Tuesday, June 18, 2013

[aaykarbhavan] Judgments and other information.


















ST : A service provider cannot pay service tax or VAT at his option; tax is to be paid as per law applicable and tax due under service tax cannot be discharged by paying tax under VAT laws under a lower rate
ST : Maintaining and repairing heavy dumpers is, prima facie, a service and it is liable to service tax subject to exemption under Notification No. 12/2003-S.T., dated 20-6-2003
ST : When issue of taxability is raised by Revenue, it is for assessee to prove to contrary at least while replying to show cause notice using facts and figures in their account books which may not be easily available to Revenue
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[2013] 33 taxmann.com 605 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
TIL Ltd.
v.
Commissioner of Central Excise, Jaipur-II*
MS. ARCHANA WADHWA, JUDICIAL MEMBER
AND MATHEW JOHN, TECHNICAL MEMBER
STAY ORDER NO. ST/S/809/2012-CUS (PB)
APPLICATION NO. ST/STAY/1031 OF 2012 
APPEAL NO. ST/449 OF 2012
JULY  17, 2012 
I. Section 66 of the Finance Act, 1994 - Charge of service tax - A service provider cannot pay service tax or VAT at his option - If option is given, obviously service provider will pay tax which is levied at lower rate - Said two levies are under separate provisions in Constitution and proceeds of such taxes are utilised for different purposes by different authorities - Tribunal cannot say that tax due under one enactment can be discharged by paying tax under another enactment under a lower rate - In situations where there is difficulty in ascertaining price of goods correctly, Tribunal may accept value on which VAT was paid as an evidence of value of goods sold, but, it cannot mean that liability under service tax can be discharged by paying VAT [Para 13] [In favour of revenue]
II. Section 65(64) of the Finance Act, 1994 - Management, Maintenance or Repair Services - Stay Order - Assessee was engaged in maintaining and repairing heavy dumpers - As per contract, assessee was charging consideration under two heads viz. one for manpower and logistics and other for maintenance and repair - Assessee didn't paid VAT on maintenance and repair charges arguing that they were paying VAT on such charges, as it was towards cost of spare parts - It was found that such charges were recovered irrespective of whether spare parts were actually supplied or not, as such charges were fixed on average basis - Department argued that assessee should have paid service tax on entire value after claiming exemption under Notification No. 12/2003-ST - HELD : Assessee's contract was for providing services though appellant had an intention to pay VAT, rather than service tax, on consideration received - Prima facie, prices charged for supply of materials were not correct prices - Argument that, in later years, VAT paid was higher could be examined during final hearing - Even otherwise, there was a net higher realization over and above price of materials sold as per list prices - Hence, prima facie, there was liability to pay service tax and pre-deposit was ordered in part [Paras 14 to 18] [In favour of revenue]
III. Section 73 of the Finance Act, 1994 - Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded - Adjudication of Demand - Stay Order - Assessee argued that revenue has not proved that value realised is for services rendered and not for value of goods sold - HELD : When issue is raised by Revenue, it is for assessee to prove contrary at least while replying to show cause notice using facts and figures in their account books which are available to them easily but may not be easily available to Revenue - Since no such attempt was made, demand was, prima facie, sustainable [Para 18] [In favour of revenue]
CASE REVIEW
 
Wipro GE Medical Systems (P.) Ltd. v. CST [2009] 18 STT 508 (Bang. - Cestat) and Xerox Modicorp Ltd. v. State of Karnataka 2005 (142) STC 209 (SC) (para 13) distinguished.
Union of India v. Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (SC) (para 14) relied on.
EDITOR'S NOTE
 
Though this is a stay order, but, it beautifully discusses law as to payment of VAT or service tax, which is in accordance with the judgment of the Supreme Court in Idea Mobile Communication Ltd. v. CCE&C [2011]32 STT 262/12 taxmann.com 307. However, burden to prove charge of service tax will always be on Revenue and cannot be shifted to assessee, except where, prima facie, Revenue has proved its stand.
CASES REFERRED TO
 
Wipro GE Medical Systems (P.) Ltd. v. CST [2009] 18 STT 508 (Bang. - Cestat) (para 5), Xerox Modicorp Ltd. v. State of Karnataka 2005 (142) STC 209 (SC) (para 5), Xelo Pty. Ltd. v. Dy. DIT (International Taxation) [2009] 32 SOT 338 (Mum.) (para 6), Union of India v.Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (SC) (para 6) and Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 24 (SC) (para 9).
Siladitya Sarkar for the Appellant. B.L. Soni for the Respondent.
ORDER
 
Mathew John, Technical Member - The appellants entered into a contract with M/s. Hindustan Zinc Ltd. for maintaining and repairing their heavy dumpers for a period of five years. As per the contract they were charging consideration from M/s. Hindustan Zinc Ltd. under two heads - one charging for manpower and logistics and other charging for maintenance and repair. The appellants were paying service tax on consideration received under the former head but were not paying service tax for consideration received under the latter head. They were not paying service tax on maintenance and repair charges on the ground that they were paying VAT on such charges. Their contention is that consideration received under the contract for maintenance and repair is towards cost of spare parts. They concede that such charges were recovered irrespective of the fact whether spare parts were actually supplied or not, because according to them maintenance and repair charges were fixed on average basis taking into consideration the life of the dumper and life of spare parts.
2. Revenue was of the view that the appellants should have paid service tax for the consideration received under the contract for maintenance and repair after claiming exemption for value of materials sold, if any, as per the provisions of Notification No. 12/2003-S.T., dated 1-3-2003. Revenue found that the consideration charged for maintenance and repair service was in excess of the price of the materials sold. Therefore Revenue was of the view that there was a short levy of service tax during the financial year 2009-10. Revenue issued a Show Cause Notice and after due process of law a demand for Rs. 77,19,688/- has been confirmed along with interest and penalty. Aggrieved by the order of the Commissioner, the appellants have filed this appeal before the Tribunal along with an application for waiver of pre-deposit of dues arising from the impugned order for admission of the appeal.
3. During the impugned period the appellants were receiving consideration under three contracts, one dated 17-4-2004 (Phase-I contract), another dated 1-3-2007 (Phase-II contract) and another dated 21-6-2009 (Phase-III contract). The first two contracts were essentially of the same nature. These contracts initially executed were amended by letter dated 17-4-2004, to split the gross realization under two heads one for manpower supply and the other for spare parts supply. Phase-III contract is also essentially of the same nature but the contract was ab initio dawn by splitting the value under the two heads. Typically the charges were as under as stated by the appellant in their appeal memorandum in respect of Phase-III contract.
Sl. No.Operating Hours Spare parts supply charges [US Dollar ($) per hour per dump truck]Manpower & Logistic charges [Indian Rupee (INR) per hour per dump truck]
1. 00001 to 05000$ 8.00 INR 250/-
2. 05001 to 10000$ 24.00 INR 250/-
3. 10001 to 15000$ 36.00 INR 250/-
4. 15001 to 20000$ 42.00 INR 250/-
5. 20001 to 25000$ 10.00 INR 250/-
4. The contention of the appellants is that once they have paid VAT in respect of maintenance and repair charges which involved sale of goods, there cannot be any demand for service tax for the same amount. According to them the entire amount billed under the said contract was for supply of material. The only issue was that they had collected more amounts in the initial years of contract than the value of materials supplied during those years. But it is pointed out in later years they have supplied goods valued more than the consideration they have received for those years. He submits following tabulation to prove his argument. :-
Phase-I of Contract
Year Spare Parts Supply Charges recoveredValue of Spare Parts actually consumed (calculated at regular list price) Differential Value (in Rs.)
(1)(2)(3) 4=(2)-(3)
1 (2004-05) 79,86,53918,37,43661,49,103
2 (2005-06) 2,92,02,78070,45,833 2,21,56,947
3 (2006-07) 6,30,13,6991,77,32,517 4,52,81,182
4 (2007-08) 6,86,33,3714,52,14,138 2,34,19,233
5 (2008-09) 4,71,72,4936,22,19,754 -1,50,47,261
6 (2009-10) 2,42,21,9814,49,74,571 -2,07,52,590
Total 24,02,30,863*17,90,24,249 6,12,06,614
*Sales Tax has been paid on this value.
Phase-II of the Contract
YearSpare Parts Supply Charges recovered Value of Spare Parts actually consumed (calculated at regular list price)Differential Value (in Rs.)
(1) (2)(3) 4=(2)-(3)
1 (2007-08) 2,50,08,5421,05,35,604 1,44,72,938
2 (2008-09) 6,12,79,9103,99,36,915 2,13,42,995
3 (2009-10) 8,93,36,9254,86,93,432 4,06,43,493
4 (2010-11) 5,41,28,4118,87,83,334 -3,46,54,923
5 (2011-12) 4,64,59,4336,60,12,253 -1,95,52.820
Total 27,62,13,221*25,39,61,538 2,22,51,683
*Sales Tax has been paid on this value
5. He also relies on the following decisions of the Tribunal in support of his argument that once VAT is paid there cannot be any service tax liability on the corresponding value :-
(1)  Wipro GE Medical Systems (P.) Ltd. v. CST [2009] 18 STT 508 (Bang. - Cestat)
(2)  Xerox Modicorp Ltd. v. State of Karnataka 2005 (142) STC 209 (SC).
6. He relies on the following decisions and argue that a contract should be understood as per the intentions of the parties :
(1)  Xelo Pty Ltd. v. Dy. DIT (International Taxation) [2009] 32 SOT 338 (Mum.)
(2)  Union of India v. Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (SC)
7. He also relies on the Circular of C.B.E. & C. issued vide 96/7/2007-S.T., dated 23-8-2007 at reference code 036.03/23-8-2007 which reads as under :
Reference CodeIssue Clarification
036.03/ 23-8-2007
Whether spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax?
Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service?
Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods.
Any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service.
Where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill, including the value of the spare parts, raised by the service provider, namely, service stations. However, the service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of service tax paid on any taxable services used as input services for servicing of vehicles.
8. According to the Counsel the fact that VAT is paid on the impugned consideration received is a good enough condition to keep such consideration out of levy of service tax. He submits that the department has not produced any evidence to controvert the claim of the appellants. He also points out that the excess value of materials sold over consideration received during the impugned period under the Phase-I contract amounting to approximately Rs. 2.07 crores has not been taken into account by Revenue and tax for the entire receipt of Rs. 8.35 crores under the three contracts has been demanded.
9. Opposing the prayer of the Appellants, the ld. A.R. submits that the essential character of the impugned contract is that of Repair and Maintenance. It is not for sale of parts. The primary responsibility undertaken under the contract is to keep the machines in working condition. So going by the aspect theory laid down by Apex Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 24 this contract cannot be considered as anything other than a service contract. He accepts that if there is any sale of goods made for providing service, the value of goods sold is exempt from payment of service tax by Notification 12/2003-S.T. He points out that the demand is made only after extending the benefit of such exemption adopting the list price of the goods as per para 6 of the impugned order. In fact the actual value for such parts will be much lower considering that the spare parts are procured in bulk from the manufacturers by the appellants. He also points out that on items like tool kit cannot be considered to be sold because these are items used by the appellant and property in such goods may not be transferred to the service recipient.
10. The ld. AR points out that the decision in Wipro GE Medical Systems (P.) Ltd. (supra) is with reference to the facts of the case where the value of goods sold was not available. The Tribunal has just accepted the value on which VAT is paid as the value of goods sold. It does not lay down a law that such a presumption cannot be rebutted through proper calculations which has been done in this case. He also invites our attention to the exact wording of the clarification by C.B.E. & C., relied upon by the appellants, reading as under :
"Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods."
11. The circular itself says that the matter is to be considered in the facts of each case. The circular cannot be interpreted to mean that the service provider can pay VAT or service tax at his option.
12. We have considered arguments on both sides.
13. We are not able to see any ruling of any Court or Tribunal or any circular of C.B.E. & C. to the effect that a service provider can pay service tax or VAT at his option. If option is given obviously the service provider will pay the tax which is levied at lower rate. The two levies are under separate provisions in the Constitution and the proceeds of such taxes are utilised for different purposes by different authorities. So the Tribunal has no power to say that tax due under one enactment can be discharged by paying tax under another enactment under a lower rate. In situations where there was difficulty in ascertaining the price of goods correctly, the Tribunal found it expedient to accept the value on which VAT was paid as an evidence of value of goods sold in the absence of evidence to the contrary. Thus is the crux of the decision in Wipro GE Medical Systems (P.) Ltd. (supra). The decision of the Apex Court in the case of Xerox Modicorp Ltd. (supra) is to the effect that in such composite contract state can levy tax on value of goods used in executing the service contract. The decision nowhere says that the liability under service tax can be discharged by paying VAT. Such decisions cannot be interpreted to mean that tax under a Central enactment can be discharged by paying tax under a State enactment.
14. We have also considered the decisions quoted by the appellants regarding construing the contract as per the intentions of the parties. From the contract it is very clear that the contract is for providing services though appellant had an intention to pay VAT on the consideration received rather than service tax. The decisions do not say that tax liability can be discharged as per of option of the parties. The matter will have to be decided by law that is applicable. We also note extracts from para 5 of the order of the Apex Court in the case of Mahindra & Mahindra Ltd. (supra) reading as under :
"Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of affairs. It is, no doubt, open to the revenue to allege and prove that the apparent is not the real and that the price for the sale of the CKD packs is not the true price, and the price was determined by reckoning or taking into consideration the lumpsum payment made under the collaboration agreement in the sum of 15 million French Francs. The short question is whether the revenue has succeeded in showing that the apparent is not the real and that the price shown in the invoices does not reflect the true sale price and so section 14(l)(b) of the Act was properly invoked."
Prima facie this is a case where Revenue has succeeded in proving that the prices charged for supply of materials were not the correct prices.
15. The argument that in later years of the contract the appellants were paying more tax than what was due is also to be taken with a pinch of salt at thisprima facie stage. Essentially the value of materials sold is taken on the basis of the list prices of the goods abroad which is always much higher than the actual cost of the material to the appellant after addition of reasonable profit margin. List prices abroad are always seen to be much higher than the prices for import. This is a matter which can be examined during final hearing.
16. Further even after considering the excess value of materials sold under Phase-I contract for the period of dispute, there is a net higher realization than the price of materials sold as per list prices.
17. We are of the prima facie view that the impugned contract is for providing service and not for sale of goods. We are also of the view that a tax under Central enactment cannot be discharged by paying tax under a State enactment. In the facts of the case the appellants have not paid Service tax on the value received for service as per the existing provisions of Section 67 of the Finance Act, 1994 read with provisions of Notification 12/2003-S.T. There is not much merit in the argument that Revenue has not proved that the value realised is for services rendered and not for value of goods sold. This is because when the issue is raised by Revenue, it is for the appellants to prove the contrary at least while replying to show cause notice using facts and figures in their account books which are available to them easily but may not be easily available to Revenue. No such attempt is made.
18. Therefore this is not a case for full waiver of pre-deposit of dues for admission of appeal. So we order the appellant to pre-deposit 50% of the dues arising from the impugned order for admission of appeal within six weeks from receipt of this order. Subject to such pre-deposit, pre-deposit of balance dues arising from the impugned order shall be waived for admission of appeal and its collection stayed during the pendency of the appeal.

Mindtree Limited vs. UOI (Karnataka High Court)

Withdrawal of MAT And DDT exemption to SEZs is not breach of promissory estoppel
 
As a corollary to the Special Economic Zones Act, 2005 ('SEZ Act'), s. 115JB(6) and s. 115-O(6) was inserted to exempt SEZs from payment of minimum alternate tax ("MAT") on book profits and tax on distributed profits [Dividend Distribution Tax ("DDT")]. By the Finance Act, 2011, the exemption granted by s. 115JB(6) and 115-O(6) was made inoperative w.e.f. 1.4.2012 and 1.06.2011 respectively. The Petitioners claimed that they had established SEZs on the basis of the promise made by the Government that SEZs would enjoy an exemption from payment of MAT and DDT and that the amendments by the Finance Act 2011 withdrawing the said exemption was opposed to the Doctrine of Promissory Estoppel and the Doctrine of Legitimate Expectation. HELD by the High Court dismissing the Petition:
 
Firstly, it is the settled position of law that every tax exemption should have a sunset clause. As the exemption in s. 115JB(6) & 115-O(6) did not have a sunset clause, the flaw is removed by the impugned amendment. Secondly, the exemption created an inequality between SEZ companies and other companies which is now removed. Thirdly, the exemptions provided to SEZ companies resulted in erosion of tax base. Fourthly, the impugned amendment relates to fiscal policy of the state and any decision in the economic sphere is adhoc and experimental in its nature and the Government is well within it sovereign power to regulate the same. Lastly, the impugned amendments do not transgress any of the fundamental rights of the petitioners guaranteed under the Constitution. The legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel. Since it is an equitable doctrine, it must yield when equity so requires. The courts would decline to enforce this doctrine if it results in great hardship to government and would be prejudicial to the public interest.
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The department can use the data provided by the sub-reristrar.It can be used to co-relate the data and brought to the tax the escaped income.



IT : Transfer of possession of property to developer for construction of flats under Joint Development Agreement, as per which assessee was entitled to 50 per cent built up area, is 'transfer' as per section 2(47) and is taxable in year in which agreement, giving vacant and peaceful possession to developer, was entered into by assessee
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[2013] 33 taxmann.com 311 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Mrs. Durdana Khatoon
v.
Assistant Commissioner of Income-tax, Circle - 6(1), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NO. 449 (HYD.) OF 2012
[ASSESSMENT YEAR 2005-06]
MARCH  15, 2013 
Section 2(47), read with section 45, of the Income-tax Act, 1961 and section 53A of the Transfer of Property Act, 1882 - Capital gains - Transfer [Immovable property] - Assessment year 2005-06 - Assessee who owned a property, entered into a Joint Development Agreement with a developer for construction of flats on said property, for which assessee was entitled to 50 per cent of built up area - Assessee gave vacant and peaceful possession of property to builder - Whether, where legal ownership continued with assessee, but possession and control of property was transferred to builder, transaction amounted to transfer as per section 2(47) and section 53A of Transfer of Property Act, and was taxable in year in which development agreement, giving vacant and peaceful possession of property to developer, was entered into by assessee - Held, yes [Para 29] [In favour of revenue]
FACTS
 
 The assessee owned a property and entered into a Joint Development Agreement with a builder for construction of residential /commercial flats as per which the assessee was entitled to 50 per cent of built up area. The assessee gave vacant and peaceful possession of the property to the builder.
 The Assessing Officer considered the transaction as transfer as per section 2(47)(v) and computed capital gain.
 On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
HELD
 
  Section 2(47)(v) defines 'transfer' as any transaction involving allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882). [Para 23]
 The importance of the word 'transfer' is due to the reason that under the charging section, viz. section 45, capital gain is taxable on 'transfer of a capital asset'. Precisely, this section prescribes that 'any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place. [Para 24]
 Thus, the fundamental features which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of section 45, the gain shall be the deemed income of the year of transfer of the capital asset. The Authority of Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108 (AAR - New Delhi), observed that the expression used in sec. 45 is 'arising', which cannot be equated with the expression 'received' or even with the expression 'accrued' as being used in the statute. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document. [Para 25]
 But the issue does not get settled only by the interpretation of section 45 and section 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but also to be retained in part performance of a contract of the nature referred in section 53A of the Transfer of Property Act.
  The factual matrix of the case in hand is as follows :
(a)   Starting words of section 53A are 'where any person contracts', which means just the existence of a contract. The assessee is the 'person' who has entered into a contract with the developer.
(b)  The term 'transfer' is to be read along with section 45 and section 2(47)(v). In the past there was a long line of pronouncements, while deciding income tax cases, that unless and until a sale deed was executed and that too it was registered, transfer could not be said to have been effected. Thereafter, there were major amendments in the income-tax statute for levy of capital gain. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. In the present case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, it is to be seen that what happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income-tax Act a 'transfer' has definitely taken place.
(c)  The existence of the 'consideration' is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners.
(d)  Next is the important phrase i.e., 'terms necessary to constitute the transfer can be ascertained with reasonable certainty'. In this case, the terms and conditions of the contract were unambiguous and clearly spoke about the rights and duties with certainty of both the signing parties. Mainly two certainties are to be considered; one being passing of substantial consideration and second being passing over of possession.
(e)  The other factor which governs the happening of transfer is the handing over of possession. Retention of possession is one kind of the facet of part performance of contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. The possession as contemplated in clause (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then clause (v) has its full role to play. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely.
(f)  The last noticeable ingredient is, 'the transferee has performed or is willing to perform his part of the contract'. To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of actions of the transferee. The transferees surveyed the land and to attract purchasers put up hoardings plus sales office and carried out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. Facts of this case thus suggest that the developer had never intended to walk-out of the project.
(g)  From the Development Agreement, it is more than clear that it was an agreement for construction of residential/commercial flats on the property owned by the assessee. In lieu of the right given to the Developer there under, the assessee was to receive 50 per cent of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the developer on 7-3-2005, as evidenced by the 'Delivery Note' of the same date. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of section 2(47)(v) and the gain resulting from such transfer was indeed taxable in the year in which the Development Agreement giving vacant and peaceful possession of the property to the Developer was entered into by the assessee, as held by the Hon'ble Bombay High Court in the case of Chaturbuj Dwarakadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497and in the several decisions of the Jurisdictional ITAT, Hyderabad, including the case of Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692. Since the Development Agreement in the assessee's case has been executed on 2-8-2004 and the vacant and peaceful possession also was given in 7-3-2005 itself, such gains were indeed to be taxed in the Financial year 2004-05, relevant to the Assessment year 2005-06.
(h)  There is no merit in the contention that the Development Agreement could not have come into force unless and until the builder deposited Rs. 2 crores. As discussed in the assessment order, the assessee had indeed been paid Rs. 50 lakhs by cheques dated 19-7-2004 itself. Further, the assessee was to receive 3 instalments of Rs. 50 lakhs each at different stages. Under the circumstances, it cannot be disputed that there was a promise to pay which has not been shown as having remained unfulfilled. It is an established judicial proposition that the consideration may be futuristic also, as held by the Supreme Court in the case reported in Jugal Kishor v. Raw Cotton Co. AIR 1955 S.C. 376. Accordingly, there is no merit in such contention of the assessee. [Para 28]
  Thus, the owners entered into an agreement for development of the property and certain rights were assigned to the developer who in turn made the substantial payment and consequently entered into the property and thereafter the transferee has taken steps in relation to construction of the building, then it is to be considered as transfer under section 2(47)(v). The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of section 2(47)(v). As the transferee was undisputedly willing to perform its part of the contract, there was transfer under section 2(47)(v). Thus, since the possession and control of the property was already vested with the transferee and the impugned development agreement had not been duly cancelled and it was still in operation, there was a transfer under section 2(47)(v). Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of section 45 on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. [Para 29]
 Accordingly, the above issue relating to transfer of property under section 2(47)(v) is decided in favour of the Department. [Para 30]
 In the result, assessee's appeal is dismissed. [Para 31]
CASES REFERRED TO
 
Chaturbhujdas Dwarkadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497 (Bom.) (para 3), Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692 (para 3), Ms. K. Radhika v. Dy. CIT [2011] 13 taxmann.com 92/47 SOT 180 (Hyd.) (URO) (para 7), Baisakhi Bhattacharjee v.Shayamal Bose 2002 (4) CHN 115 (para 7), Smt. Raj Rani Devi Ramana v. CIT [1993] 201 ITR 1032 (Pat.) (para 7), S. Raghurami Reddy [IT Appeal No. 296 (Hyd.) of 2003, dated 30-7-2004] (para 7), Avatar Singh v. ITO [2004] 270 ITR 92/[2003] 132 Taxman 113 (MP) (para 7), Zuari Estate Development & Investment Co. (P.) Ltd. v. Dy. CIT [2004] 271 ITR 269/139 Taxman 209 (Bom.) (para 7), Alapati Venkataramaiah v.CIT [1965] 57 ITR 185 (SC) (para 7), K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 9), Taher Alimohammed Poonawala v.Addl. CIT [2009] 124 TTJ (Pune) 387 (para 20), Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108 (AAR - New Delhi) (para 25) and Jugal Kishor v. Raw Cotton Co. AIR 1955 SC 376 (para 28).
P. Muralimohan Rao for the Appellant. K.E. Sunil Babu for the Respondent.
ORDER
 
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 31.1.2012 for assessment year 2005-06.
2. The grievance of the assessee in this appeal is with regard to treatment of transaction entered by the assessee in Joint Development Agreement (JDA) for development of property situated at Door No. 1-8-5777/1, Chikkadpally, Hyderabad with M/s. Imperial Constructions vide agreement dated 2-8-2004 as transfer by invoking provisions of section 2(47)(v) of the Income-tax Act, 1961 so as to determine the long term capital gain.
3. Brief facts of the issue are that the assessee owned a property situated at Door No. 1-8-5777/1, Chikkadpally, Hyderabad and entered into a JDA with M/s. Imperial Constructions for construction of residential/commercial flats on 2.8.2004. As per the agreement, the assessee is entitled for 50% of built up area. As per agreement and also vide delivery note dated 7.3.2005, the assessee given vacant and peaceful position of the property to the builder. Being so, the Assessing Officer considering the provisions of section 2(47)(v), the assessee said to be exchanged the property for consideration in kind i.e., to receive 50% of the built up area. Accordingly, the Assessing Officer, placing reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497 and also on the decision of the Tribunal in the case of Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692 treated this transaction as "transfer of capital asset" and computed the capital gain on this transaction at Rs. 3,88,35,451. On appeal the CIT(A) confirmed the order of the Assessing Officer. Against this the assessee is in appeal before us.
4. The learned AR submitted that the lower authorities wrongly placed reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia (supra) and also on the decision of the Tribunal in the case of Dr. Maya Shenoy (supra). He submitted that in the present case there was no transfer of property as enumerated in section 2(47)(v) of the Act, as in this case no possession has been given by the assessee to the developer. Whatever the assessee has given is only a licence to the developer to enter into plot for the limited purpose of construction of building. He submitted that giving symbolic possession of the property for limited purpose of construction cannot be construed as giving of absolute possession of the property. He also filed additional evidences as follows:
(a)  Agreement between Durdhana Khatoon and M/s. Imperial Constructions dated 2nd August, 2004.
(b)  Memorandum of Understanding (MOU) between Durdhana Khatoon and M/s Imperial Constructions dated 2nd August, 2004.
(c)  Lease Deed with M/s. Pantaloon Retail (I) Ltd.
(d)  Copy of Income-tax Return for the A.Y. 2005-2006 along with computation of Income.
(e)  Copy of Income-tax Return for the A.Y. 2006-2007 along with computation of Income.
(f)  Copy of Income-tax Return for the A.Y. 2007-2008 along with computation of Income.
(g)  Copy of Income-tax Return for the A.Y. 2008-2009 along with computation of Income.
(h)  Details of Capital Gains offered to tax for the A.Ys. 2007-2008 onwards.
5. He also submitted that the assessee could not produce the documents in Sl. Nos. (c) to (h) before the lower authorities as these are not available at the time of proceedings before the lower authorities and requested to admit these additional evidences. We have gone through the above additional evidences. Considering the nature of documents, in our opinion, these documents have no consequence in deciding the issue. We have to see only Development Agreement and Delivery Note for handing over the possession of the property for construction. Further the assessee has paid the taxes on capital gain in subsequent years, it cannot lead to conclusion that there is no transfer in this A.Y. 2005-06. The right amount has to be taxed in right assessment year.
6. The AR, on applicability of section 2(47)(v) of the income tax Act, 1961, submitted that the provisions of section 2(47)(v) of the Income Tax Act, 1961, do not apply to the case of the assessee's case or to any development agreement for that matter of fact. He submitted that the ratio of following case-law was wrongly applied by the Assessing Officer:
(a)  Chaturbhuj Dwarakadas Kapadia (supra)
(b)  Dr Maya Shenoy (supra)
7. According to him, the following judicial decisions and interpretation have not been brought to the notice of the Courts/Appellate Authorities in the course of the presentation/ arguments:
(a)  Ms. K. Radhika v. Dy. CIT [2011] 13 taxmann.com 92/47 SOT 180 (Hyd.) (URO)
(b)  Baisakhi Bhattacharjee v. Shayamal Bose 2002 (4) CHN 115
(c)  Smt. Raj Rani Devi Ramana v. CIT [1993] 201 ITR 1032 (Pat.)
(d)  Order of ITAT, Hyderabad in the case of S. Raghurami Reddy in ITA No. 296/Hyd/2003 dated 30.7.2004.
(e)  Avatar Singh v. ITO [2004] 270 ITR 92/[2003] 132 Taxman 113 (MP)
(f)  Zuari Estate Development & Investment Co. (P.) Ltd. v. Dy. CIT [2004] 271 ITR 269/139 Taxman 209 (Bom.)
(g)  Alapati Venkataramaiah v. CIT [1965] 57 ITR 185 (SC)
8. The AR submitted that in all the cases the arguments before the appellate forums was that the amendment to section 2(47) of the Act was brought in to plug the loop hole of transferring the property without registering a conveyance deed. It was presented to the courts that the transfer of property was being done through General Power of Attorneys and that through this devise though the real owner of the property changes the registered owner remains the same and that this kind of transactions were outside the purview of the definition of the word "transfer" under section 2(47) of the Income Tax Act. The AR submitted that the following extract from the case of Chaturbhuj Dwarakadas Kapadia shows the line of arguments before the Hon'ble Court:
"Section 2(47)(v) was introduced in the Act from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loop hole, section 2(47)(v) came to be introduced in the Act. It was argued by the assessee that there was no effective transfer till grant of irrevocable licence. [Para 5]"
9. The AR further submitted that the fact that the subject matter of taxation being the consideration for transfer does not exist on the date concluded by the department to be the date of transfer has not been brought to the notice of the adjudicating authorities in any of these cases. The Apex Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) laid down that it is not very fictional accrual or receipt of income which has never accrued nor never received, which could be brought to tax for the purpose of taxation of capital gain. The provisions seek to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset.
10. The learned AR submitted that this issue has been considered by the co-ordinate Bench of the Tribunal in the case of K Radhika (supra) wherein held that handing over of the possession of property is only one of the conditions u/s. 53A of the Transfer of Property Act but it is not the sole and isolated condition and it is necessary to go into whether or not transferee was "willing to perform" its obligation under the consent terms; on the facts of the case, provisions of section 2(47)(v) of the Act will not apply in the assessment year under consideration and capital gains could not be charged in the assessment year under consideration.
11. The AR submitted that the method of computation of full value of consideration itself throws open so many anomalies that the very basis of taxation goes against the principles of Income Tax Act which seeks to tax real and certain income.
12. According to the AR, this being the case an agreement being out of the scope of section 53 A of the Transfer of Property Act, the AR submitted that the assessing officer as well as the learned CIT (Appeals) erred in law in holding that the transaction is within the meaning of transfer under section 2(47)(v) of the Act. As stated earlier the case and the course of arguments before the Hon'ble Bombay High Court is that the amendment to the section 2(47) which defines "Transfer" has been made with a view to plug the loop hole of the assesses entering into development with builders and evading taxes. Accordingly, the AR submitted that this is not the actual legal position nor is it the intention of the legislature. Further he submitted that section 2(47) as originally introduced was substituted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. The section with effect from 1-4-1985 had four sub clauses as under:
["transfer", in relation to a capital asset, includes,-
(i)  the sale, exchange or relinquishment of the asset; or
(ii)  the extinguishment of any rights therein; or
(iii)  the compulsory acquisition thereof under any law; or
(iv)  in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;]

  Vide Taxation Laws (Amendment) Act, 1984 two new sub clauses have been introduced and these are as under;
(v)  any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi)  any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;]
13. These two new sub clauses were introduced by the Finance Bill 1987. The Hon'ble Finance Minister in his budget speech stated as under; (para 77 of the speech as published)
"77. I understand that for the purpose of taxation of income from houses, our tax laws make a distinction between the real owner who is not a legal owner and a legal owner who is not a real owner. Following the well established revenue tradition, when it comes to taxing, we tax both the real owner who is not a legal owner and the legal owner who is not a real owner. Concessions available to a house owner are, however, given to a real owner, who is also a legal owner. I propose to simplify the law by clarifying that the real owner, even if he is not the legal owner, will pay the tax and avail of the concessions available to the legal owner. I hope this proposal is abundantly clear to Hon'ble Members."
14. He drew our attention to the relevant clause (clause 27) of the Memorandum Explaining Provisions in Finance Bill 1987 which states the objective and purpose of the amendment as under:
Simplification and Rationalization of Provisions
Enlarging the meaning of "owner of house property"
"27. Under the existing provisions of section 22 of the Income Tax Act, any income from house property is chargeable to tax only in the hands of the legal owner. As per section 27 of the Income Tax Act, certain persons who are not otherwise legal owners are deemed to be owners for the purposes of these provisions.
Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed to transfer one's ownership in property. As a result, there are situations in which the actual owner, say, of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal owners as well as the beneficial owners are assessed to tax in respect of the same income.
As a measure of rationalization, the Bill seeks to enlarge further the meaning of the expression "owner of house property", given in clause (iii) of section 27 by providing that a person who come to have control over the property by virtue of such transaction as are referred in clause (f) of section 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a member of a company or other association of persons. Corresponding amendments have also been proposed in regard to the definition of "transfer" in section 2(47) of the Income Tax Act" section 2(m) of the Wealth Tax Act defining "net wealth" and section 2(xii) of the Gift Tax Act defining "gift". These amendments will take effect from 1st April 1988, and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years.
[Clauses 3(9), 6, 77 and 92]
15. The AR submitted that from the above it is clear that the intention of the legislature was to plug the loop hole in escapement of income from being taxed under the head "House Property" and also to avoid double taxation and complexities between the real owners and the legal owners when it comes to taxation of property income. The AR placed reliance on the judgment and principles laid down by the Hon'ble Apex Court in the case of K.P. Varghese (supra). In this case weight was given to Finance Minister's speech at the time of introduction of a Bill by the Supreme Court, where even violence to the plain meaning of the language of statute was found permissible with reference to the declared objective of the provision on the basis of the Finance Minister's assurance that the deeming provisions under section 52(2) (now deleted by the Finance Act, 1987 w.e.f. 1-4-1988) may not be invoked in the case of bona fide transactions. It was found to be clearly in the nature of contemporanea expositio furnishing legitimate aid to construction. Such a view was sought to be supported by the rule admitted in Crawford on Statutory Construction described as "practical construction", although non controlling, is nevertheless entitled to considerable weight and is highly persuasive.
16. The AR further submits that the provisions of section 2(47)(v) of the Income Tax Act do not apply to the case of the assessee nor is it the intention of the legislature that they be so intended. Therefore, he prayed that the determination of capital gains in his case be quashed. Without prejudice to the above, regarding computation of capital gains, the AR submitted that the assessing officer acted arbitrarily in taking the sale price.
17. The AR submitted that whatever the sale price may be, a standard measure of profit is not a criteria to determine cost. On this count both the assessing officer as well as the learned first appellate authority erred on law and on facts. It is not necessary that every business venture should result in profit. What the assessing officer and the learned CIT (Appeals) did was to estimate income from an asset that did not exist and this is contrary to the principles of real income and against the law laid down by various judicial pronouncements.
18. The learned AR further submitted that on this count alone the assessment order deserves to be quashed. The assessing officer, while not taking the real cost (that did not exist) on the date of the agreement applied the imaginary cost to the built up area as well as to the parking area uniformly in arriving at the full value of consideration. This act of the assessing officer is arbitrary and against principles of accounting and costing as well as determination of real income taxable under the Income Tax Act. The AR submitted that, had the development agreement not been cancelled, there is no denial that transfer of his land has taken place and that he would have gained from it. The issue is how much is the real gain that is to be taxed and what is the criteria in arriving at the real capital gain, whether short tern or long term, that is to be taxed. The issue is how to determine this amount and what is the scientific and evidentially based way of determining it.
19. The AR submitted that the assessment is based on imaginary income, arising out of wild estimates, not stemming up from facts and therefore deserves to be quashed. The AR submitted that, on the basis of the above submissions and further submissions that may be permitted by the Tribunal to be made in the course of the appellate proceedings, the assessment of capital gains in his case for the assessment year 2005-06 be held to be untenable and contrary to the provisions of law and that the same may be directed to be deleted otherwise it amounts to double taxation as the assessee has offered the capital gain in subsequent assessment year.
20. The DR submitted that the Assessing Officer was justified in bringing to tax the transaction relating to the development agreement in view of the provision of sec. 2(47) of the I.T. Act. He relied on the decision of ITAT Pune Bench in the case of Taher Alimohammed Poonawala v. Addl. CIT[2009] 124 TTJ (Pune) 387 wherein the Tribunal observed as under:
"Where owners (assessees) had entered into an agreement for development of property and certain rights were assigned to developer who in turn had made substantial payment and, consequently, entered upon property and constructed flats, fact that legal ownership continued with owners to be transferred to developer at a future distant date really would not affect applicability of section 2(47)(v) and capital gain would arise in year in which agreement for development of property was entered into .... "
21. The learned DR relied on the decision in the case of Dr. Maya Shenoy (supra) wherein the Hon'ble ITAT Hyderabad observed as under:
"Development agreement under which developer was to hand over 45 per cent of constructed area as consideration to assessee could not merely amount to granting of licence to builder to carry on development activities but would be a case of transfer under section 2( 47)."
The ITAT after analysing the issue further held that
"In the instant case, on facts, the assessee had, in fact, exchanged her present property for consideration in kind which was in the nature of 4-1/2 flats to be given to her by the developer. Thus, it was a case of exchange as understood in clause (i) of section 2(47). There was no force in the argument that the handing over of the possession was not in pursuance of part performance of the contract. Possession of the land being one of the interests in property had been transferred to the developer who also would be enjoying the usufruct of the land. If the shield of section 53A was available to the developer, it obviously meant that handing over of the possession was pursuant to the transfer contemplated under the Transfer of Property Act and hence under clause (v) of section 2(47}. In the present case, this was not a sale transaction as money was not the consideration but some other valuable consideration was passing to the assessee in the form of 4-1/2 flats. Therefore, the transfer in the present case was for consideration and it was immaterial that the consideration may be received in future. Therefore, the development agreement in the present case had the effect of transfer as contemplated in section 2(47). (Head Note)"
22. The learned DR submitted that the case of the assessee is identical to that of Dr. Maya Shenoy (cited supra). Accordingly, the assessee was liable for capital gains in respect of the Development Agreement by virtue of which the assessee was liable to get 50% of the constructed area.
23. We have heard both the parties and perused the material available on record with reference to the contentions of the assessee with regard non-chargeability of capital gains in respect of the land. We have also gone through the various case-law cited by the parties and considered the additional evidence filed by the assessee. According to AR which was not 'transferred' but only given for development. We may refer to the provisions of S. 2(47)(v) which reads as follows:-
  "2 and (47)******
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1882)"
24. The importance of the word "transfer" is due to the reason that under the charging section, viz. S. 45, and the capital gain is taxable on "transfer of a capital asset". Precisely, this section prescribes that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place".
25. Thus the fundamental features which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This section has a large scope of its operation due to the presence of deeming provision which says that the gain shall be the deemed income of that previous year in which the transfer took place. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of S. 45, the gain shall be the deemed income of the year of transfer of the capital asset. It shall not be out of context, at this juncture, to mention an observation of the Hon'ble Authority of Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 164 Taxmann 108 (AAR - New Delhi), that the expression used in sec. 45 is "arising", which cannot be equated with the expression "received" or even with the expression "accrued" as being used in the statute. The point which deserves notice is that the amount or the consideration settled may not be fully received or may not technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable that by the presence of the deeming provision, the income on account of arousal of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document.
26. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. Transfer of Property Act contains S. 53A under the heading "Part performance" and, for deciding the case in hand, it is necessary to quote the impugned section verbatim as follows:
"Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,
And the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
And the transferee has performed or is willing to perform his part of the contract,
Then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transfer or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall effect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
27. The doctrine of "part performance" is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of the obligation. If one party stood by his words then it is expected from the other party to also stand by his promise. Naturally an inequitable conduct of any person has no sanction in the eye of law.
28. In the light of the ingredients of this section, which has been argued from both the sides, now we proceed to examine the factual matrix of the case in hand, herein below:
(a)  Starting words of s. 53A are "where any person contracts" which means just the existence of a contract. The assessee is the "person" who has entered into a contract with the developer vide agreement dated 12.4.2006.
(b)  This sections says "to transfer" means the said contract is in respect of a transfer and not for any other purpose. The term "transfer" is to be read along with the s. 45 and s. 2(47)(v) of IT Act. It is pertinent to clarify that one must not mistake to identify the issue of capital gain with the term "transfer" as defined in s. 54 of Transfer of Property act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding income tax cases, that unless and until a sale deed is executed and that too it is registered, transfer cannot be said to have been effected. The consequence of said catena of decisions was that no capital gain tax was directed to be levied so long as the "transfer" has no taken place as per the generally accepted connotation of the term under Transfer of Property Act. The resultant position was that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such "transfer" does confer certain privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the commonly understood meaning of the definition "transfer" while interpreting this term for tax purpose. On the facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, we have to see what has happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a "transfer" has definitely taken place.
(c)  The existence of the "consideration" is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners.
(d)  Next is the important phrase i.e., "terms necessary to constitute the transfer can be ascertained with reasonable certainty". According to us, in this case, the terms and conditions of the contract were unambiguous and clearly spoke about the rights and duties with certainty of both the signing parties. We are concerned mainly with two certainties; one is passing of substantial consideration and second is passing over of possession. As far as the payment of consideration is concerned, we have already noticed that it is in the form of both cash as well as kind and payment made to the assessee has been brought on record by the lower authorities and the same was examined and considered by the CIT(A). There was a payment of Rs. 50 lakhs by cheque on 19.7.2004 itself. Further, the balance of Rs. 150 lakhs was to be paid by 3 equal instalments.
(e)  The other factor which governs the happening of transfer is the handing over of possession. This section says "and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession continues in possession in part performance of the contract and has done some act in furtherance of the contract". Retention of possession is one kind of the facet of part performance of contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. What is contemplated by s. 2(47)(v) is a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance. It is at that point of time that the deemed transfer takes place. According to us the possession as contemplated in cl. (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then cl. (v) has its full role to play. There is no warrant to postpone the operation of cl. (v) to that point of time when the concurrent possession would become exclusive possession of the developer. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain may not be shifted to an uncertain distant date. We have no hesitation in saying that even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the "transfer" which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act, it is enough if the transferee has, by virtue of the impugned transaction, has a right to enter upon and exercise the act of possession effectively, then such an act amounts to legal possession over the property.
(f)  The last noticeable ingredient is, "the transferee has performed or is willing to perform his part of the contract". To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of actions of the transferee. The transferees survey the land and to attract purchases put up hoardings plus sales office and carry out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. On one hand, the JDA grants bundle of possessor rights to the developer simultaneously and on the other hand transferee's gesture of payment of consideration coupled with development work can be said to be a positive step towards willingness to fulfil the commitment. Facts of this case thus suggest that the developer had never intended to walk-out of the project. However, whether the developer has performed its part of the contract by taking steps to construct the flats or not has been verified by the lower authorities and the possession was with developer as per delivery note dated 7.3.2005.
(g)  From the Development Agreement, it is more than clear that it was an agreement for construction of residential/commercial flats on the property owned by the assessee. In lieu of the right given to the Developer there under, the assessee was to receive 50% of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the developer on 7.3.2005, as evidenced by the "Delivery Note" of the same date. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of sec. 2(47)(v) of the Act and the gain resulting from such transfer was indeed taxable in the year in which the Development Agreement giving vacant and peaceful possession of the property to the Developer was entered into by the assessee, as held by the Hon'ble Bombay High Court in the case of Chaturbuj Dwarakadas Kapadia (supra) and in the several decisions of the Jurisdictional ITAT, Hyderabad, including that in the case of Dr. Maya Shenoy (supra). Since the Development Agreement in the assessee's case has been executed on 2.8.2004 and the vacant and peaceful possession also was given in 7.3.2005 itself, such gains were indeed to be taxed in the F.Y. 2004-05, relevant to the A.Y. 2005-06.
(h)  As regards the contention of the assessee's representative that the said decisions are not applicable to the assessee's case, it is clear that no reasons for such view could be ever furnished by him. Similarly, there is no merit in the contention that the Development Agreement could not have come into force unless and until the builder deposited Rs. 2 crores. As discussed in the assessment order, the assessee had indeed been paid Rs. 50 lakhs by cheques dated 19.7.2004 itself. Further, the assessee was to receive 3 instalments of Rs 50 lakhs each at different stages. Under the circumstances, it cannot be disputed that there was a promise to pay which has not been shown as having remained unfulfilled. It is an established judicial proposition that the consideration may be futuristic also, as held by the Supreme Court in the case reported in Jugal Kishore v. Raw Cotton Co. AIR 1955 S.C. 376. Accordingly, there is no merit in such contention of the representative of the assessee. As regards the argument that the agreement under reference had been executed only for the purpose of getting permissions from various department for construction, the very terms of the agreement belie any such claim as the development agreement gives absolute rights to the builders, including possession, duly specified the consideration to be received by the assessee on such exchange. As regards the case laws cited by the AR, evidently those stand on a set of different facts and hence cannot be considered in the facts of the present case.
29. To sum up the owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter the transferee has taken steps in relation to construction of the building, then it is to be considered as transfer u/s. 2(47)(v) of the I.T. Act. The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of s. 2(47)(v) as per the reasons assigned hereinabove. The transferee was undisputedly willing to perform its part of the contract, in this circumstance we have to hold that there is transfer u/s. 2(47)(v) of the Act. Thus, the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v) of the Act. We have to see the real intention of the parties. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties herein is to be seen.
30. Accordingly, we decide the above issue relating to transfer of property u/s. 2(47)(v) of the IT Act in favour of the Department. We also hold that subsection (47) of s. 2 was amended by the Finance Act, 1987 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi) thereunder. These two new sub-clauses provide that 'transfer' includes (i) any transaction which allows possession to be retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act; and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, under these two sub-clauses, the capital gain would be taxable in the year in which such transactions are entered into even if the transfer of the immovable property is not effective or complete under the general law. The assessee entered into an agreement with the builder/developer for development of the impugned land and construction of flats thereon. Also, the assessee signed a delivery note dated 7.3.2005 in favour of the builder/developer and gave possession of the property to the builder/developer. Further, the assessee acted on the impugned agreement by accepting from the builder/developer payments by cheques on different dates in the financial year 2004-05. In view of the facts and circumstances discussed above, all the conditions of sub-cl. (v) of s. 2(47) are satisfied in this case and therefore, it has to be inferred that a 'transfer' did take place within the meaning of s. 2(47)(v). The argument that the deeds in respect of the sale of flats were not registered/executed is not a relevant consideration so far as provisions of sub-cl. (v) of s. 2(47) are concerned. The completion of 'transfer' of an immovable property as per the general law is not a requirement for the applicability of the provisions of the sub cl. (v) of s. 2(47). Thus, this ground is dismissed.
31. In the result, assessee's appeal is dismissed.
PROMITA
carelessness with notice u/s 148 has been issued for escapment of fringe benefit tax shows the total ignorance, lackslide attitude and non conversant with basic sections of the Act. Further, the department carried this matter up to the high court shows , how mechanicaaly , there are filing appelas.
Had the concerned AO, applied his mind properly after CIT(A)'s order itself , he would have atleast issued correct notice for escapment of fringe benefit tax. But instead of admitting his mistake,he challenged it to ITAT and high courts.

IT: Section 115WG provides special provision for fringe benefit tax escaping assessment; notice under section 148, therefore, cannot be issued
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[2013] 33 taxmann.com 485 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - Ahmedabad - III
v.
P.G. Foils Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 351 OF 2013
APRIL  15, 2013 
Section 115WG, read with section 148, of the Income-tax Act, 1961 - Fringe benefits - Fringe benefit escaping assessment [Scope of] - Assessment year 2008-09 - Whether there is a special provision under section 115WG for re-opening assessment in respect of fringe benefit escaping assessment and notice under section 148 cannot be issued for this purpose - Held, yes [Para 11] [In favour of assessee]
Section 147, read with section 143, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [To make additions] - Assessment year 2008-09 - Whether where during assessment, merely because after raising queries with respect to proposed addition, Assessing Officer did not give any reason in assessment order for not making any addition, same would not mean that issue was not scrutinized and, thus, subsequent attempt on part of Assessing Officer to re-examine such issue would only amount to change of opinion - Held, yes [Paras 7 & 5] [In favour of assessee]
FACTS
 
 The Assessing Officer had recorded the following three reasons for issuing notice for re-assessment under section 148:
(i)  disallowance of expenditure under section 14A,
(ii)  addition of unutilized CENVAT in valuation of closing stock, and
(iii)  short payment of fringe benefit tax.
 The assessee opposed the validity of notice. The Assessing Officer discarded such objection and proceeded to make addition.
 On appeal, the Commissioner (Appeals) found that two of such reasons regarding disallowance of expenses under section 14A and addition of unutilized CENVAT in valuation of closing stock were already examined by the Assessing Officer in the original assessment and in respect of fringe benefit tax, notice under section 148 could not be issued as specific provision under section 115WG is contained in the Act. On the basis of above findings, the Commissioner (Appeals) allowed the assessee's appeal.
 On revenue's appeal, the Tribunal confirmed the order of the Commissioner (Appeals).
 On appeal to High Court:
HELD
 
 The Assessing Officer had recorded three reasons for issuing notice under section 148. Two of such reasons pertained to the extent of earnings exempt from Income-tax, which the revenue contended should have been disallowed under section 14A and the addition of un-utilized CENVAT in valuation of the closing stock. Both these issues were examined by the Assessing Officer in original assessment. Such are factual findings concurrently arrived at by the Commissioner (Appeals) as well as the Tribunal. Commissioner (Appeals), in particular, noted that the Assessing Officer had raised several queries with respect to these issues. In that view of the matter, in our opinion, the Tribunal correctly held that any attempt on the part of the Assessing Officer to re-examine such issues would only amount to a change of opinion. [Para 5]
 The revenue submitted that the Assessing Officer may have raised queries during the assessment proceedings, but, he did not come to any definite conclusion in the assessment order with respect to these issues. He submitted that if the Assessing Officer had not carried out proper inquiries, it would be a case of income escaping assessment and reopening would be permissible. [Para 6]
 Merely because after raising queries with respect to a proposed addition, the Assessing Officer in the final order of assessment does not give any reason for not making any additions, would not mean that the issue was not scrutinized. [Para 7]
 Equally the contention that the Assessing Officer may not have made proper inquiry which would permit reopening of assessment must be rejected out of hand. In such circumstances, the Commissioner may exercise revisional powers, but surely, the same authority cannot re-examine the issue under reopening. [Para 8]
 The third issue included in the reasons recorded for reopening was with respect to short-payment of fringe benefit tax. The Tribunal, while confirming the order of the Commissioner (Appeals) held that there is a separate provision under section 115WG for reopening the assessment in respect of fringe benefit tax escaping assessment and that, therefore, notice under section 148 cannot be issued. [Para 9]
  Chapter XII-H of the Act makes detailed and specific provisions pertaining to income-tax on fringe benefits. Such provisions include those for filing of returns, assessment of such returns and re-assessment in case any tax on fringe benefit has escaped assessment. In particular, section 115WG makes detailed provisions for assessment of the fringe benefits escaping assessment. Correspondingly, section 115WH provides for issuance of notice for such purpose. Such provisions being special provisions, made especially for the purpose of fringe benefits tax, the Tribunal was perfectly justified in concluding that the general provisions contained in section 148 cannot be resorted to in such cases. Significantly, section 115WH; unlikeproviso to section 147 does not recognize any distinction between notice for reopening issued within and beyond the period of four years from the end of relevant assessment year; except for requiring that in cases of notice issued beyond four years, there has to be a satisfaction of the Commissioner or the Chief Commissioner, arrived at on the reasons recorded by the Assessing Officer that it is a fit case for issuance of the notice. In other words, the crucial requirement under proviso to section 147 for issuing notice beyond four years from the end of relevant assessment year of income escaping the assessment due to the failure on the part of the assessee to disclose truly and fully all material facts in cases other than in case of non filing of the returns, is absent. In view of such specific provisions, the Tribunal was correct in holding that notice under section 148 could not have been issued for such purpose. [Para 11]
CASE REVIEW
 
Gujarat Power Corpn. Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.)(para 7) followed.
CASES REFERRED TO
 
Gujarat Power Corpn. Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.) (para 7).
Varun K. Patel for the Appellant.
ORDER
 
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ["Tribunal" for short] dated 5th October 2012, raising following question for our consideration :-
"Whether in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of CIT (A) in holding the reopening of assessment u/s. 147 by issuing notice u/s. 148 of the Income Tax Act as invalid ?"
2. As can be seen from the question itself, the issue pertains to validity of a notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961 ["Act" for short]. Through such notice issued within a period of four years from the end of the relevant assessment year, he sought to reopen scrutiny assessment of the respondent-assessee for the A.Y 2008-09.
3. Assessee throughout opposed the validity of notice itself. Assessing Officer, however, discarded such objection and proceeded to make additions particularly in respect of fringe benefits paid by the respondent as an employer, in the final order of assessment. Assessee, therefore, carried the matter in appeal. CIT [A] allowed the assessee's appeal. He was of the opinion that on the two issues forming part of the reasons recorded by the Assessing Officer viz., disallowances of expenses under Section 14A of the Act and addition of un-utilized CENVAT on raw materials in the valuation of the closing stock, the Assessing Officer in the original assessment had already examined the issues. No such addition could be made in re-assessment proceedings. With respect to the question of fringe benefits tax, he was of the opinion that the Assessing Officer could not have issued notice under Section 148 of the Act in view of the specific provisions contained in the Act. He also recorded that the assessment was reopened on the basis of audit objections raised by the audit party, though issues were already considered by the Assessing Officer in original assessment.
4. Revenue carried such matter in appeal before the Tribunal. Tribunal, by the impugned judgment, rejected the Revenue's appeal making following observations :-
"13. From the above paras of the Tribunal's decision, we find that in that case it was held by the Tribunal that if no fresh fact has come to the knowledge of the A.O between the date of order of the assessment sought to be reopened and the date of forming opinion by the Assessing Officer then it is mere change of opinion and on that basis, reopening is not justified. The Tribunal considered various judgments of various High Courts including the judgment of Hon'ble Gujarat High Court rendered in the case of Garden Silk Mills Pvt. Limited, reported in 237 ITR 668 and also the judgment of Hon'ble Apex Court rendered in the case of CIT v. Kelvinator of India, 320 ITR 561 (SC). In the present case also, we find that there are only three objections of the Assessing Officer from the reasons recorded by him for reopening out of which, the third objection is regarding FBT which cannot be the ground for issuing notice u/s. 148 because for issuing notice in respect of escaping of FBT, there is a separate section 115WG in the I.T Act and therefore, no notice can be issued under Section 148 of the I.T Act. Regarding the first two objections we find that in the course of original assessment proceedings, the Assessing Officer has made proper queries regarding valuation of closing stock as well as regarding disallowance to be made u/s. 14A and on both the counts, reply were submitted by the assessee before the Assessing Officer in course of original assessment proceedings and thereafter, the assessment was completed by the A.O u/s. 143 (3) and therefore, it is abundantly clear that opinion was made by the Assessing Officer in course of original was made by the Assessing Officer in course of original assessment proceedings on the basis of queries and its reply and no new material has been indicated which has come to the notice of the Assessing Officer for reopening. Hence, in our considered opinion, in the facts of the present case, the reopening is on the basis of mere change of opinion which is not permissible as per law. It has been so held by Hon'ble Apex Court in the case of CIT v. Kelvinator of India Limited (supra). It is held by Hon'ble Apex Court in that if the concept of change of opinion is removed as contended on behalf of the Department, then, in the grab of reopening the assessment, the review would take place but the Assessing Officer has no power to review and therefore, by respectfully following this judgment of Hon'ble Apex Court and also the Tribunal decision cited by learned AR, we decline to interfere in the order of learned CIT (A) considering the facts of the present case. Accordingly, we quash the re-assessment order. The reopening is held to be not valid."
5. From the above, it clearly emerges that the Assessing Officer had recorded three reasons for issuing notice under Section 148 of the Act. Two of such reasons pertained to the extent of earnings exempt from Income-tax, which the Revenue contended should have been disallowed under Section 14A of the Act and the addition of unutilized CENVAT in valuation of the closing stock. Both these issues were examined by the Assessing Officer in original assessment. Such are factual findings concurrently arrived at by the CIT [A] as well as the Tribunal. CIT [A], in particular, noted that the Assessing Officer had raised several queries with respect to these issues. In that view of the matter, in our opinion, the Tribunal correctly held that any attempt on the part of the Assessing Officer to re-examine such issues would only amount to a change of opinion.
6. Learned counsel for the Revenue, however, submitted that the Assessing Officer may have raised queries during the assessment proceedings, but, he did not come to any definite conclusion in the assessment order with respect to these issues. He submitted that if the Assessing Officer had not carried out proper inquiries, it would be a case of income escaping assessment and reopening would be permissible.
7. With both these submissions, we have serious disagreement. Merely because after raising queries with respect to a proposed addition, the Assessing Officer in the final order of assessment does not give any reason for not making any additions, would not mean that the issue was not scrutinized. This is precisely what this Court has held in the decision in case of Gujarat Power Corpn Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51, in which following observations were made :-
"42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.
43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition."
8. Equally the contention that the Assessing Officer may not have made proper inquiry which would permit reopening of assessment must be rejected out of hand. In such circumstances, in a given case, the Commissioner may exercise revisional powers, but surely, the same authority cannot re-examine the issue under reopening.
9. The third issue included in the reasons recorded for reopening was with respect to short payment of fringe benefit tax. The Tribunal, while confirming the order of CIT (A) held that there is a separate provision under Section 115WG for reopening the assessment in respect of fringe benefit tax escaping assessment and that therefore, notice under Section 148 of the Act cannot be issued. With this conclusion, we are in respectful agreement. Chapter XII-H pertaining to Income-tax on Fringe benefits was introduced by the Finance Act 2005 with effect from 1st April 2006. Section 115W contains definition of the terms "employer" and "fringe benefit tax". Section 115WA pertains to charge of fringe benefit tax. Sub-section (1) thereof provides that in addition to the income-tax charged under the Act, there shall be charged, additional income-tax in respect of the fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year at the rate of thirty per cent on the value of such fringe benefits. Section 115WB pertains to fringe benefits which would invite such a tax. Section 115WC provides for ascertaining value of fringe benefits. Section 115WD requires every employer, who during a previous year has paid, or made provision for payment of fringe benefits to his employees to furnish a return of fringe benefits to the Assessing Officer in the prescribed form. Section 115WE pertains to the assessment of such returns of fringe benefits. Sub-section (2) of the said section authorizes the Assessing Officer to issue a notice requiring the assessee to attend to his office, or to produce or cause to be produced, any evidence on which the assessee may rely in support of the return. Section 115WG pertains to fringe benefits escaping assessment and reads as under :-
"115WG : Fringe benefits escaping assessment - If the Assessing Officer has reason to believe that any fringe benefits chargeable to tax have escaped assessment for any assessment year, he may, subject to the provisions of sections 115WH, 150 and 153, assess or reassess such fringe benefits and also any other fringe benefits chargeable to tax which have escaped assessment and which come to his notice subsequently in the course of the proceedings under this section, for the assessment year concerned (hereinafter , referred to as the relevant assessment year)
Explanation - For the purpose of this section, the following shall also be deemed to be cases where fringe benefits chargeable to tax have escaped assessment, namely :-
(a)  where no return of fringe benefits have been furnished by the assessee;
(b)  where a return of fringe benefits have been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the value of fringe benefits in the return;
(c)  an assessment has been made, but the fringe benefits chargeable to tax have been under-assessed."
10. Section 115WH pertains to issuance of notice where fringe benefits have escaped assessment. Sub-section (3) thereof provides that no notice under sub-section (1) shall be issued for the relevant assessment year after the expiry of six years from the end of the relevant assessment year. Sub-section (4) further provides that no such notice shall be issued after the expiry of four years from the end of the relevant assessment year, unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.
11. From the above provisions, it could be seen that Chapter XII-H of the Act makes detailed and specific provisions pertaining to income-tax on fringe benefits. Such provisions include those for filing of returns, assessment of such returns and re-assessment in case any tax on fringe benefit has escaped assessment. In particular, Section 115WG makes detailed provisions for assessment of the fringe benefits escaping assessment. Correspondingly, Section 115WH provides for issuance of notice for such purpose. Such provisions being special provisions, made especially for the purpose of fringe benefits tax, the Tribunal was perfectly justified in concluding that the general provisions contained in section 148 of the Act cannot be resorted to in such cases. Significantly, Section 115WH; unlike proviso to Section 147 of the Act, does not recognize any distinction between notice for reopening issued within and beyond the period of four years from the end of relevant assessment year; except for requiring that in cases of notice issued beyond four years, there has to be a satisfaction of the Commissioner or the Chief Commissioner, arrived at on the reasons recorded by the Assessing Officer that it is a fit case for issuance of the notice. In other words, the crucial requirement under proviso to Section 147 of the Act for issuing notice beyond four years from the end of relevant assessment year of income escaping the assessment due to the failure on the part of the assessee to disclose truly and fully all material facts in cases other than in case of non-filing of the returns, is absent. In view of such specific provisions, the Tribunal was correct in holding that notice under Section 148 of the Act could not have been issued for such purpose.
12. In the result, Tax Appeal is dismissed.
ST : Input services used exclusively for manufacture of exempted goods are not eligible for credit, even if such goods are used by another unit of assessee for manufacture of dutiable goods
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[2013] 34 taxmann.com 13 (Mumbai - CESTAT)
CESTAT, MUMBAI BENCH
Oil Natural Gas Corpn. Ltd.
v.
Commissioner of Central Excise, Raigad*
S.S. KANG, VICE-PRESIDENT
AND SAHAB SINGH, TECHNICAL MEMBER
ORDER NOS. A/1043 TO 1049/2012/EB/C-II 
APPEAL NOS. E/1267 TO 1273/2011
NOVEMBER  29, 2012 
I. Rule 2(d) of the Cenvat Credit Rules, 2004 - CENVAT Credit - Exempted Goods - Words 'duty of excise' in rule 2(d) of CENVAT Credit Rules, 2004 refer to duty leviable under section 3 of Central Excise Act, 1944 - Therefore, excisable goods exempted from duty leviable under section 3 of Central Excise Act, 1944 but liable to Cess leviable under Oil Industry (Development) Act, 1974 continue to be exempted goods [Paras 6.3 and 6.4] [In favour of revenue]
II. Rule 6 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Obligation of a manufacturer or producer of final products and a provider of output service - Assessee's Mumbai Offshore unit was engaged in manufacture of crude oil and natural gas, which were exempted goods - Said crude oil/natural gas was sold to buyer and also transferred to Uran Plant for manufacture of petroleum products - Assessee took credit of services used exclusively at Mumbai Offshore in manufacture of crude oil and natural gas - HELD : Since input services were used exclusively for manufacture of exempted crude oil and natural gas at Mumbai Offshore, said services were ineligible for credit - Mumbai Offshore could not be regarded as job-worker of Uran Unit and could also not be regarded as integral part of Uran Unit so as to regard crude oil/natural gas as intermediate products - Such credit relating to exempted goods could not also be distributed by Input service distributor in view of express bar created under Rule 7 of CENVAT Credit Rules, 2004 [Paras 6.5 to 6.8] [In favour of revenue]
III. Rule 15 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Confiscation and penalty - Period prior to 27-2-2010 - Wrong availment of credit of input services by manufacturer does not attract penalty under rule 15(1) or 15(2) or 15(4) - It attracts penalty only under rule 15(3), which can be maximum Rs. 2,000 - Further, no penalty can be levied under rule 15 on wrong distribution of credit by Input Service Distributor [Paras 7.1 and 7.2] [In favour of assessee]
FACTS
 
Facts
 The assessee, Uran Unit of ONGC, was engaged in the manufacture of excisable goods falling under Chapter 27 of the Central Excise Tariff Act, 1985 (petroleum products).
 Raw materials used for the production of excisable goods are natural gas and crude oil procured from the Oil Field of Mumbai Offshore.
 The Mumbai Offshore manufactured/produced the exempted excisable goods such as natural gas and crude oil.
 The crude oil and natural gas produced from the Oilfield of Mumbai Offshore were supplied to the refineries situated at different location.
 Oilfields of Mumbai Offshore were discharging the Oil Cess leviable under the Oil Industry (Development) Act, 1974 and also discharging the National Calamity Contingent duty (NCCD), Primary Education Cess and Secondary & Higher Education Cess for the crude oil manufactured/produced at Mumbai Offshore.
 The assessee had availed and utilized CENVAT Credit of Service Tax distributed by various inputs service distributors (ISD) situated in Mumbai. Such CENVAT Credit related to various input services availed and used exclusively at Oilfield of Mumbai Offshore and not in Uran Unit.
 Department denied said credit arguing that crude oil and natural gas manufactured by Oilfield of Mumbai Offshore were exempted goods and, hence, input services used exclusively for them were not eligible for credit.
 It was also alleged that during material period input service distributors of the assessee were not registered with Department and, therefore, credit could not be distributed by the input service distributors.
Issue Involved
  Whether the assessee was eligible for input service credit of services availed at Mumbai Offshore ?
HELD
 
Goods manufactured at Mumbai Offshore were marketable and excisable goods :
 Assessee contended that what they produced at Mumbai Offshore was semi-stabilized/un-stabilized state and had to be stabilized before its actual sale or use in the manufacture of value added product. This submission of assessee was incorrect because :
 firstly, Crude Oil manufactured at the Mumbai Offshore was being transported to Uran units through pipelines;
 secondly, Crude Oil produced at Mumbai Offshore was a saleable commodity and was being sold by M/s ONGC to its buyers ;
 thirdly before Uran Plant came into existence, entire Crude Oil manufactured at Mumbai Offshore was sold by M/s ONGC.
  Further, M/s ONGC was paying cess on the Crude Oil produced at Mumbai Offshore. Therefore, Crude Oil used in Uran Plants and other units to manufacture other value added final product cannot be termed as semi stabilized/ semi finished goods. [Para 6.2]
Crude Oil was an exempted product :
  Assessee argued that Crude Oil at Mumbai Offshore was not exempted product as they were paying Cess leviable under Oil Industry (Development) Act, 1974.
  The term 'exempted goods' is defined under Rule 2(d) of CENVAT Credit Rules, 2004 according to which "exempted goods" means 'excisable goods' which are exempt from the whole of duty of excise leviable thereon, and includes goods which are chargeable to 'NIL' rate of duty. 'Excisable goods' have been defined under Section 2(d) of the Central Excise Act, 1944 according to which 'Excisable goods' are goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff, 1985 (5 of 1986) as being subject to a duty of excise and includes salt. The duty of excise mentioned herein above as per section 3 of the Central Excise Act, 1944 is (a) CENVAT (Central Value Added Tax) & (b) Special Duty of Excise (SED) in addition to CENVAT mentioned in (a). [Para 6.3]
 The word 'duty of excise' referred in the definition of Exempted goods and Excisable goods refer to duty of excise as specified in Section 3 of the Central Excise Act. Therefore, assessee's argument was not acceptable. [Para 6.4]
Mumbai Offshore was not an integral part of Uran Plant :
  Assessee argued that Mumbai Offshore is an integral part of Uran Plant and Crude Oil/Natural gas being intermediate products, they are entitled to CENVAT credit of Service Tax paid on input services even if intermediate product is exempted.
 Assessee's contention was not acceptable, as Crude Oil manufactured at Mumbai Offshore was a saleable commodity and in fact, was being sold partly at Mumbai Offshore. [Para 6.5]
Mumbai Offshore was not a job-worker :
  Under Notification No.214/86-CE goods manufactured by the job worker are exempted. Under Rule 3(1) of CENVAT Credit Rules, 2004, credit of Service Tax paid on input services used in manufacture of goods by job worker will be available to manufacture of final product. Since Mumbai Offshore unit is not a job worker under Notification No. 213/86, ONGC Uran unit is not entitled to CENVAT credit of Service Tax paid on input services used in Crude Oil manufactured by Mumbai Offshore. [Para 6.6]
Credit was not allowable as per Rule 6(1) read with Rule 7 :
  Under Rule 6(1) of the CENVAT Credit Rules, CENVAT Credit shall not be allowed on much quantity of input services which is used in the exempted goods except in the circumstances specified in Rule 6(2). Under Rule 6(2) if a manufacturer manufactures both exempted goods and dutiable goods and he maintains separate records of input services gone into dutiable goods/exempted goods, the credit in respect of input services gone into dutiable goods will be admissible. In this case, input services were entirely being used in Crude Oil/Natural gas, which were exempted from duty, therefore, credit was not admissible. [Para 6.7]
 Under Rule 7 of the CENVAT Credit Rules the input service distributor may distribute the CENVAT credit in respect of Service Tax paid on input service to its manufacturing units subject to condition that credit of Service Tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods shall not be available. Since Mumbai Offshore was exclusively engaged in the manufacture of exempted goods, credit of Service Tax paid on input services could not be distributed. [Para 6.8]
Conclusion on merits :
  Hence, credit of service tax paid on input services used in manufacture of Crude oil and Natural gas at Mumbai Offshore was not admissible to Uran Plant. Since credit was not admissible, aspect of admissibility of credit only after date of registered as ISD was not gone into. [Para 7]
No penalty leviable under Rule 15(1) or 15(2) in respect of input service credit for period prior to 27-2-2010 :
  Demand pertained to period upto November, 2009 and in that period Rule 15(1) and Rule 15(2) of the CENVAT Credit Rule, 2004 did not cover wrong availment of input service credit. Rule 15 had been amended with effect from 27-2-2010 incorporating input services in Rule 15(1) and 15(2) of CENVAT Credit Rule 2004. Therefore, penalty under Rule 15(1) and Rule 15(2) was not imposable.
 Similarly, under Rule 15(4) penalty is imposable on output service provider. Therefore, penalty is imposable only under Rule 15(3) of Cenvat Credit Rules and maximum penalty under Rule 15(3) was Rs. 2000/- only. [Para 7.1]
No penalty was leviable on ISD :
  As regards imposition of penalty on ISDs, while show-cause notice proposed penalty under Rule 25/26 of Central Excise Rules, 2002, but in the Order-in-Original penalty was imposed under Rule 15 of CENVAT Credit Rules. Penalty was liable to be set aside on this ground alone.
 Penalty was imposed under Rule 15(4) of the Cenvat Credit Rules. Rule 15(4), as it existed during the relevant period, pertained to imposition of penalty on output service provider. Accordingly, penalties imposed on ISDs were liable to be set aside. [Para 7.2]
CASE REVIEW
 
Vikram Cement v. CCE [2006] 3 STT 230 (SC) (para 6.10), Chowgule & Co. (P.) Ltd. v. Union of India 1993 (67) ELT 34 (SC) (para 6.11),Brooke Bond India Ltd. v. Collector of Central Excise 1991 (55) ELT 342 (Trib. - Chennai) (para 6.12) and Lupin Laboratories Ltd. v. Collector of Central Excise 1994 (71) ELT 914 (Trib.) (para 6.13) distinguished.
CASES REFERRED TO
 
Vikram Cement v. CCE [2006] 3 STT 230 (SC) (para 4.6), Chowgule & Co. (P.) Ltd. v. Union of India 1993 (67) ELT 34 (SC), Brooke Bond India Ltd. v. Collector of Central Excise 1991 (55) ELT 342 (Trib. - Chennai) (para 4.6), Lupin Laboratories Ltd. v. Collector of Central Excise1994 (71) ELT 914 (Trib.) (para 4.6), Jaypee Rewa Cement v. CCE 2001 (133) ELT 3 (SC) (para 6.9) and CCE v. J.K. Udaipur Udyog Ltd. 2004 (171) ELT 289 (SC) (para 6.9)
V. Sridharan for the Appellant. K.L. Goyal for the Respondent.
ORDER
 
Sahab Singh, Technical Member - These are seven appeals filed by M/s. ONGC Ltd. One appeal is filed by M/s. ONGC Ltd., Uran Plant (Appellants and six other appeals by Input Service Distributors of ONGC (hereinafter referred to as ISDs) having the different registration numbers and addresses.
2. The appellants are engaged in the manufacture of excisable goods falling under Chapter 27 of the Central Excise Tariff Act, 1985. Raw materials used for the production of excisable goods are Natural gas and Crude oil procured from the Oil Field of Mumbai Offshore. The appellants availed the CENVAT Credit of Central Excise duty on the inputs and capital goods directly received by the appellant at Uran Plant and Service Tax paid on input services and distributed by the Input Service Distributors in terms of facility extended to the manufacturer of the excisable goods under the provisions of Cenvat Credit Rules. The input service distributors of M/s ONGC Ltd. are mentioned as under:
(a)  Oil and Natural Gas Corporation Ltd. (Mumbai High Asset)
(b)  Oil and Natural Gas Corporation Ltd. (Regional Office)
(c)  Oil and Natural Gas Corporation Ltd. (Offshore Logistics)
(d)  Oil and Natural Gas Corporation Ltd. (Neelam Heera)
(e)  Oil and Natural Gas Corporation Ltd. (Drilling Services)
(f)  Oil and Natural Gas Corporation Ltd. (Engineering Services)
3. The appellants also have multi locational units for the manufacture of excisable goods and one such unit of appellants is registered with Central Excise, Mumbai-I Commissionerate. This unit manufactures/produces the exempted excisable goods such as Natural gas and Crude oil for which M/s ONGC Ltd. held Central Excise registration issued by Mumbai-I Commissionerate. The Crude oil and natural gas produced from the Oilfield of Mumbai Offshore were supplied to the refineries situated at different location. Oilfields of Mumbai Offshore of the appellants are discharging the Oil Cess leviable under the Oil Industry (Development) Act, 1974 and also discharging the National Calamity Contingent duty (NCCD), Primary Education Cess and Secondary & Higher Education Cess for the Crude oil manufactured/produced by the appellants at Mumbai Offshore. On the basis of intelligence, an inquiry was conducted by the department and the principal allegation made was that he appellants had availed and utilized inadmissible CENVAT Credit of Service Tax distributed by the various above mentioned inputs service distributors situated in Mumbai. It was alleged that such CENVAT Credit of Service Tax in fact related to various input services availed and used exclusively at the Oilfield of Mumbai Offshore and not in Uran Unit. It was alleged that the Crude oil falling under Chapter Heading 2709.0000 and Natural gas falling under sub-heading 2711.2100 used by the appellants from the Oilfield of Mumbai Offshore were though excisable goods under Section 2(d) of the Central Excise Act, 1944, but the tariff rate for the Crude oil was Nil and for the natural gas the rate of 16% was exempted vide Sr. No. 30 of the Notification No. 4/2006 dated 1.3.2006. It is the contention of the department that since both these products were exempted as far as the duty of excise is concerned, the CENVAT Credit availed and utilized by the appellants was not admissible to them.
3.1 As per the Notification No. 27/05-Service Tax dated 7.6.2005, the input service distributor has to obtain the registration within a period of 30 days of commencement of business or 16th day of June, 2005, whichever is later. The input service distributors of the appellants have obtained registration in the first quarter of 2009, hence the credit availed of the tax paid on services by the input service distributors for period prior to the date of registration in the first quarter of 2009, hence the credit availed of the tax paid on services by the input service distributors for period prior to the date of registration as input services distributor is not admissible under Rule 3(i) of the Cenvat Credit Rules because both the Rules 3(2) and 3(3) of the Cenvat Credit Rules are applicable to only inputs lying in stock and not to the input services already availed and since the input service distributors have not followed the such statutory provisions, they are not entitled for CENVAT Credit of Rs. 27,79,30,282/- which is recoverable from them under Rule 14 of the Cenvat Credit Rules.
3.2 On the basis of investigation, a show-cause dated 8.4.2010 was issued to the appellants as well as six input service distributors demanding the CENVAT Credit of Service Tax amounting to Rs. 40,57,15,829/- under Rule 14 of the Cenvat Credit Rules read with Section 11A of the Central Excise Act and also demanding the interest as applicable under Rule 14 of the Cenvat Credit Rules, 2004 and it was also proposed to impose penalties under Section 11AC of the Central Excise Act read with provisions contained under Rule 15 of the Cenvat Credit Rules. These show-cause notices were contested by the appellants and input service distributors and the case was adjudicated by the Commissioner vide impugned order disallowing the CENVAT Credit of Service Tax amounting to Rs. 40,57,15,829/- under Rule 14 of the Cenvat Credit Rules with Section 11A of the Central Excise Act and also imposing the equal amount of penalties on the appellants under Section 11AC of the Central Excise Act read with Rule 15 of the Cenvat Credit Rules and the interest was also demanded under Section 11AB of the Central Excise Act read with Rule 14 of the Cenvat Credit Rules. Various amounts of penalties were also imposed on all the six input service distributors. The appellants and the six input service distributors have filed these appeals in this Tribunal.
4. Learned Sr. Advocate appearing for the appellants submitted that raw Crude oil obtained at process platform at Mumbai Offshore is not excisable commodity as such Crude oil is in semi stabilized/un-stabilized form and such a Crude Oil cannot be marketed in semi stabilized/un-stabilized state. Semi stabilized Crude Oil is sent either through pipeline in Uran Plant or through oil tankers for completion of final stage of stabilisation and only thereafter it becomes marketable and excisable. Therefore, he submitted that semi stabilized Crude Oil is not excisable goods under Section 1591 of Oil (Industry Development) Act 1974 and Section 3 of the Central Excise Act, 1944 as only stabilized Crude oil is excisable commodity.
4.1 Learned Sr. Advocate submitted that Crude Oil is a dutiable product and therefore credit of Service Tax paid on services used in the manufacture of Crude Oil is admissible to them. He submitted that various duties have been specified in Rule 3(1) of the CENVAT Credit Rules, 2004 in respect of which credit is admissible and Rule 6(1) of Cenvat Credit Rules denies credit in respect of Service Tax paid on input services if used in the exempted goods. Since the appellants are paying Cess, NCCD, Education Cess or SHE the Crude Oil cannot be treated as exempted goods under Rule 6 of the CENVAT Credit Rules and therefore credit of Service Tax paid on input services is admissible to them.
4.2 Learned Sr. Advocate further argued that Crude Oil and Natural gas are intermediate product as Mumbai Offshore is part of Uran Plant and therefore Rule 691 will not apply in this case. He stated that Crude Oil and Natural Gas are necessary inputs for the final products manufactured at Uran Plan. Without Crude Oil and Natural gas Uran Plant cannot function. He submitted that Mumbai Offshore is a captive mine and since all the Crude Oil and Natural gas produced at Mumbai Offshore (except minimal quantity of 6% from process platform which are sold to other refineries) is transferred to Uran plant, process platform is a part of Uran Plant and Crude Oil/ Natural gas is an intermediate product. Therefore, credit of Service Tax paid on input services used in process platform is admissible for the manufacture of final products at Uran Plant.
4.3 He pointed out that show-cause notice alleges that since Uran Plant and Mumbai Offshore units are having different registration, credit is not admissible to them. He submitted that under CENVAT Credit Rules there is no restriction about use of input services outside the factory. Restriction is only in respect of inputs which are to be used in the factory.
4.4 He submitted that Commissioner denied the Service Tax credit in respect of services availed prior to registration as input service distributor. In this case ISD registration was done in early 2009 and only after the registration CENVAT credit of Service Tax was availed by them. He submitted that there is no restriction in CENVAT Credit Rules, 2004 denying credit in respect of services used prior to date of registration. Since the credit was availed only after date of registration the finding of Commissioner denying CENVAT credit is unsustainable.
4.5 Learned Sr. Advocate submitted that since credit was rightly availed by Uran Plant, there is no case of charging of interest and imposition of penalty. Applicants had no intention to wrongly avail and utilize the credit of input services therefore no penalty is imposable on Uran Plant. He pointed out that under Rule 15(1) and 15(2) prevailing during relevant time penalty can be imposed for wrong availment of credit of duty paid on input or capital goods and the Rule 15(1) and 15(2) do not apply to input services. Similarly Rule 15(4) is applicable to output service provider and maximum penalty imposable under Rule 15(3) on manufacturers for wrong availment of credit in respect of input services is Rs. 2000/-. Similarly, no penalty is imposable on ISDs as show-cause notice has invoked Rule 25/26 of Central Excise Rule which are not applicable to input services and Commissioner has imposed the penalty under Rule 15(4) of Cenvat Credit Rules which does not apply to ISDs.
4.6 Learned Sr. Advocate mainly relied on the following decisions in support of above submissions:-
(i)  Vikram Cement v. CCE [2006] 3 STT 230 (SC)
(ii)  Chowgule & CO. (P.) Ltd. v. Union of India 1993 (67) ELT 34 (SC)
(iii)  Brooke Bond India Ltd. v. Collector of Central Excise 1991 (55) ELT 342 (Trib. - Chennai)
(iv)  Lupin Laboratories Ltd. v. Collector of Central Excise 1994 (71) ELT 914 (Trib.)
5. Learned Commissioner (A.R.) appearing for the Revenue submitted that the products manufactured at Mumbai Offshore are Crude oil and Natural gas and these are exempted from the duty. Therefore, the CENVAT Credit of Service Tax distributed by the ISD to their Uran Plant on such services rendered in relation to the manufacture of the exempted goods manufactured in Mumbai Offshore is not admissible. He further submitted that under Rule 691 of the CENVAT Credit Rules, CENVAT Credit is not admissible on such quantity of input services which is used under the provisions of exempted services/ exempted goods except in the circumstances specified in sub-rule 2. Therefore, the credit availed by M/s ONGC on input services used by them cannot be passed on to Uran Plant as these services were used in the exempted Crude oil/Natural gas and there is no nexus between the services and the manufacturing activity carried out at Uran Plant. He further contended that under Rule 7 of the Cenvat Credit Rules, the input service distributors can distribute the Service Tax credit in respect of the Service Tax paid on the input services to its manufacturing unit subject to the condition that the credit of Service Tax attributed to services used in unit exclusively engaged in the manufacturing of exempted goods shall not be distributed. Since in the present case, the goods manufactured at Mumbai Offshore are exempted from the Excise duty, the Service Tax paid on the services used in the manufacture of these goods cannot be distributed by the ISD. He further pointed out that the part of Crude oil is cleared by M/s ONGC to independent buyers and such buyers cannot avail any credit of CENVAT Credit on procurement of Crude oil because the Crude oil is an exempted product. If the CENVAT Credit on these input services is allowed to Uran Plant, this will lead to discrimination vis-a-vis the independent buyers. Thus, any interpretation allowing of CENVAT Credit to the Uran Plant and not to independent buyers is not permissible on principle of equity. He submitted that the Commissioner has passed a legal order denying the credit of Service Tax paid on the input services and therefore, appeal is liable to be dismissed.
6. After hearing both sides we find that issue involved in these appeals is denial of CENVAT credit of Service Tax paid by various ISDs on input services used in or in relation to manufacture of Crude Oil/Natural gas on the appellant at their Uran unit as Crude Oil/Natural gas is exempted and also whether credit of Service Tax paid prior to date of registration as ISDs is deniable to the appellants.
6.1 It will be appropriate to know about the process of production of Crude Oil in brief is as under:-
a.  The mixture of liquid & gaseous hydrocarbons rising through well Heads is taken to Process Platforms where these are cooled and decompressed in two stages to bring down the pressure progressively.
b.  The mixture of liquid & gaseous hydrocarbons received from well Heads to highly effervescent due to rapidly escaping hydrocarbons (which are in liquid form), on being brought to lower pressures at the surface. It is in an unstable state and is also hazardous due to highly inflammable gases escaping from it with great force. At this stage and in this fore, it cannot be transported through pipelines or in any other manner.
c.  Gradual decompression ensures that the escaping gas do not carry with it liquid hydrocarbons which have higher market value.
d.  During the separation process, a substantial quantity of dissolved/associated gases is separated from the liquid hydrocarbons. These are collected and de- moisturized for making them fit for transportation through pipelines.
e.  Apart from the dissolved/associated gases water contained in material extracted from the wells also is separated to a great extend. The resulting fluid largely comprises heavier hydrocarbons (Cs onwards). However, being at the pressure of 3 K.G. per sq. c m. At the point of leaving the last Separator (Separator No. II), it still contains substantial quantities of associated/dissolved light hydrocarbons (C1 to C4). It may be described as semi-stabilized as it is stable enough to be transported to the Uran Plant through pipelines.
6.2 Appellants contend that what they produce at Mumbai Offshore is semi stabilized / un-stabilized state and had to be stabilized before its actual sale or use in the manufacture of value added product. We find that this submission of the appellants is not in conformity with the facts of the case inasmuch as the firstly Crude Oil manufactured at the Mumbai Offshore is being transported to Uran units through pipelines. Secondly Crude Oil produced at Mumbai Offshore is a saleable commodity and is being sold by M/s ONGC to its buyers. Thirdly before Uran Plant came into existence, entire Crude Oil manufactured at Mumbai Offshore was sold by M/s ONGC. We also find that Crude Oil is defined under the Oil Industry (Development) Act, 1974 as under:-
"Crude Oil means petroleum in its natural state before it is refined or otherwise treated but for which water and foreign substances have been extracted."
We also note that M/s ONGC are paying cess on the Crude Oil produced at Mumbai Offshore. Therefore, we are of the view that Crude Oil used in Uran Plants and other units to manufacture other value added final product cannot be termed as semi stabilized/ semi finished goods.
6.3 This is one of the contentions of the appellants that Crude Oil manufactured by them at Mumbai Offshore is not exempted product as they are paying Cess leviable under Oil Industry (Development) Act, 1974. We find that the term 'exempted goods' is defined under Rule 2(d) of CENVAT Credit Rules, 2004 according to which "exempted goods" means 'excisable goods' which are exempt from the whole of duty of excise leviable thereon, and includes goods which are chargeable to "NIL" rate of duty. "Excisable goods" have been defined under Section 2(d) of the Central Excise Act, 1944 according to which "Excisable goods" are goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff, 1985 (5 of 1986) as being subject to a duty of excise and includes salt. The duty of excise mentioned herein above as per section 3 of the Central Excise Act, 1944 is (a) CENVAT (Central Value Added Tax) & (b) Special Duty of Excise (SED) in addition to CENVAT mentioned in (a).
6.4 The word 'duty of excise' referred in the definition of Exempted goods and Excisable goods refer to duty of excise as specified in Section 3 of the Central Excise Salt Act. Therefore, the contention of the appellants that since cess is paid by them on the Crude Oil manufactured at Mumbai Offshore, Crude Oil is duty paid and not exempted is not acceptable.
6.5 Now we come to the argument of the appellants that Mumbai Offshore is an integral part of Uran Plant and Crude Oil/Natural gas being intermediate products, they are entitled to CENVAT credit of Service Tax paid on input services even if intermediate product is exempted. We find that contention of the appellants that Mumbai Offshore is an integral part of Uran Plant as Crude Oil is transferred to Uran Plant for the manufacture of valued added product is not acceptable as Crude Oil manufactured at Mumbai Offshore is a saleable commodity and in fact is being sold partly at Mumbai Offshore.
6.6 We find that Rule 3(l) of CENVAT credit Rules reads as under:-
"3 (1) A manufacturer or producer of final product or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of duty paid on -
  ******
(i)  any input or capital goods received in the factory of manufacturer of final product or premises of the provider of output service on or after the 10th day of September, 2004 and
(ii)  any input service received by the manufacturer of final product or by provider of output service on or after the 10th day of September, 2004
including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- CE dated the 25.03.1986, published in the Gazette of India vide No. GSR 547 (E) dated 25.03.1986 and received on or after 10th September, 2004."
Under Notification No.214/86-CE goods manufactured by the job worker are exempted. Under Rule 3(1) credit of Service Tax paid on input services used in manufacture of goods by job worker will be available to manufacture of final product. Since Mumbai Offshore unit is not a job worker under Notification No. 213/86, ONGC Uran unit is not entitled to CENVAT credit of Service Tax paid on input services used in Crude Oil manufactured by Mumbai Offshore.
6.7 We also note that under Rule 6(1) of the CENVAT Credit Rule CENVAT Credit shall not be allowed on much quantity of input services which is used in the exempted goods except in the circumstances specified in Rule 6(2). Under Rule 6(2) if a manufacturer manufactures both exempted goods and dutiable goods and he maintains separate records of input services gone into dutiable goods/exempted goods, the credit in respect of input services gone into dutiable goods will be admissible. In the present case input services are entirely being used in Crude Oil/Natural gas which are exempted from duty. Therefore, in this case credit is not admissible.
6.8 We also find that under Rule 7 of the CENVAT Credit Rules the input service distributor may distribute the CENVAT credit in respect of Service Tax paid on input service to its manufacturing units subject to condition that credit of Service Tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods shall not be available. Since Mumbai Offshore is exclusively engaged in the manufacture of exempted goods, credit of Service Tax paid on input services cannot be distributed.
6.9 The Sr. Advocate heavily relied on the decision of the Hon'ble Supreme Court in Vikram Cement (supra). The question before the Hon'ble Apex Court in this case was whether Jaypee Rewa Cement v. CCE 2001 (133) ELT 3 (SC) would apply to CENVAT Credit Rules 2000 as a Bench of two judges of Supreme Court in case of CCE v. J.K. Udaipur Udyog Ltd. 2004 (171) ELT 289 (SC) held that Japyee Rewa did not apply to Cenvat Credit Rules. The Court in the case of Vikram Cement (supra) held that Jaypee Rewa would continue to apply. Para 7,8 and 11 of the Judgment are reproduced below:-
"7. Then comes Rules 57J which, in sofaras it is material, reads:-
Rules 57J. Credit of duty in respect of inputs used in an intermediate products -
(1) Notwithstanding anything contained in these rules, the manufacturer shall be allowed to take credit of the specified duty paid on inputs described in column (2) of the Table below and used in the manufacture of intermediate products described in column (3) of the said Table received by the said manufacturer for use in or in relation to the manufacture of final products described in the corresponding entry in column (4) of the said Table."
The manufacturer of final "products shall take credit under sub-rule (1) only if the intermediate products are manufactured in a factory as a job work in respect of which the exemption contained in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 214/86-Central Excises, dated the 25th March, 1986 has been availed of."

******(3)
(Emphasis Supplied)
8. This Rule allows credit on inputs used in manufacture of intermediate products described in column 3 of the Table provided the intermediate products are received by the manufacturer for use in or in relation to the manufacture of final products described in the corresponding entry in column 4 of the Table. Explosives, limestone and cement are admittedly covered by columns 1, 2 and 3 respectively of the Table .
11. The question whether it was necessary for inputs to be used within the factory premises where the manufacture as defined in Rule 57AB of final products takes place for the purposes of availing of credit, came up before a Bench of three Judges in the case of Jaypee Rewa Cement vs. CCE (supra). As in this case, in that case the input in question was explosives which were used in quarrying limestone used in the manufacture of cement. The Court came to the conclusion on a consideration of the Rules which we have already quoted, that sub-rule (1) of Rule 57A did not in any way specify that in inputs have to be utilized within the factory premises. The Tribunal had relied upon Rule 57F in coming to the conclusion that the inputs in respect of which credit of duty was claimed must be those which were used in or brought in to the factory premises. In reversing the decision of the Tribunal this Court observed that:-
"The Tribunal, however, has not referred to the provisions of Rule 57J, the opening portion of which makes it clear that the said Rule will be applicable notwithstanding anything contained in the other Rules. According to Rule 57J, when the Central Government by notification specified the inputs used in the manufacture of intermediate products received by the manufacturer for use in or in relation to the manufacture of final product, then all such products on which duty has been paid credit will be allowed...
Explosives would fall under column (2) being a tariff item in Chapter 36; the intermediate product, namely, limestone would fall under column 3 being covered by Chapter 25; and the final product, namely, cement would also fall under Chapter 25 and would fall under column 4. The reading of Rule 57J along with the aforesaid notification can leave no manner of doubt that even in respect of inputs used in the manufacture of intermediate product which product is then used for the manufacture of a final product. The manufacturer would be allowed credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, lime stone which, in turn was used for the manufacture of cement."
6.10 In the case of Vikram Cement (supra) explosive, limestone and cement were figuring in the table of Rule 57J as input, intermediate product and final product. In the instant case before us, there is neither such table of input services, intermediate products and final product nor Mumbai Offshore is a job worker under Notification No. 214/86. Therefore, decision of Vikram Cements (supra) is distinguishable from facts of present case.
6.11 Sr. Advocate also relied on the decision of Apex Court in case of Chowgule & Co. (P.) Ltd. (supra). In this case Court was examining provisions of Section 8(3)(b) and 13 of Central Sales Tax Act, 1956. Sales Tax is leviable on point of sale and ore is solid after processing. In this case Court held that machinery, vehicles and barges used for carrying the ore from mining site to place of processing are to be considered as goods for cuse in processing of ore for sale. Facts of this case are distinguishable from the present case as Crude Oil/Natural gas manufactured at Mumbai Offshore are excisable goods at the process platform itself.
6.12 Appellants also relied on the decision of Tribunal in case of Brooke Bond India Ltd. (supra) in which Tribunal allowed the credit of duty paid on paper bag used for manufacture of printed paper bags which in turn used in packing tea. Ratio of this decision is also not applicable to the present case as printed paper bags and packing tea were used in the same factory whereas Crude Oil and value added product are manufactured at Mumbai Offshore and Uran Plant.
6.13 Similarly, ratio of Tribunal's decision in case of Lupin Laboratories Ltd. (supra) is also not applicable as goods in this case in entirety were being sent from Ankleshwar unit to Mandideep Unit and Unit at Ankleshwar was a job worker under exemption Notification No. 214/86. In the present case Crude Oil is a partly sold by Mumbai Offshore unit to independent buyers and Crude Oil is not sent to entirety to Uran Plant and also Mumbai Offshore is not job worker as per Notification No. 214/86.
7. In view of the above, we hold that credit of service tax paid on input services used in manufacture of Crude oil and Natural gas at Mumbai Offshore is not admissible to Uran Plant. Since credit is not admissible we do not go into second aspect of admissibility of credit only after date of registered as ISD. We therefore, uphold Commissioner's Order regarding confirmation of demand of Rs. 40,57,15,129/- under Rule 14 of CENVAT Credit Rule, 2004 read with Section 11A of the Central Excise Act. Since confirmation of demand is upheld, interest on the demand amount is also recoverable under Rule 14 of Cenvat Credit Rules read with Sec. 11AB of Central Excise Act.
7.1 Coming to issue of imposition of penalty on Uran Plant, it is the contention of the appellants that demand pertains to period upto November, 2009 and in that period Rule 15(1) and Rule 15(2) of the CENVAT Credit Rule, 2004 did not cover wrong availment of input service credit. We find that Rule 15 has been amended with effect from 27.02.2010 incorporating input services in Rule 15(1) and 15(2) of CENVAT Credit Rule 2004. Therefore, penalty under Rule 15(1) and Rule 15(2) is not imposable. Similarly, under Rule 15(4) penalty is imposable on output service provider. Therefore, penalty is imposable only under Rule 15(3) of Cenvat Credit Rules and maximum penalty under Rule 15(3) is Rs. 2000/- only. We therefore, find considerable force in the submissions of the appellants and reduce the penalty imposed under Rule 15 of the CENVAT Credit Rules to Rs. 2000/- on the appellants.
7.2 As regards imposition of penalty on ISDs, we find that in show-cause notice penalty was proposed under Rule 25/26 of Central Excise Rule but in the Order-in-Original penalty is imposed under Rule 15 of CENVAT Credit Rules. Penalty needs to be set aside on this ground alone. Penalty has been imposed under Rule 15(4) of the Cenvat Credit Rule. Rule 15(4) as it existed during the relevant period pertains to imposition of penalty or output service provider. Accordingly, penalties imposed on ISDs are set aside.
8. In view of the above, appeal filed by ONGC Uran Plant is partly allowed. Appeals filed by ISDs are allowed.

SOME RECENT DIRECT TAXES JUDGEMENTS: A COMPILATION (Part II)


 

(A)    Supreme Court

1.       I.C.D.S. Ltd. vs. CIT 350 ITR 527 (SC)
Where assessee, engaged in business of hire purchase, leasing etc., having purchased vehicles from manufacturers, leased out those vehicles to customers, it was entitled to claim depreciation in respect of vehicles so leased out
Facts
Assessee was engaged in business of hire purchase, leasing and real estate etc. It purchased vehicles from manufacturers and thereupon leased out those vehicles to customers. Assessee's claim for depreciation on said vehicles was rejected on ground that it had merely financed purchase of these assets and was neither owner nor user of these assets.
Held
(i)                 It was apparent from records that assessee was exclusive owner of vehicles at all points of time and, in case of default committed by lessee, assessee was empowered to re-possess vehicle.
(ii)               Moreover, at conclusion of leased period, lessee was obliged to return vehicle to assessee
(iii)             It was also undisputed that assessee was a leasing company and income derived from leasing of vehicles had been assessed as its business income.
(iv)             Section 32 imposes a twin requirement of 'ownership' and 'usage for business' for a successful claim of depreciation.
(v)               As long as asset is utilized for purpose of business of assessee, requirement of section 32 will stand satisfied, notwithstanding non-usage of asset itself by assessee.
(vi)             Assessee satisfied both requirements of section 32, i.e., ownership and usage of vehicles for purpose of business, and, thus, its claim for depreciation was to be allowed.

2.       CIT vs. Monnet Industries Ltd. 350 ITR 304 (SC)

Interest paid on borrowed fund for mere extension of existing business, is allowable as deduction under section 36(1)(iii)

Assessee was having a ferroalloys manufacturing plant. It set up a sugar plant at a different place out of its borrowed fund. There was a unity of control and management in respect of ferroalloys plant as well as sugar plant and there was also intermingling of funds and dove-tailing of business. Since there was mere extension of existing business of ferro-alloys plant, interest paid on funds borrowed for purposes of setting up of sugar plant was allowable as deduction under section 36(1)(iii)



(B)     High Courts

1.       CIT vs. Kamal Wahal 351 ITR 4 (Del.)

In order to get exemption u/s. 54F new residential house need not to be purchased by the assessee in his/her own name or exclusively in his/her name
Held
For the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife.
Having regard to the rule of purposive construction and the object which Section 54F seeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue.
2.       CIT vs. Amit Jain 351 ITR 74 (Del.)


The record reveals that the amount in question, which formed the basis for the assessing officer to levy penalty was in fact truthfully reported in the returns. In view of this circumstance, that the assessing officer chose to treat the income under some other head cannot characterize the particulars or reported in the return as inaccurate particulars or as suppression of facts. 

3.       Khanna And Annadhanam vs. CIT 351 ITR 110 (Del.)

Compensation to CA Firm for loss of referral work is a non-taxable capital receipt

The assessee, a firm of Chartered Accountants, was one of the "associate members" of Deloitte Haskins & Sells for 13 years pursuant to which it was entitled to practice in that name. Deloitte desired to merge all the associate members into one firm. As this was not acceptable to the assessee, it withdrew from the membership and received consideration of Rs. 1.15 crores from Deloitte. The said amount was credited to the partners' capital accounts & claimed to be a non-taxable capital receipt by the assessee. The AO rejected the claim. The CIT (A) reversed the AO. The Tribunal reversed the CIT (A). On appeal by the assessee to the High Court HELD reversing the Tribunal:

(i) There is a distinction between the compensation received for injury to trading operations arising from breach of contract and compensation received as solatium for loss of office. The compensation received for loss of an asset of enduring value would be regarded as capital. If the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations (Kettlewell Bullen 53 ITR 261 (SC) & Oberoi Hotel 236 ITR 903 (SC) followed);

(ii) On facts, the compensation was for loss of a source of income, namely referred work from Deloitte because it is somewhat difficult to conceive of a professional firm of chartered accountants entering into such arrangements with international firms of CAs, as the assessee in the present case had done, with the same frequency and regularity with which companies carrying on business take agencies, simultaneously running the risk of such agencies being terminated with the strong possibility of fresh agencies being taken. In a firm of chartered accountants there could be separate sources of professional income such as tax work, audit work, certification work, opinion work as also referred work. Under the arrangement with DHS there was a regular inflow of referred work from DHS through the Calcutta firm in respect of clients based in Delhi and nearby areas. There is no evidence that the assessee had entered into similar arrangements with other international firms of chartered accountants. The arrangement with DHS was in vogue for a fairly long period of time -13 years- and had acquired a kind of permanency as a source of income. When that source was unexpectedly terminated, it amounted to the impairment of the profit-making structure or apparatus of the assessee. It is for that loss of the source of income that the compensation was calculated and paid to the assessee. The compensation was thus a substitute for the source and the Tribunal was wrong in treating the receipt as being revenue in nature.

4.     CIT vs. C.S. Srivatsan 30 taxmann.com 423 (Mad.)
Where company in which assessees were directors, paid franchise commission to franchiser, owned by HUF of directors, and such franchises met personal expenses of directors, same could not be brought to tax under section 2(24)(iv)


Facts
·                  The assessees were directors of the company 'CRS' which was engaged in the business of retail-selling of silk sarees and other textiles.
·                  'CRS' effected its sale through franchisees which were owned by different HUFs of the assessee. Said franchisees were paid commissions for the sale effected by them.
·                  The Assessing Officer treated the personal expenses of the assessees and their family members (Franchisee commission paid to different HUF) paid by the company as the income of the Directors, by invoking the provisions of section 2(24)( iv).
·                  The Tribunal held that the personal expenses met out of the company's money could not be treated as income in the hands of the assessees under section 2(24)(iv ) as the money had not been paid directly to them, but to the franchisees, which their HUF owned.

Held

The Tribunal has taken note of the following aspects and has given the specific findings:-

·        CRS paid franchise commission to various firms owned by HUF of Directors.

·        This has been done on the basis of agreement entered into which were in force.

·        The payment by CRS on the basis of franchise agreement to various persons cannot be treated as payment to Directors who have substantial interest in the company and section 2(24)(iv ) cannot be invoked.

·        If the receiver of franchise commission has met the personal expenses of the Director, it is not the responsibility of the company for such act of the receiver of franchise commission.

·        The findings rendered by the Tribunal do not warrant any interference, as it is supported by factual matrix and legal reasoning.




5.     CIT vs. Abhinav Kumar Mittal 30 taxmann.com 357 (Delhi)

Where reference made by Assessing Officer to DVO for valuation of properties of assessee was not in accordance with law and DVO's valuation was based on incomparable sales, addition made to income of assessee under section 69 on basis of DVO's valuation was wrong

Held

No material was found in the search and seizure operations, which would justify the Assessing Officer's action in referring the matter to the DVO for his opinion on valuation of the said properties. If that be the case, then the valuation arrived at by the DVO would be of no consequence. In any event, the Tribunal has also held that the DVO's valuation was based on incomparable sales, which is not permissible in law.


6.     R.N. Gupta Co. Ltd. vs. CIT 30 taxmann.com 424 (Punj. & Har.)

Scrap being by-product of manufacturing activity, there are no expenses which could be excluded from sale of scrap for computing deduction under section 80HHC

Facts
The assessee is engaged in manufacturing of goods for export. In the process of manufacturing, the scrap is generated, which is a bi-product of manufacturing activity. The Assessing Officer has not accepted the explanation of the assessee that no expenses are incurred for generation of scrap, and therefore, expenditure should be taken as nil for not accepted. The Assessing Officer has disallowed the deductions claimed by the assessee under Section 80 HHC of the Income Tax Act, 1961.

Held
The expenditure is incurred by the assessee not for generation of the scrap but for generation of the finished product. There is and cannot be any expenses which are incurred for generation of scrap. Scrap is bi-product of the manufacturing activity. Therefore, there are no expenses which could be excluded from the sale of scrap. Since the question of law stands answered by this Court in favour of assessee.


7.       Association of Corpn. & Apex Societies of Handlooms vs. ADIT 30 taxmann.com 22 (Delhi)

Form No. 10 could be furnished by assessee-trust for purposes of section 11(2), i.e., for accumulation of income, during reassessment proceedings

Facts
The Tribunal rejected the assessee's claim for accumulation of income on the ground that Form No. 10 had not been furnished along with the return but was filed during the course of reassessment proceedings

HELD
·        One has to keep in mind the fact that while reopening of an assessment cannot be asked for by the assessee on the ground that it had not furnished Form No. 10 during the original assessment proceedings, this does not mean that when the revenue reopens the assessment by invoking section 147, the assessee would be remediless and would be barred from furnishing Form No. 10 during those assessment proceedings.
·        Therefore, Form No. 10 could be furnished by the assessee-trust during the reassessment proceedings.




8.       Zafa Ahmad & Co. vs. CIT30 taxmann.com 267 (All.)

In course of proceedings under section 68, assessee could not be asked to prove source of source or origin of origin


Facts
The assessee was a partnership firm, in which 'K' and 'Z' were partners, who had deposited amounts in their capital accounts in the firm. During assessment proceedings, assessee was asked to explain the source of the deposits. It was explained that 'K' had received the amount from six persons and 'Z' from five persons by way of gift and all of them had filed their income-tax return and gift-tax returns. The Assessing Officer did not accept the assessee's plea and added the whole amount as unexplained deposit under section 68.

Held
·        It is not in dispute that the amounts have been deposited by the two partners in their capital account. The partners are income tax payees. They have explained the source as having received gift from various persons, who have also filed their Income-tax returns and have been assessed accordingly.
·        Merely because, the donors are weavers and they own only one loom would not make any difference. They have filed their Income-tax returns and have also filed the return under the Gift-tax Act. They have paid the gift-tax also. Assessment under the Gift-tax Act had also been made, though the assessments made were summary in nature.
·        The Tribunal had erred in holding that the amount deposited by the two partners is liable to be added under section 68 on the ground that the gifts received by the respective partners from the various persons could not be explained as the creditworthiness of the donors had not been established.
·        The Tribunal had wrongly drawn an adverse inference upon the fact that the donors had filed their Income-tax returns on a single day and, further, the return for the Gift-tax was filed well within the due date.
·        Thus, the assessee had explained the nature and source of the deposit and discharged its burden. The order of the Tribunal on this ground cannot be sustained and is liable to be set aside.




9.       CIT vs. Hindustan Equipment (P.) Ltd 30 taxmann.com 295 (MP)

Once net profit rate is applied to compute income, there is no scope of disallowance under section 40A(3)
Assessing Officer disallowed 20 per cent of purchase price alleged to be paid in cash. He also rejected books of account of assessee and estimated six per cent extra profit in respect of such purchases. Held, since profit was estimated by applying net profit rate, there was no scope for further disallowance under section 40A(3) in respect of such purchases.


10.     CIT vs. Avinash Jain 30 taxmann.com 133 (Delhi)

Where assessee engaged in purchase and sale of shares, maintained two separate portfolios i.e. an investment portfolio and a trading portfolio, income arising from sale of shares out of investment account was to be treated as 'capital gain' and not 'business income' of assessee

Assessee, engaged in sale and purchase of shares, maintained two separate portfolios; an investment portfolio and a trading portfolio. During relevant assessment year, assessee declared certain income arising from sale of shares under head 'capital gains'. A.O. treated income from sale of shares as 'business income. CIT(A) and Tribunal set aside assessment order holding that short-term capital gains and long-term capital gains were out of investment account and were not related to trading account of assessee. Hon'ble High Court upheld the order of the Tribunal.

11.     CIT vs. Elgin Mill Co. Ltd 29 taxmann.com 391 (All.)

Where assessee unilaterally wrote back amount of retirement gratuity in assessment year 1976-77 which was allowed as expenditure in assessment year 1972-73, same would not be treated as remission or cessation of liability so as to attract provisions of section 41(1)

FACTS

·        The assessee unilaterally wrote back the amount of retirement gratuity (i.e. Rs. 32, 99, 929) in assessment year 1976-77 which was allowed as expenditure in assessment year 1972-73.
·        The Assessing Officer made addition of said amount by invoking section 41(1).
·        On appeal, the Commissioner (Appeals) held that there was no cessation or remission of the liability and by writing back the amount, no benefit had been derived by the assessee. He, therefore, held that the addition by invoking the provisions of section 41(1) could not be sustained and, therefore, the addition of Rs. 32,99,929 was deleted.
·        On further appeal, the Tribunal confirmed order of CIT(A).

HELD

·        The provisions of section 41(1) would be applicable only where there has been a remission or cessation of trading liability and if such liability has been allowed as an expenditure in any of the assessment years. It is not in dispute that the amount of Rs. 32,39,929 towards gratuity has been allowed as trading liability during the assessment year 1972-73. The question is whether the said amount can be added back under section 41(1) on the ground that there liability has been by way of remission or cessation as an unilateral act of writing back in the books of account by the assessee. In the present case by an unilateral act of the assessee in writing back the amount of gratuity of Rs. 32,39,929 which was allowed as expenditure in the assessment year 1972-73 would not be treated as remission or cessation of the trading liability so as to attract the provisions of section 41(1). It may be mentioned here that from the Assessment year 1997-98 even unilateral act of writing off a trading liability attracts section 41(1) as Explanation (1) to section 41(1) has been inserted by the Finance (No.2) Act, 1996 with effect from 1-4-1997 which provides that the expression 'loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof' shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause () of section 41(1) or by the successor in business under clause (b) of section 41(1) by way of writing off such liability in his accounts. Thus, this Explanation has been made effective from 1-4-1997 i.e., it shall be applicable from the Assessment year 1997-98 onwards and cannot be pressed into service for the Assessment year 1972-73.
·        In view of the foregoing discussion, the Commissioner (Appeals) and also the Tribunal had rightly held that the sum of Rs. 32,39,929 cannot be taxed during the assessment year in question by invoking the provisions of section 41(1).

12.     CIT vs. Sudeep Goenka 29 taxmann.com 402 (All.)

Penny stock: Where assessee proved sale transaction of shares by filing mass documentary evidence and payment of sale price was made through bank channel, sale transaction could not be disbelieved only because assessee could not give identity of purchasers


Facts
·        Assessee showed long term capital gains on sale of shares in his reply to notice under section 142(1).
·        The Assessing Officer treated the sale price of shares as income of the assessee from undisclosed sources, holding it a bogus transaction, as the shares were sold for more than 30 times of the purchase price.
·        On appeal, the Commissioner (Appeals) deleted the addition as the assessee had filed purchase bills of shares, letters of transfer, sale bills, accounts of brokers, purchase and sale chart, copy of quotations of Stock Exchange showing the rate of shares at relevant times and letters from broker confirming sale. On an independent inquiry, ICICI Bank informed that payment of sale price of shares was made through bank draft. Thus, documentary evidence proved that the transactions were actual and not fictitious accommodation entries.
·        On appeal, the Tribunal upheld the order of Commissioner (Appeals).

HELD
·        The Commissioner (Appeals) after considering entire evidence of record found that purchase and sale transactions were proved. He further, found that payment of the sale price was made to the assessee through bank channel and not in cash as such the transactions are actual transactions and not a fictitious accommodation entries.
·        The sale transactions cannot be disbelieved only for the reason that the assessee could not give the identity of the purchasers

(c)      Tribunal

1.       ACIT vs. Kiran Constructions 30 taxmann.com 235 (Hyd.)

Mere providing of machinery on hire without any manpower cannot be termed as carrying out of any work by plant and machinery owners and, thus, no tax is required to be deducted under section 194C

Held

·        For carrying out any work, as per provisions of section 194C, manpower is sine qua non and without manpower it cannot be said that work has been carried out.

·        Mere providing of machinery on hire without any manpower cannot be termed as carrying out of any work by plant and machinery owners and, thus, provisions of section 194C cannot be applied and as such no disallowance can be called for under section 40(a)(ia).




2.       Rainy Investments (P.) Ltd. vs. ACIT 30 taxmann.com 169 (Mum.)

Section 14A is not applicable in respect of share application money
Facts
·        The assessee-company was engaged in the business of investment in shares and securities. As the profit and loss account, filed along with, disclosed dividend income which had been claimed exempt by the assessee per its return, section 14A, read with rule 8D was attracted.
·        The Assessing Officer made disallowance accordingly and same was confirmed by the Commissioner (Appeals).
HELD
·        There is much force in the assessee's argument that 'share application money', to the extent it is actually so, so that it only represents amount/s paid by way of application for allotment of shares, the same cannot be regarded as an investment in shares, or an asset (or asset class) yielding tax-free income, and neither is it capable of yielding any tax-free income. The same would, therefore, have to be excluded in working out the disallowance under rule 8D.
·        Further it is clarified that the exclusion of 'share application money' is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapable of any such income.
·        Accordingly, the Assessing Officer shall restrict the disallowance under section 14A to the amount so determined subject to verification of share application money.

3.     Thomas Muthoot vsJCIT (TDS) 30 taxmann.com 354 (Coch.)

Since partners and firm are not two separate legal entities and exemption is available in respect of TDS liability on interest paid by firm to its partners, assessee-partner's belief that he had no TDS liability on interest paid by him to firm, is a 'reasonable cause' for non-imposition of penalty

Facts
The assessees were partners in a firm and paid interest on drawings to the firm, without deducting tax at source under section 194A.
The Joint Commissioner imposed penalty under section 271C for failure to deduct tax at source, which was confirmed by the Commissioner (Appeals).




HELD

The penalty under section 271C shall be levied if there is failure on the part of a person to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B.
The assessees have not deducted tax at source under section 194A on the interest on drawings paid by them to the partnership firm in which they are partners. There is no dispute with regard to the fact that the provisions of section 194A has provided exemption from deduction of tax at source only in respect of interest credited or paid by a partnership firm to its partners. The provisions of section 194A do not provide such kind of exemption to the interest paid by a partner to the partnership firm in which he is a partner.
The rigours of provisions of section 271C is softened by the provisions of section 273B, which provide that the penalty under that section shall not be imposable on the person, if he proves that there was reasonable cause for the said failure.
In the instant cases, the fact remains that the assessees, being individuals, had paid interest to the partnership firm, in which they were partners. In view of the legal position that the partners and firm are not two legal entities and further in view of the exemption provided in section 194A in respect of interest credited or paid by a partnership firm to its partners, the assessees were under the belief that they were not liable to deduct tax at source. Hence, the said view entertained by the assessees cannot be altogether be discounted with as untenable, since the issue that the TDS provisions shall not apply to the payment made by a partner to the partnership firm is a debatable one.
Considering the explanation furnished by the assessees, the belief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a 'reasonable cause' in view of the legal position existing between a partner and the partnership firm. The partners and partnership firm are not two different legal entities, though they are two different taxable entities. Further, it is stated that the partnership firm, which received interest from the assessees, duly included the same in its return of income filed before the department and the said partnership firm was not liable to pay any tax, since it declared loss. Hence, as observed in the case of Muthoot Financiers, no loss is caused to the revenue.
The explanation offered by the assessee fits in the category of 'reasonable cause' in terms of section 273B. Therefore, the Assessing Officer is directed to delete the penalty levied under section 271C

This page features select case laws / judgements / rulings released in the month of February 2012 on Income-Tax Act, 1961.
  • February 2012: Where revenue get authorisation for searching assessee's premises on 9-11-1995, block assessment order passed on 31-12-1996 i.e., after expiry of period of one year as prescribed by section 158BE, was barred by limitation - [2012] 18 LNIN 26 (Karnataka)
  • February 2012: For claiming deduction under section 80-IB, audit report in Form 10CCB can be filed before assessment is completed, if same has not been filed along with return of income - [2012] 18 LNIN 25 (Madras)
  • February 2012: Madras: Issue relating to applicability of section 2(22)(e) - Matter remanded to Commissioner for disposal afresh - [2012] 18 LNIN 23
  • February 2012: In name of rectification, Settlement Commission cannot review its own order - [2012] 18 LNIN 19 (Madras)
  • February 2012: Merely because identity of creditor is disclosed burden of assessee to explain money in his hands would not stand discharged if AO is satisfied that donor has no creditworthiness - [2012] 18 LNIN 18 (Jharkhand)
  • February 2012: Transfer Pricing : Transfer pricing provision has not provided for any cut off date up-to which only the information available in public domain has to be taken into consideration by the TPO, while making the transfer pricing adjustments and arriving at arm's length price - [2012] 18 LNIN 32 (Bangalore - Tribunal)
  • February 2012: Where a housing society & developer entered into a development agreement whereunder old building was demolished and new multi-storeyed building was built, compensation paid to assessee-member in addition to allotment of flat & displacement compensation was a capital receipt - [2012] 18 LNIN 31 (Mumbai - Tribunal)
  • February 2012: Where under Portfolio Management Scheme, there was frequent trading of huge quantity of shares to maximize profit, profits arising from sale/purchase of shares would be business profit - [2012] 18 LNIN 20 (Delhi - Tribunal)
  • February 2012: Decision of Third Member of Tribunal is not a final order as contemplated by section 254(1) and, therefore, an application under section 254(2) would not lie against his decision - [2012] 18 LNIN 16 (Mumbai - Tribunal)(TM)
  • February 2012: Industrial Park Scheme, 2002 was valid and in operation till 31-3-2006 and not thereafter - [2012] 18 LNIN 14 (Delhi)
  • February 2012: Where AO while processing return under section 143(1)(a), allowed assessee's claim of deduction under section 80-IA, reassessment could for disallowing aforesaid claim on ground that income had not been derived from industrial undertaking was justified - [2012] 18 LNIN 12 (Delhi)
  • February 2012: Expenditure incurred on public taxis/metered taxis would not come within purview of section 37(3A), read with sub-section (3B) and Explanation thereto - [2012] 18 LNIN 11 (Delhi)
  • February 2012: Fumigation charges, disinfestations charges and supervisory charges would be eligible for exemption under section 10(29) - [2012] 18 LNIN 10 (Karnataka)
  • February 2012: Where assessee failed to prove genuineness of transactions relating to share application money received by it, amount so received was rightly added to its taxable income as cash credits - [2012] 18 LNIN 9 (Delhi)
  • February 2012: Finance charges received in case of lease transactions are not liable to interest tax - [2012] 18 LNIN 6 (Karnataka)
  • February 2012: In case of lack of co-operation on part of assessee, Assessing Officer can drop block assessment proceedings and pass an order of best judgment assessment under section 144 - [2012] 18 LNIN 5 (Patna)
  • February 2012: In case of share transactions magnitude, frequency and ratio of sales to purchases on total holdings were relevant factors to decide, whether assessee had not purchased shares as an investment, but with intention to trade in such scrips - [2012] 18 LNIN 3 (Andhra Pradesh)
  • February 2012: For purpose of computing income under Act, assessee is to adopt mercantile system on basis of which returns are filed under Companies Act, 1956 - [2012] 18 LNIN 1 (Madras)
  • February 2012: The activities undertaken by the assessee of seismic survey, processing of 3D seismic data and submission of its report in desired media as also providing services of personnel will clearly fall under the definition of 'fee for technical services' covered in first limb of Explanation 2 to section 9(1)(vii) - [2012] 18 LNIN 13 (Delhi - Tribunal)
  • February 2012: Tax paid by employer on salary income of employee is exempt under section 10(10CC) - [2012] 18 LNIN 4 (Delhi - Tribunal)
  • February 2012: FBT is payable even if no tax is payable by an employer - [2012] 18 LNIN 2 (Kolkata - Tribunal)
  • February 2012: In case of complete disclosure of facts relating to expenses incurred to earn exempt income, reopening of assessment after expiry of four years was not justified - [2012] 17 LNIN 270 (Delhi)
  • February 2012: Revisional order passed on account of incorrect computation of deduction under section 80-IA, matter remanded - [2012] 17 LNIN 269 (Delhi)
  • February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from its total turnover also, if same is reduced from export turnover - [2012] 17 LNIN 267 (Karnataka)
  • February 2012: Where assessee, engaged in export of cigarette as well as leather goods, claimed deduction under section 80HHC and there was loss in either of two business, said loss had to be taken into account for computing deduction under section 80HHC - [2012] 17 LNIN 266 (Madras)
  • February 2012: Deduction of expenses where assessee-company claimed business promotion expenses in respect of gifts items distributed by it whereas bills relating to gifts were in name of directors of company - [2012] 17 LNIN 265 (Delhi)
  • February 2012: Where Commissioner (Appeals) as well as Tribunal having accepted assessee's explanation regarding certain purchases, deleted addition made by Assessing Officer under section 69C, no substantial question of law arose from said order of Tribunal - [2012] 17 LNIN 264 (Rajasthan)
  • February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from total turnover if same is reduced from export turnover - [2012] 17 LNIN 263 (Karnataka)
  • February 2012: Where Tribunal relying upon order passed in assessee's own case relating to earlier assessment years, refused to refer matter to High Court, said order of Tribunal was justified and it did not require any interference - [2012] 17 LNIN 262 (Rajasthan)
  • February 2012: Assessee-society formed with objects to propagate non-violence and tenets of truth as preached by Tirthankar Bhagwants, was entitled to registration under section 12AA - [2012] 17 LNIN 261 (Madras)
  • February 2012: Tax was to be deducted at source under section 194A where due to losses no interest was paid by assessee to its creditor but credit entry was made as if interest was paid to creditors - [2012] 17 LNIN 260 (Karnataka)
  • February 2012: Assessee, engaged in manufacture and selling of additives on commission basis not entitled to deduction under section 80-IB in respect of service income and commission - [2012] 17 LNIN 259 (Madras)
  • February 2012: Where assessee furnished a performance guarantee to get a contract awarded in its favour and to procure said guarantee, it had kept amount in fixed deposit, interest received on said deposit was to be treated as business income against which project expenses could be set off - [2012] 17 LNIN 257 (Delhi)
  • February 2012: Where generation of scrap had direct link with manufacturing process carried out by assessee, income arising from sale of scrap was also eligible for deduction under section 80-IC - [2012] 17 LNIN 253 (Punjab and Haryana)
  • February 2012: Profit from purchase and sale of shares and mutual funds held by assessee as investment, would be short term capital gain and not business income - [2012] 17 LNIN 271 (Mumbai - Tribunal)
  • February 2012: Charitable Institution's application dated 27-12-2010 seeking renewal of approval under section 80G could not be rejected by Director (Exemptions), unless approval was specifically withdrawn - [2012] 17 LNIN 258 (Delhi - Tribunal)
  • February 2012: Additional depreciation : Process carried out by assessee on raw grounded blades purchased from market and made same ready to use in commercial market amounts to manufacture - [2012] 17 LNIN 256 (Kolkata - Tribunal)
  • February 2012: Where though assessee was not selling rubber and plastic goods to others but it was using plastic moulds in its factory, assessee was entitled to depreciation @ 40% on plastic moulds - [2012] 17 LNIN 255 (Mumbai - Tribunal)
  • February 2012: Where assessee's windmills claimed deduction under section 80-IA, profits of windmills to be calculated on basis of price at which Electricity Board supplied electricity to industrial undertaking and not on basis of price at which assessee supplied electricity to Electricity Board - [2012] 17 LNIN 254 (Chennai - Tribunal)
  • February 2012: While computing relief under section 10A, expenditure incurred by assessee has to be excluded from its total turnover also, if same is reduced from export turnover - [2012] 17 LNIN 250 (Karnataka)
  • February 2012: Matter remanded where Tribunal allowed deductions under section 80HHC by following decision of Special Bench which has been overruled - [2012] 17 LNIN 249 (Delhi)
  • February 2012: Where Assessing Officer had allowed claim of exemption of assessee-general insurance company under section 10(15)/(33), reopening of assessment on ground that assessee's profits had to be calculated in accordance with section 44 was not justified - [2012] 17 LNIN 247 (Bombay)
  • February 2012: Where in terms of objects of trust school was run by assessee-trust, Commissioner could not refuse registration on ground that main purpose of creation of trust was to save and protect property of authors of trust from various enactments such as Urban Land Ceiling Act, Wealth-tax Act, Income-tax Act, etc. - [2012] 17 LNIN 242 (Karnataka)
  • February 2012: Bar as provided under section 80-IA(3) is to be considered only for first year of claim for deduction under section 80-IA - [2012] 17 LNIN 241 (Delhi)
  • February 2012: Exemption under section 11 available to Assessee-Board, created under Bihar Agricultural Produce Markets Act, 1960, for regulation of buying and selling of agricultural produce - [2012] 17 LNIN 238 (Patna)
  • February 2012: While framing block assessment AO is required to issue notice under section 143(2) within stipulated time - [2012] 17 LNIN 248 (Indore - Tribunal)
  • February 2012: Contributions received by assessee-school from students towards benevolent fund and development fund was its income where assessee had not created any benevolent fund account and there was no condition stipulated in alleged donation made by parents that it would be towards corpus donation - [2012] 17 LNIN 243 (Delhi - Tribunal)
  • February 2012: Interest in case of public financial institution, etc., is to be added as income only when it is credited or actually received - [2012] 17 LNIN 239 (Ahmedabad - Tribunal)
  • February 2012: Penalty to be imposed within six months from end of month of Tribunal's order - [2012] 18 LNIN 239 (DELHI)
  • February 2012: Where an assessee wants to avail deduction under section 80-IB, he has to necessarily furnish return of income before due date specified in section 139(1) - [2012] 18 LNIN 234 (ASR. - ITAT)
  • February 2012: Deductions under sections 80HH and 80-I have to be granted after first granting deduction under section 35(2) from gross total income - [2012] 18 LNIN 228 (KER.)
  • February 2012: Failure of assessee to file return for block period showing undisclosed income in response to notice issued under section 158BD, was a sufficient ground to levy penalty under section 158BFA - [2012] 18 LNIN 227 (AHD. - ITAT)
  • February 2012: Applicability of section 45(4) where assessee-firm by making a book entry allowed its partners to withdraw individual properties contributed by them and, thereafter, firm was converted into joint stock company - [2012] 18 LNIN 226 (KAR.)
  • February 2012: An assessee is liable for interest under sections 234B and 234C on assessed income - [2012] 18 LNIN 224 (HYD. - ITAT)
  • February 2012: For purpose section 10(23C), annual receipt is to be considered without excluding contribution towards corpus of trust - [2012] 18 LNIN 223 (JP. - ITAT)
  • February 2012: For purpose of granting registration under section 12AA, a single non-operative clause of commercial nature could not obliterate whole range of charitable activities undertaken by assessee-society - [2012] 18 LNIN 222 (CHD. - ITAT)
  • February 2012: Assessee's claim for deduction under section 80-IB without filing audit report along with return of income, could not be allowed - [2012] 18 LNIN 221 (AHD. - ITAT)
  • February 2012: Where assessee-company was assessed under section 143(3), section 147 (first proviso) cannot be invoked merely by reason of a retrospective amendment to section 115JB - [2012] 18 LNIN 218 (Delhi)
  • February 2012: Where share application money entry racket is unearthed, burden of proof under section 68 not discharged by merely submitting documentary evidence - [2012] 18 LNIN 217 (Delhi)
  • February 2012: As and when leased assets are installed at place of lessee, it could be presumed for purpose of depreciation that they had been used by lessee - [2012] 18 LNIN 197 (Madras)
  • February 2012: Order of assessment passed under section 175 without recording prima facie satisfaction that assessee was likely to transfer property to avoid tax and without issuing notice under section 174(4), is unsustainable - [2012] 18 LNIN 196 (Kerala)
  • February 2012: No penalty leviable under section 271C for bona fide omission in not deducting tax at source - [2012] 18 LNIN 203 (Cochin - Tribunal)
  • February 2012: No disallowance of interest under section 36(1)(iii) is warranted in a case where assessee has sufficient interest-free funds in form of capital and reserves against interest-free advances made - [2012] 18 LNIN 195 (Rajkot - Tribunal)
  • February 2012: *February 2012: Payments received by owner of copyright in software from distributor for sale of software product to end-users is 'royalty' within meaning of section 9(1)(vi) - [2012] 18 LNIN 172 (AAR, New Delhi)
  • February 2012: Project completion method can be followed where account books are available - [2012] 18 LNIN 184 (Karnataka)
  • February 2012: For purpose of calculating benefit under section 80HHC, total export turnover and total turnover of assessee from all businesses are required to be taken note of, apart from profit from all businesses - [2012] 18 LNIN 183 (Calcutta)
  • February 2012: Where interest received and interest paid by assessee had a commonality about their nature and character, revenue could not treat them differently for taxation purpose - [2012] 18 LNIN 182 (Delhi)
  • February 2012: Assessment order passed without issuing a notice under section 16(2) or notice as contemplated in proviso to section 16(5), is violative of principles of natural justice - [2012] 18 LNIN 181 (Karnataka)
  • February 2012: Where delay in making refund was attributable to revenue, it was liable to pay interest on belated refund - [2012] 18 LNIN 180 (Rajasthan)
  • February 2012: Where tax effect in revenue's appeal was less than monetary limits specified by CBDT, matter was to be remanded back with a direction to revenue to show that it involved a substanti al question of law which would arise repeatedly in similar cases - [2012] 18 LNIN 178 (Madhya Pradesh)
  • February 2012: Where assessee was a co-owner of property occupied by firm in which he was a partner, he could not avail exemption under section 22 - [2012] 18 LNIN 177 (Calcutta)
  • February 2012: In appellate proceedings, Commissioner has jurisdiction to correct order of Assessing Officer not only with regard to matter raised by assessee in appeal but also with regard to any other matter which has been considered by Assessing Officer and determined in course of assessment - [2012] 18 LNIN 176 (Delhi)
  • February 2012: Non-payment of tax within prescribed time period on account of fact that money was kept in fixed deposits, amounted to default on part of assessee and, thus, he was not entitled to waiver of interest under section 220(2A) - [2012] 18 LNIN 175 (Kerala)
  • February 2012: Expenditure incurred by Airport Authority towards removal of illegal encroachments in and around security area of airports and towards rehabilitation of encroachers would be allowed as revenue expenditure - [2012] 18 LNIN 174 (Delhi)(FB)
  • February 2012: Contribution received by assessee-trust towards corpus fund even if misused could not be treated as income for purpose of levying tax - [2012] 18 LNIN 173 (Karnataka)
  • February 2012: Payment received by assessee from resellers on sale of shrink wrap software not 'Royalty' liable for taxation in India as per Article 12(3) of Indo-US DTAA - [2012] 18 LNIN 189 (Mumbai - Tribunal)
  • February 2012: Non-compete consideration paid to persons associated with transferor company taxable under section 28(va) and not as capital gains - [2012] 18 LNIN 188 (Hyderabad - Tribunal) (SB)
  • February 2012: Even existence of a computer server amounts to existence of a PE in a computer jurisdiction within meaning of India-France DTAA - [2012] 18 LNIN 171 (AAR, New Delhi)
  • February 2012: Corporate membership fee paid by assessee to acquire membership of a club is a revenue expense - [2012] 18 LNIN 169 (Karnataka)
  • February 2012: Where assessee, despite various opportunities being given, failed to prove genuineness of transactions relating to receipt of share application money from shareholders, an amount in question was to be added under section 68 - [2012] 18 LNIN 166 (Delhi)
  • February 2012: Amount received by a Swedish company from an Indian company on account of transfer of right to use know-how for a specified period amounted to 'royalty' and, thus, liable to tax in India - [2012] 18 LNIN 159 (Bombay)
  • February 2012: Where agreement for construction of hostel building, agreement for lease of hostel building and agreement for provision of facilities in hostel building during lease period were part of one composite arrangement for provision of hostel facilities by assessee to lessee, entire income under three agreements was to be assessed as business income - [2012] 18 LNIN 158 (Cochin - Tribunal)
  • February 2012: In view of amended provision of section 10B benefit of tax holiday to a 100 per cent export oriented undertaking is extended from 5 years to 10 consecutive years and said period should be counted from date of commencement of production - [2012] 18 LNIN 151 (Karnataka)
  • February 2012: Levy of penalty under section 271(1)(c) merely on basis of disallowance of expenses under section 40(a)(i) not justified - [2012] 18 LNIN 144 (Delhi)
  • February 2012: If a company's GTI computed before applying section 73(1) consists mainly of specified income [see Explanation to section 73], it is exempt from section 73(1) - [2012] 18 LNIN 142 (Bombay)
  • February 2012: Reopening of assessment on basis of audit objection without independent application of mind by Assessing Officer is bad in law - [2012] 18 LNIN 153 (Bangalore - Tribunal)
  • February 2012: Mere fact that land in question is agricultural land cannot be a ground to claim exemption under section 2(14) if said land is situated within local limits of Municipal Corporation - [2012] 18 LNIN 152 (Hyderabad - Tribunal)
  • February 2012: For invoking section 194-I, required condition is that asset, for use of which payment is made by assessee, should have some element of control by assessee - [2012] 18 LNIN 150 (Mumbai - Tribunal)
  • February 2012: Legal fiction created by section 50C is limited to purposes of section 48 alone and does not displace legal fiction created by sections 69, 69A and 69B - [2012] 18 LNIN 149 (Chandigarh - Tribunal)
  • February 2012: Where comparables considered by assessee were not disputed and, moreover, even if after excluding loss making comparables, ALP adopted by assessee would be within (+) or (-) 5 per cent range as contemplated by proviso to section 92C, no adjustment in ALP was called for - [2012] 18 LNIN 148 (Mumbai - Tribunal)
  • February 2012: Reopening of assessment as an issue was justified where Tribunal had decided same issue against assessee in earlier years but said decision of Tribunal was not brought to notice of Assessing Officer and it also escaped notice of Assessing Officer - [2012] 18 LNIN 147 (Delhi - Tribunal)
  • February 2012: As per provisions of section 14A, actual earning of income is not sine qua non for deciding deduction of expenditure laid out or expended wholly or exclusively for purpose of earning such income - [2012] 18 LNIN 146 (Delhi - Tribunal)
  • February 2012: Liability to pay fringe benefit tax arises as soon as assessee-employer undertakes an obligation in said respect and, in such a case, date of actual discharge of liability is wholly irrelevant - [2012] 18 LNIN 145 (Cochin - Tribunal)
  • February 2012: Where amount in question was advanced to assessee in pursuance of memorandum of agreement for developing plots of land belonging to assessee into commercial building, such advance could not be treated as deemed dividend - [2012] 18 LNIN 143 (Delhi - Tribunal)
  • February 2012: *February 2012: Defective notices/summons protected by section 292B if no prejudice/confusion caused to assessee - [2012] 18 LNIN 138 (Delhi)
  • February 2012: If any quantum of rent/interest not includible in the profits of business under section 28, 90% thereof cannot be deducted as per Explanation (baa) to Section 80HHC - [2012] 18 LNIN 137 (SC)
  • February 2012: Section 254(2) has been enacted not only to safeguard interest of revenue but also to enable Tribunal to rectify error apparent on face of record - [2012] 18 LNIN 135 (Madras)
  • February 2012: Without considering explanation furnished by petitioner-society in regard to expenditure incurred, denial of registration under section 10(23C)(iv) on ground that there were abnormal fluctuation in expenditure incurred was not justified - [2012] 18 LNIN 133 (Delhi)
  • February 2012: Amount received by assessee-shareholder from a company as a result of trading transaction could not be regarded as deemed dividend merely because it had been shown as 'unsecured loan' in assessee's books of account - [2012] 18 LNIN 132 (Delhi)
  • February 2012: Interest paid by Housing Board to its allottees on amount deposited by them on account of delayed allotment of flats is not interest within meaning of section 2(28A) - [2012] 18 LNIN 129 (Himachal Pradesh)
  • February 2012: Assessee would be allowed depreciation on factory building owned by it though registration of title of said building in its name was pending - [2012] 18 LNIN 134 (Delhi - Tribunal)
  • February 2012: Deduction under section 10BA was allowed where assessee was found to have fulfilled conditions of clauses (a), (b), (c) and (d) of section 10BA(2) - [2012] 18 LNIN 130 (Jaipur - Tribunal)
  • February 2012: Reimbursement of incentive bonus and conveyance allowance to Development Officer of LIC is not taxable - [2012] 18 LNIN 128 (Delhi - Tribunal)
  • February 2012: Transfer pricing : Levy of penalty under section 271AA not justified by just forming a general opinion that assessee has not maintained documents as required under rule 10D - [2012] 18 LNIN 127 (Chennai - Tribunal)
  • February 2012: Shortness of Tribunal's order, by itself, does not negate fact of disposal of issue involved rendering order into a mistake to be rectified under section 254(2) - [2012] 18 LNIN 126 (Agra - Tribunal)(TM)
  • February 2012: A notice issued under section 148 within prescribed period of limitation under section 149, even though served thereafter, gives a valid jurisdiction to Assessing Officer to make reassessment - [2012] 18 LNIN 125 (Agra - Tribunal)(TM)
  • February 2012: Penalty paid for infraction of traffic rules is not deductible - [2012] 18 LNIN 124 (Visakhapatnam - Tribunal)
  • February 2012: *February 2012: DEPB taxable at face value in year of receipt and profit on transfer taxable in year of transfer - [2012] 18 LNIN 120 (SC)
  • February 2012: AO not to disregard assessee's method of accounting based on ICAI's Guidance Notes - [2012] 18 LNIN 119 (Delhi)
  • February 2012: With retrospective effect from 1-6-1994, Additional Director has authority to issue/sign authorization for search and seizure operation - [2012] 18 LNIN 111 (Allahabad)
  • February 2012: While disposing of assessee's application for registration under section 12AA, an opportunity was to be granted to it to get amendment in trust deed declared valid by a competent civil court - [2012] 18 LNIN 110 (Kerala)
  • February 2012: It would be open for revenue to issue notice under section 147/148 even if notice under section 143(2) was never issued or for that matter even if assessment under section 143(3) had taken place - [2012] 18 LNIN 107 (Himachal Pradesh)
  • February 2012: Services of production and generation of live television signal rendered by a non-resident company, is technical services liable to tax in India as 'fee for technical services' - [2012] 18 LNIN 105 (Delhi - Tribunal)
  • February 2012: Depreciation is allowable on assets acquired by assessee-Charitable trust by application of income of trust Notional expenditure cannot be treated as application of income within meaning of section 11 - [2012] 18 LNIN 104 (Delhi - Tribunal)
  • February 2012: Words used in Rule 34(5) of ITAT Rules postulate that time period prescribed under said rule is not final but is flexible depending upon nature and circumstances - [2012] 18 LNIN 103 (Mumbai - Tribunal)
  • February 2012: Rent received by sub-tenant itself cannot be taken as fair market rent as contemplated in section 23(1)(a) - [2012] 18 LNIN 102 (Mumbai - Tribunal)
  • February 2012: *February 2012: Keyman insurance policy premium allowable as business expenses - [2012] 18 LNIN 98 (Delhi)
  • February 2012: There is no prohibition on shifting of business with lock, stock and barrel in order to get benefit of exemption under section 10A - [2012] 18 LNIN 97 (Calcutta)
  • February 2012: Provisions of section 32 of Sick Industrial Companies (Special Provisions) Act, 1985, have overriding effect over provisions of section 43B of Income-tax Act, 1961 - [2012] 18 LNIN 90 (Madras)
  • February 2012: Income from license of property would be treated as income from other sources and not as income from house property - [2012] 18 LNIN 87 (Karnataka)
  • February 2012: Non-followance of ITAT's order by AO results in Contempt of Court - [2012] 18 LNIN 101 (Visakhapatnam - Tribunal)
  • February 2012: Alternative claim for rebate under section 88E was allowable where under misconception of law, assessee had claimed deduction for STT paid as business expenditure which was later on found to be not allowable under section 40(a)(ib) - [2012] 18 LNIN 96 (Kolkata - Tribunal)
  • February 2012: Word 'individual' used in clause (b) of proviso to section 56(2)(vi) includes only bride or bridegroom - [2012] 18 LNIN 91 (Chandigarh - Tribunal)
  • February 2012: Amount received by a non-resident company for making appropriate suggestion for improvement of infrastructural facilities in order to enable Indian company to undertake repair works of submarines, amounted to 'fee for technical services' under section 9(1)(vii) - [2012] 18 LNIN 89 (Visakhapatnam - Tribunal)
  • February 2012: Assessment order without signature of Assessing Officer is invalid - [2012] 18 LNIN 88 (Mumbai - Tribunal)
  • February 2012: Where it was apparent from records that assessee had converted its existing industrial undertaking set up in domestic tarrif area into STP unit, deduction under section 10A could not be granted to it - [2012] 18 LNIN 86 (Delhi - Tribunal)
  • February 2012: Where price paid by assessee for purchase of goods from its associated enterprise was found to be higher than price paid by unrelated parties for purchase of similar goods, AO was justified in making ALP adjustment of differential amount - [2012] 18 LNIN 85 (Delhi - Tribunal)
  • February 2012: In case of bona fide dispute as to existence of assessee's PE in India, recovery of demand against assessee was to be stayed - [2012] 18 LNIN 84 (Delhi - Tribunal)
  • February 2012: *February 2012: Deduction under section 37(1) can be allowed in respect of expenditure which is actually incurred or laid out in present and not an expenditure which is a future contingent expenditure which way arise or may not - [2012] 18 LNIN 80 (Karnataka)
  • February 2012: Legally erroneous opinion of Assessing Officer while making assessment cannot be ground for initiation of reassessment proceedings - [2012] 18 LNIN 79 (Delhi)
  • February 2012: Grant of exemption under section 10A to STP unit where assessee had claimed income in question as long-term capital gain but Assessing Officer treated same as business income - [2012] 18 LNIN 76 (Karnataka)
  • February 2012: Validity of reassessment where AO had received information from investigation wing regarding a bogus claim of long-term capital gains - [2012] 18 LNIN 83 (Delhi - Tribunal)
  • February 2012: Amendment in RBI's Circular No. 91, dated 1-4-2003 by Master Circular No. 9/2009-10, dated 1-7-2009, is only lifting restriction of time period of granting extension and it does not mean that very condition of granting has been done away as prescribed under sub-section (3) to section 10A - [2012] 18 LNIN 82 (Mumbai - Tribunal)
  • February 2012: Repairing expenditure carried out on a rental building is revenue in nature - [2012] 18 LNIN 74 (Rajkot - Tribunal)
  • February 2012: Where issue of taxability of interest accrued on share capital contribution of Central Government in hands of assessee was highly debatable and assessee having declared all material facts relevant thereto, penalty under section 271(1)(c) could not be levied for non-disclosure of interest - [2012] 18 LNIN 73 (Ahmedabad - Tribunal)
  • February 2012: *February 2012: Basic human rights and dignity of an individual cannot be ignored if search & seizure operations continue for days together - [2012] 18 LNIN 70 (Patna)
  • February 2012: Where Assessing Officer in terms of directions of first appellate authority passed a fresh assessment order on 31-3-1999 and all facts recorded in said order were very much on record ever since original assessment order came into existence on 21-2-1997, Commissioner's order passed under section 263 on 20-2-2001 was barred by limitation - [2012] 18 LNIN 68 (Karnataka)
  • February 2012: Non-maintenance of separate accounts regarding STP unit and other unit cannot be ground to deny exemption under section 10A when assessee is otherwise entitled to exemption - [2012] 18 LNIN 57 (Karnataka)
  • February 2012: Transfer Pricing : When functions, assets and risks are same in more than one activity, then these can be clubbed for determining ALP whereas, if FAR analysis indicates diversion in two activities then bench-marking should be done on separate basis - [2012] 18 LNIN 60 (Mumbai - Tribunal)
  • February 2012: Receipt of higher number of shares because of revaluation cannot be treated as consideration or benefit received other than by way of allotment of shares for attracting proviso (c) to section 47(xiv) - [2012] 18 LNIN 59 (Mumbai - Tribunal)
  • February 2012: Levy of penalty justified in case of making patently false claim - [2012] 18 LNIN 58 (Delhi - Tribunal)
  • February 2012: AAR, New Delhi: Payment made by applicant to a British company for availing general business support services (BSS) under a Cost Contribution Agreement (CCA) is fees for technical services - [2012] 18 LNIN 46
  • February 2012: AAR, New Delhi: Amount received by a foreign company from Indian company for offshore supplies in terms of a contract not liable to tax in India, even if said foreign company has PE in India - [2012] 18 LNIN 45
  • February 2012: AAR, New Delhi: Offshore supply of equipments is not taxable in India - [2012] 18 LNIN 44
  • February 2012: When jurisdictional preconditions are missing, assessee can question reopening of assessment in appellate proceedings also - [2012] 18 LNIN 29 (Delhi)
  • February 2012: On failure of assessee to prove that expenditure incurred on foreign travel of wife of Chairman was for business purpose, its claim for deduction in respect of said expenses was to be rejected - [2012] 18 LNIN 28 (Madras)

See Also

Deduction U/s. 80IB allowable on expenses disallowed by AO

Assessee was held entitled for deduction u/s.80IB(10) in case there was enhanced income on account of statutory disallowance u/s.43B, 40(a)(ia) and 36(1)(va), etc. In the instant case nature of receipts on credit side of Profit and Loss Account for eligible housing projects u/s.80IB(10) was the same and disallowance of expenditure on the debit side would only result into enhancement of net profit. Accordingly, the assessee's claim was liable to be allowed in view of the ratio of the decisions cited (supra). As stated above, assessee is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos project. The Assessing Officer has held in assessment order that sum of claim u/s. 80IB(10) was allowable to assessee for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) or 36(10(va) etc., relate to Heliconia project that only can be considered for claim u/s. 80IB(10) and corresponding enhanced income.
 ITAT PUNE BENCH 'B'
Deputy Commissioner of Income-tax
v.
Magarpatta Township Development & Construction Co.
IT Appeal No. 822 (PN) OF 2011
C.O. No. 4 (PN) OF 2012
[ASSESSMENT YEAR 2007-08]
SEPTEMBER  18, 2012
ORDER
Shailendra Kumar Yadav, Judicial Member – The Revenue's appeal and the cross objections of the assessee are arising from the same order of CIT(A). So they are being disposed of by this common order for the sake of convenience. The appeal of the Revenue has been filed on the following grounds:
1.            The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.
2.            The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the income derived by the assessee from the letting out of premises of the 'Cyber City' has to be assessed as business income and not as income under the head "House Property" as had been taken in the assessment.
3.            The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the services provided by the assessee to the tenants in Cyber City were in the nature of extensive and specialize services and, therefore, the premises let out by the assessee could not be regarded as bare tenement but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building."
4.            The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the assessee had let out the premises in exercise of the property rights vested in it, i.e., as any ordinary house owner would turn his property to profitable account, and also the assessee had neither occupied not let out the premises for the purpose of any business carried on by it and, in the circumstances, the profits derived from the premises could only be assessed under the head "Income from House Property" within the provision of Sec. 22 of the Income-tax Act, 1961.
5.            The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the primary object of the assessee was to let out the properties in order to derive income there from and not to exploit them commercially and merely because certain infrastructure has been provided to facilitate such letting out, such provision can by no means amount to carrying on complex commercial activities so as to invest the letting out with the character of business.
6.            The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the infrastructure and services provided by the assessee to the tenants were such as an
IT dept to introduce electronic verification of online returns filed




Millions of taxpayers filing electronic I-T returns will soon get relief from sending by post the mandatory paper verification form as the CBDT has decided to soon stop this practice.

The Central Board of Direct Taxes (CBDT), administrative authority of the Income Tax department, will now instead introduce electronic verification of these online returns.

The new measure, expected to be operational within this financial year, will save the taxpayer from the hassle of sending the paper document (called ITR V) by post and tracking its acknowledgement.

"E-filing is meant to help the taxpayer (by making it easier to pay taxes). But compulsory dispatch of paper documents by post to theBangalore based central processing centre of the department or procuring a digital signature was undoing this. Hence, the department has decided to end this soon," a senior official said.

The department has been receiving a number of complaints from taxpayers with regard to following these rules and also was getting suggestions to do away with paper documents and make e-filing more user friendly, he said.

When taxpayers file returns online, they are required to send a mandatory 'ITR V', under ordinary post to the I-T department's CPC, based in Bangalore. It then sends an electronic acknowledgement to the tax return filer.

In case of digital signatures (used by corporate entities), a bonafide statement that verifies the identity of the sender, are required to be created by paying a fee and requires regular renewal.

The CBDT, according to the official, has decided to stop the practice as it wants more and more people to file e-returns and it is also bolstered by the huge spurt in e-filing numbers being recorded every year.

During 2012-13, a 31 per cent jump was seen in e-filings by taxpayers as 2.14 crore entities filed returns online as compared to 1. 64 crore in 2011-12.

Recently, the CBDT has made e-filing mandatory for those with an annual income of Rs 5 lakh or more for the financial year 2012-13 and assessment year 2013-14 and with the addition of this category of taxpayers the department expects a huge surge in the number of Internet based filers.

The department, according to a blueprint prepared in this regard, also wants to introduce "new concept of third party validation of utilities developed for e-filing which will avoid mistakes in returns and bring uniformity in the interpretation of tax laws in filing of returns"

IT: Investment in new residential property made by assessee is not entitled to deduction under section 54F to extent same is made before sale of existing residential property
■■■
[2013] 33 taxmann.com 306 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Smt. Nimmagadda Sridevi
v.
Deputy Commissioner of Income-tax , Circle-3(3), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER 
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NO. 183 (HYD.) OF 2012
[ASSESSMENT YEAR 2008-09]
FEBRUARY  22, 2013 
Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in new residential house [Investment made prior to sale of property] - Assessment year 2008-09 - Whether investment in new residential property made by assessee is not entitled to deduction under section 54F to extent same is made before sale of existing residential property - Held, yes [Para 17] [In favour of revenue]
FACTS
 
 For the relevant assessment year, assessee filed its return claiming deduction under section 54F in respect of amount invested in construction of a residential house property.
 According to the Assessing Officer, the assessee sold the property on 26-7-2007 and the new investment made by the assessee was before 31-3-2007. In other words, the construction of house was substantially before the sale of capital asset which led to capital gain, as such the condition laid down under section 54F was not fulfilled. Being so, the assessee was not entitled for deduction under section 54F.
 The Commissioner (Appeals) confirmed the order of the Assessing Officer.
On second appeal:
HELD
 
 In the instant case, the question came up for consideration was whether the cost of construction incurred by the assessee after the sale of capital asset, though the construction commenced before the sale and the construction completed within two years from the sale of capital assets, is entitled for deduction under section 54F. [Para 9]
 A bare look to the provisions of section 54F shows that the above provisions are incentive provisions intended to augment the investment in residential houses. It is the settled legal position that incentive provisions should be construed liberally in such a manner that object of the statute is fulfilled rather than the manner which may frustrate the object. [Para 11]
 The Circular No. 471, dated 15-10-1986, clearly shows that object of sections 54 and 54F was to augment the investment in residential accommodation. Considering the said object, the Board took the view that payment to Delhi Development Authority, under self-financing scheme, amounted to investment in construction of residential house even though the assessee himself had not constructed the house. In view of the same, the Commissioner (Appeals) was not justified in applying strict rule of interpretation. [Para 13]
 In view of the above discussion, it is opined that investment in residential house which would have taken place after the sale of existing capital asset is to be considered for deduction under section 54F as the investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable because an inhabitable premises, cannot be equated with a residential house. If a person cannot live in the premises, then such premises cannot be considered as a residential house. In case of semi-finished house, the assessee will have to invest huge money on finishing the house to make it habitable. Therefore, the investment in a house would be complete only when such house becomes habitable. [Para 14]
 Further in the case of Chandru L. Raheja v. ITO [1988] 27 ITD 551 (Bom.), it was held that when the assessee had already purchased land, started construction of a building then only that part of the investment in new house that was made out of the sale proceeds received after the transfer of the old house would qualify for deduction under section 54. [Para 15]
 In view of the above, it is clear that whatever investment is made by the assessee in construction of new property within the period stipulated under section 54F after the sale of existing property the assessee is entitled for deduction in respect of same. In other words, the investment in new property made by the assessee was not entitled for deduction under section 54F to the extent made before the sale of property. [Para 17]
 In the result, appeal of the assessee is dismissed.
CASES REFERRED TO
 
CIT v. Pradeep Kumar [2007] 290 ITR 90/[2006] 153 Taxman 138 (Mad.) (para 8), CIT v. J.R. Subrahmanya Bhatt [1987] 165 ITR 571/[1986] 28 Taxman 578 (para 9), Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para 11), Saleem Fazelbhoy v. Dy. CIT [2006] 106 ITD 167 (Mum) (para 4) and Mrs. Sonia Gulati v. ITO [2001] 115 Taxman 232 (Mum) (Mag.) (para 4), Chandru L. Raheja v. ITO [1988] 27 ITD 551 (Bom.) (para 15) and Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218/6 Taxman 356 (Guj) (para 16).
K.A. Sai Prasad for the Appellant. Smt. Vidisha Kalra for the Respondent.
ORDER
 
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 25.11.2011 for assessment year 2008-09.
2. The assessee raised the ground with regard to non-granting of deduction u/s. 54F of the Income-tax Act, 1961.
3. Brief facts of the case are that the assessee is a director in M/s. Veen Promoters Pvt. Ltd. There was a survey u/s. 133A of the Act on 14.7.2009 in the case of M/s. Veen Promoters Pvt. Ltd. The assessee filed return of income for the A.Y. 2008-09 on 31.7.2009 declaring total income at Rs. 24,99,289 after claiming deduction u/s. 54F at Rs. 5,30,04,081 has invested in H. No. C-10, AFCHS, Sainikpuri, Secunderabad according to which the investment was made during the period from August, 2007 to July, 2008. It is also on record that the assessee sold property bearing No. 986 Road No. 50, Jubilee Hills in the financial year 2007-08 vide sale document No. 2739/2007 and 2741/2007 dated 26.7.2007 for a gross consideration of Rs. 4,32,00,000 as against Sub-Registrar value of Rs. 5,04,92,000. According to the Assessing Officer, as the assessee sold the property on 26.7.2007 and the new investment made by the assessee is before 31.3.2007. In other words, the construction of house was substantially completed by 31.3.2007 i.e., before the sale of capital asset which led to capital gain. As such the condition laid down u/s. 54F of the Act was not fulfilled. Being so, the assessee is not entitled for deduction u/s. 54F and the same was denied. The assessee went in appeal before the CIT(A).
4. It was observed by the CIT(A) that the assessee started house construction in plot No. C-10, AFCHS, Sainikpuri, Secunderabad in the financial year 2005-06 vide construction agreement with Suguni Constructions Pvt. Ltd. on 21.12.2005. As per the agreement, the construction was to be completed and the house has to be handed over to the assessee under habitable condition on or before 20.3.2007. It was also noticed by the CIT(A) that as per Balance Sheet as on 31.3.2007 the value of construction was at Rs. 4,52,40,382. Accordingly, the CIT(A) confirmed the order of the Assessing Officer denying deduction u/s. 54F of the Act. Against this, the assessee is in appeal before us.
5. The learned AR submitted that the entire construction of the house building was not at all completed by March, 2007. The construction was in progress from the date of the construction agreement with Suguni Construction Pvt. Ltd. from 21.12.2005. All the payment to M/s. Suguni Construction Pvt. Ltd. was made by cheque. The house was finally completed in October, 2009 and the assessee occupied the house in November, 2009. The assessee is not having any other residential house. The municipal tax assessment was completed by GHMC in November, 2009. He drew our attention to the copies of Balance Sheet for the A.Ys. 2007-08 to 2009-10. He submitted that the construction was shown in the Balance Sheet as under construction. He submitted that as seen from the Balance Sheet up to 31.3.2007, investment in house building was at Rs. 4.80 crore. Thereafter, year by year the assessee made further investment. Thus, up to October, 2009 the total investment on the property at C-10, AFCHS, Sainikpuri, Secunderabad works out at Rs. 13,63,22,640.
6. According to him all details were furnished to the Assessing Officer. In spite of this, the lower authorities rejected the claim of the assessee holding that the investment in house was made before the sale of property. He submitted that out of the total investment, investment in the house after the date of transfer of original assets is Rs. 5,24,69,141 and before the date of filing of return of income for the assessment year under consideration u/s. 139 of the Act. According to the assessee's counsel this amount has to be considered as eligible for deduction u/s. 54F of the Act. He also filed copy of Municipal Assessment dated 7.2.2009 as an evidence to show the completion of construction in the A.Y. 2009-10.
7. The learned DR relied on the orders of the lower authorities and submitted that none of the above contentions could ever be established with valid and necessary evidence at any stage. The assessee has not been able to furnish any confirmation from M/s. Suguni Constructions P Ltd. as to work up to which stage was done by them and whether or not the construction could be completed by them by the date stipulated in the agreement of construction. In fact, the present contention of the assessee that only part work was given to them is not supported by the terms of the agreement itself. Further, the claim of getting the work done on her own as also not been substantiated by giving any details or evidences regarding construction, purchase of materials, engaging of labour etc. In fact, the assessee has not been able to furnish any contemporaneous evidence regarding the alleged construction out of the sale proceeds of the original asset.
8. The DR submitted that a substantial amount had already been admittedly spent by the assessee before 31.2.2007 and it can be reasonably concluded that such huge investment would have indeed resulted In a habitable structure, which can be indeed called a residential house. Therefore, it is clear that on the date of sale of the original asset under discussion, the assessee was already having one residential house of her own. In fact, even if certain additions were made to the same, it cannot be said that a new residential house was constructed by the assessee out of the sale proceeds of the present original asset. The case laws relied upon by the Assessing Officer duly support his conclusion that the assessee cannot be said to have constructed a new residential house or purchased a new one out of the sale proceeds of the original asset, as the additional expenditure in the old house can at best be called additions to an existing house and not construction of a new residential house altogether. She relied on the judgement of Madras High Court in the case ofCIT v. Pradeep Kumar [2007] 290 ITR 90/[2006] 153 Taxman 138 wherein held that the burden is on the assessee to prove that he has actually constructed a new residential house for the purpose of exemption u/ s. 54 of the IT Act. In fact, like the said case, in the present case also there is no tangible material even to infer that a new residential house was constructed. Additions / modifications to an existing house do not amount to real construction as contemplated u/s. 54 F. The Hon'ble High Court have also observed that a mere extension of the existing building will not give benefit to the assessee as contemplated u/s. 54F of the Act.
9. We have heard both the parties and perused the material on record. The crux of the argument of the assessee's counsel is that the construction was finally completed after the date of sale of existing capital asset and at the time of sale of the capital asset i.e., building No. 986, Road No. 50, Jubilee Hills, Hyderabad, the construction on plot No. C-10, AFCHS, Sainikpuri, Secunderabad was in progress. It is also recorded that for A.Y. 2007-08 (as on 31.3.2007) the construction cost was incurred at Rs. 4,52,40,382. Thereafter, the assessee further incurred expenditure towards construction and till October, 2009 total construction cost was Rs. 13,63,22,640. Regarding this construction cost the assessee filed Paper Book in the form of the Balance Sheet as on 31.3.2007 and 31.3.2008 and also construction account from 1.8.2007 to 31.7.2008 in page Nos. 9 to 22. There is no allegation against the assessee that the assessee owning any other residential building though the assessee having certain other commercial buildings from where the assessee is deriving rental income. Now the question before us is whether the cost of construction incurred by the assessee after the sale of capital asset, though the construction commenced before the sale and the construction completed within two years from the sale of capital asset is entitled for deduction u/s. 54F of the IT Act. In this connection it is appropriate to consider the ratio laid down by Karnataka High Court in the case of CIT v. J.R. Subrahmanya Bhatt [1987] 165 ITR 571/[1986] 28 Taxman 578 wherein held that if the assessee has within a period of one year after the date on which the transfer took place purchased or has within a period of two years after the date of transfer constructed the new residential house, the assessee is entitled for deduction u/s. 54F of the Act, though the assessee has commenced construction before the sale but completed the construction within two years after the sale. The commencement of construction prior to the sale of capital asset is immaterial and the assessee is entitled for deduction u/s. 54 of the Act.
10. The relevant provisions of section 54F read as under:
"54F. (1) Subject to the provisions of Sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, -
  (a) and (b)******
11. A bare look to the above provisions shows that the above provisions are incentive provisions intended to augment the investment in residential houses. -It is the settled legal position that incentive provisions should be construed liberally in such a manner that object of the statute is fulfilled rather than the manner which may frustrate the object. Reference can be made to the following observations of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480.
"The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since the provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it."
12. At this stage, it would also be useful to refer to the Board's Circular No. 471 dated 15.10.1986, which reads as under:
"1.  Capital gains tax - Whether investment in a flat under the self-financing Scheme of the Delhi Development Authority would be construction for purpose of Sections 54 and 54F of the Income-tax Act, 1961. - Section 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of house, the benefit is available if the investment is made within three years from the date of transfer.
2.  The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-financing Scheme of the Delhi Development Authority amounts to purchase or is construction by the D.D.A. of behalf of the allottee. Under the Self-financing Scheme of the Delhi Development Authority, the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession.
3.  The Board have been advised that under the above circumstances, the inference that can be drawn is that the D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme, the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax, the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-financing Scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains."
13. The above Circular clearly shows that object of Sections 54 and 54F was to augment the investment in residential accommodation. Considering the said object, the Board took the view that payment to Delhi Development Authority, under self-financing scheme, amounted to investment in construction of residential house even though the assessee himself had not constructed the house. In view of the same, in our opinion, the Learned CIT (A) was not justified in applying strict rule of interpretation.
14. In view of the above discussion, we are of the view that investment in residential house which would have taken place after the sale of existing capital asset is to be considered for deduction u/s. 54F of the Act as the investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable and an inhabitable premises, in our opinion, cannot be equated with a residential house. If a person cannot live in the premises, then such premises cannot be considered as a residential house. In case of semi-finished house, the assessee will have to invest huge money on finishing the house to make it habitable. Therefore, in our view, the investment in a house would be complete only when such house becomes habitable. This view of ours is supported by the order of the Tribunal in the case of Saleem Fazelbhoy v. Dy. CIT [2006] 106 ITD 167 (Mum) and Mrs. Sonia Gulati v. ITO [2001] 115 Taxman 232 (Mum) (Mag.).
15. Further in the case of Chandru L. Raheja v. ITO [1988] 27 ITD 551 (Bom.) wherein held that when the assessee had already purchased land, started construction of a building then only that part of the investment in new house that was made out of the sale proceeds received after the transfer of the old house would qualify for exemption u/s. 54 of the Act.
16. Similarly, in the case of Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218/6 Taxman 356 (Guj) held that where the construction of new residential property is completed before the date of transfer of the existing property, the assessee is not entitled to relief u/s. 54 in respect of capital gain received on sale of existing property.
17. In view of the above discussion, it is clear that whatever investment made by the assessee in construction of new property within the period stipulated u/s. 54F after the sale of existing property the assessee is entitled for deduction u/s. 54F of the Act. In other words, the investment in new property made by the assessee is not entitled for deduction u/s. 54F of the Act to the extent made before the sale of property. Only that portion of investment made in the new property in accordance with section 54F of the Act is entitled for deduction u/s. 54F of the Act. Accordingly, we direct the assessee to furnish the details of investment made by the assessee in the construction of new residential building after the sale of existing property before the due date of filing of return of income u/s. 139(1) of the Act. The Assessing Officer shall consider that investment made by the assessee in the construction of new property after the sale of existing property in terms of section 54F of the Act. Accordingly, the issue is remitted back to the file of the Assessing Officer for the purpose of quantification of deduction u/s. 54F of the Act.
18. In the result, appeal of the assessee is partly allowed for statistical purposes.
SUNIL

--
Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer


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