exemption provided in relation to service by a Goods Transport Agency is more or less in the line with the earlier exemption under Notification No. 33/2004 – ST and 34/2004 – ST both dtd. 3-12-2004. However, the value based exemption is in more clearer terms as transportation of consignment of goods in a single goods carriage is exempt, if the freight does not exceed

` 1500/- and the gross amount charged for transportation of all goods for a consignee in the goods carriage is exempt, if the freight does not exceed ` 750/-. Further, the list of exempted goods now extends to food grains and pulses also.
22. Services by way of giving on hire

a. to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

b. to a goods transport agency, a means of transportation of goods;

In this, exemption is provided to hiring of i) a motor vehicle meant to carry more than twelve passengers to a state transport undertaking and ii) any means of transportation of goods to a Goods Transport Agency. However, it is moot point that whether simplicitor hiring of a motor vehicle could ever be liable to service tax, such hiring is covered under "transfer of right to use" as "deemed sale" under Article 366 (29A) of the Constitution and excluded from the definition of "service". It therefore follows that mere hiring of a motor vehicle for transportation of goods or passengers to any person may not be liable to service tax.

23. Transport of passengers, with or without accompanied belongings, by –

air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal;

a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or

ropeway, cable car or aerial tramway.

In this exemption, area based transportation of passengers with or without accompanying baggage is provided as prevailing earlier. Further, transportation of passengers with or without accompanying belongings by a stage carriage is in Negative List. However, contract carriage for transportation of passengers other than for tourism, conducted tour or charter is covered under this exemption. The exemption is also extended to ropeway, cable car or aerial tramway.

24. Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility

In this, exemption is provided to the service by way of parking of vehicles to general public. However, leasing of space to an entity for providing such parking facility is liable to be taxed.

25. Services provided to Government, a local authority or a Governmental authority by way of

carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or

repair or maintenance of a vessel or an aircraft.

This exemption is provided to the Government, a local authority or a Governmental authority only. It does not need any more elaboration.

26. Services of general insurance business provided under following schemes –

a. Hut Insurance Scheme;

b. Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme);

c. Scheme for Insurance of Tribals;

d. Janata Personal Accident Policy and Gramin Accident Policy;

e. Group Personal Accident Policy for Self-Employed Women;

f. Agricultural Pumpset and Failed Well Insurance;

g. Premia collected on export credit insurance;

h. Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;

i. Jan Arogya Bima Policy;

j. National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);

k. Pilot Scheme on Seed Crop Insurance;

l. Central Sector Scheme on Cattle Insurance;

m. Universal Health Insurance Scheme;

n. Rashtriya Swasthya Bima Yojana; or

o. Coconut Palm Insurance Scheme.

This exemption is self explanatory and does not need much elaboration.

27. Services provided by an incubatee up to a total turnover of fifty lakh rupees in a financial year subject to the following conditions, namely

a. the total turnover had not exceeded fifty lakh rupees during the preceding financial year; and

b. a period of three years has not been elapsed from the date of entering into an agreement as an incubatee.

This exemption is akin to the earlier exemption in Notification No. 10/2007 – ST dtd. 1-3-2007 and doesn't need any elaboration.

28. Service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution

a. as a trade union;

b. for the provision of carrying out any activity which is exempt from the levy of service tax; or

c. up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;

An unincorporated association or body of persons and a member thereof are treated as distinct persons for the purpose of the definition of service and service tax is applicable in case of service inter se in these cases. However, exemption is provided to a service by an unincorporated body or registered non-profit entity to its members by way of reimbursement of charges or share of contribution, if i) it is for provision of carrying out any activity which is exempt from service tax, or ii) in case of housing society or a residential complex, the exemption is up to

` 5000/- per member per month for sourcing of goods or services for common use of its members.

The exemption therefore could be viewed in the following way:

For a co-operative housing society or a residential complex, contribution or reimbursement of charges for members is exempt upto ` 5000/- per member for sourcing of goods or service for common use of the members. Further, contribution or reimbursement of charges for carrying out any activity which is exempt from levy of service tax is also eligible for exemption. Such activity could include municipal taxes, water charges, electricity, etc. Hence it is possible to take a view that these items would not be covered in the monetary exemption limit of ` 5000/-. It has been clarified in the Education Guide that when a co-operative housing society is working as pure agent of the members for sourcing of goods or services from a third person, the amount collected by the society from its members would be excluded from the value of taxable service in terms of Valuation Rules, subject to satisfaction of other conditions.

In case of premises co-operative societies (commercial), a possible view could be that the exemption is available as per clause (b), i.e., provision of carrying out any activity which is exempt from tax. This may include municipal tax, water charges, electricity, etc.

Services by trade union to its members is also exempted.

29. Services by the following persons in respective capacities

a. sub-broker or an authorised person to a stock broker;

b. authorised person to a member of a commodity exchange;

c. mutual fund agent to a mutual fund or asset management company;

d. distributor to a mutual fund or asset management company;

e. selling or marketing agent of lottery tickets to a distributor or a selling agent;

f. selling agent or a distributor of SIM cards or recharge coupon vouchers;

g. business facilitator or a business correspondent to a banking company or an insurance company, in a rural area; or

h. sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt.

In this, exemption is provided for intermediaries in sub-clause (a) to (f) because the main person providing the service like a stock-broker, a member of commodity exchange, a mutual fund or asset management company, etc., are liable to pay tax on the service provided by them. However, in case of Cl. (h), a specific exemption granted to a sub-contractor providing works contract service to another contractor providing works contract service. It is to be noted that labour contractor providing pure labour service to a person providing works contract service is not covered in the exemption.

30. Carrying out an intermediate production process as job work in relation to –

agriculture, printing or textile processing;

cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act,1985
(5 of 1986);

any goods on which appropriate duty is payable by the principal manufacturer; or

processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;

Certain intermediate production process as job work is covered in this exemption. However, the process amounting to manufacture or production of goods is in the Negative List. Further, the job work would be exempted, if the final products are liable to appropriate duty of excise by the principal manufacturer. The "appropriate duty" is defined as not to include nil rate of duty or the duty on wholly exempt goods. In relation to certain process like electroplating, etc., in sub-clause (d) the value based exemption is provided.

31. Services by an organiser to any person in respect of a business exhibition held outside India

In this, exemption is provided to service provided by an organizer of a business exhibition held outside India to any person.

32. Services by way of making telephone calls from

a. departmentally run public telephone;

b. guaranteed public telephone operating only for local calls; or

c. free telephone at airport and hospital where no bills are being issued.

In this, exemption is provided to a service by way of making telephone calls in specified cases.

33. Services by way of slaughtering of bovine animals

This exemption is self explanatory.

34. Services received from a provider of service located in a non-taxable territory by

a. Government, a local authority, a Governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;

b. an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or

c. a person located in a non-taxable territory.

Three kinds of exemption are provided in relation to service received from a provider of service located in non-taxable territory. Non-business services related to Government, local authority or Governmental authority or an individual is exempt. Further, service received by a charitable trust registered under Income-tax for providing charitable activity is exempt. When both the service provider and recipient are located in non-taxable territory, no tax is payable. An example of such case would be that a person located in London holding an immovable property in India engages architectural service from Italy. In this case, the service is taxable being located within the taxable territory as per Place of Provision of Service Rules. However, since both the service provider and recipient are outside taxable territory, no tax would be levied.

35. Services of public libraries by way of lending of books, publications or any other knowledge-enhancing content or material

Public libraries are exempt but the private libraries lending books, etc., for a charge would not be covered in this exemption.

36. Services by Employees' State Insurance Corporation to persons governed under the Employees' Insurance Act, 1948 (34 of 1948)

This exemption is specific to a particular organisation (ESIC), however, other similar organizations like Employees Provident Fund, etc., are not covered under the exemption.

37. Services by way of transfer of a going concern, as a whole or an independent part thereof

It appears that this exemption is provided to transfer of a going concern, either whole or in part is provided by way of abundant caution and sale of a business or an independent unit of the business would be outside the purview of service tax. The term "going concern" is not defined in the law. The Education Guide clarifies that a 'going concern' means transfer or a running business which is capable of being carried on by the purchaser as an independent business, but shall not cover mere or predominant transfer of an activity comprising of service. As per the clarification given in the Education Guide, such sale of business as a whole comprise comprehensive sale of immovable property, goods and transfer of unexecuted orders, employees, goodwill, etc. Since the transfer in title is not merely a transfer in title of either the immovable property or goods or even both, it may amount to service and has thus been exempted. Thus, the Education Guide attempts to justify the exemption. However, the fundamental issue is that whether transfer of going concern can ever be treated as "service"?

38. Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinals or toilets

In this exemption, public conveniences for certain sanitary facilities are exempted, however, private parties are not entitled to exemption.

39. Services by a Governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution

"Governmental authority" is defined as a board, or an authority or any other body established with 90% or more participation by way of equity control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243 W of the Constitution. Such Governmental authority carrying on any function entrusted to a municipal corporation under Article 243 W of the Constitution is exempt from service tax. The functions includes such powers and authority and responsibilities for preparation of plan for economic development and social justice, implementation of schemes in the matter listed in Twelfth Schedule like urban planning, regulations relating to land use, construction of building, road, bridges, water supply, public health, fire services, protection of environment and ecological aspects, safeguarding of weaker sections of society including handicapped and mentally retarded, slum improvement and upgradation, urban poverty alleviation, development of public amenities as parks, gardens, playgrounds, streetlights, parking lots, bus stops, promotion of cultural, education and aesthetic aspects, burial, cremation grounds, electrical crematoriums, prevention of cruelty to animals, maintenance of statistics like births and deaths and regulation of slaughter houses, etc. Any Government authority carrying out one or more functions are exempt from service tax.

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Chartered Accountant Finance

Saturday, January 5, 2013

[aaykarbhavan] Judgments and other information on service tax

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