IT: No tax can be recovered from employer on account of short deduction of tax at source under section 192 on amount paid towards medical expenditure, if a bona fide estimate of salary taxable in hands of employee is made by employer
IT : Disbursement of meal coupons made by appellant employer to its employees did not attract TDS under section 192
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[2013] 38 taxmann.com 381 (Bangalore - Trib.)
IN THE ITAT BANGALORE BENCH 'B'
Assistant Commissioner of Income-tax (TDS), Circle -16(1)
v.
Cisco Systems Asia Services*
N. BARATHVAJA SANKAR, VICE-PRESIDENT
AND N.V. VASUDEVAN, JUDICIAL MEMBER
AND N.V. VASUDEVAN, JUDICIAL MEMBER
IT APPEAL NOS.1420 & 1421 (BANG.) OF 2012
[ASSESSMENT YEARS 2008-09 & 2009-10]
[ASSESSMENT YEARS 2008-09 & 2009-10]
AUGUST 8, 2013
I. Section 192, read with section 201, of the Income-tax Act, 1961 - Deduction of tax at source - Salary [Medical reimbursement] - Assessment years 2008-09 and 2009-10 - Assessee made payment to employee which included a component towards medical expenditure; accordingly, employees were paid a sum every month - This sum, when paid, was considered as a part of taxable salary - If a employee would submit proof of having incurred expenditure towards medical treatment, sum spent towards medical treatment or Rs. 15,000, whichever was less, was excluded from salary on basis of proviso (v) to section 17(2) - If amount spent in excess of Rs. 15,000, was not considered as a deduction and thus, continued to remain taxable - If no proof of having incurred any expenditure towards medical treatment was produced by employee, entire sum paid was considered as perquisite - Whether payment of medical reimbursement made prior to incurrence of expenditure up to Rs. 15,000 p.a. satisfied all condition prescribed in proviso (v) to section 17(2) and, therefore, same would be treated as perquisite - Held, yes - Whether, since honest and bona fide estimate of salary taxable was made by employer, no penalty under section 201 and 201(1A) could be levied - Held, yes [Paras 16 to 18] [In favour of assessee]
II. Section 192, read with section 17, of the Income-tax Act, 1961 and rule 3 of the Income-tax Rules, 1962 - Deduction of tax at source - Salary [Meal coupons] - Assessment years 2008-09 and 2009-10 - Assessing Officer disallowed claim of expenditure incurred on food coupons disbursed by assessee-employer to its employees on ground that there was scope for misuse of these coupon as identity of users could not be verified - He held value of food coupons as part of salary liable to TDS under section 192 and raised demand under section 201(1) for non-deduction of TDS - On appeal, Commissioner (Appeals) reversed order of Assessing Officer - Whether following case of Cadila Healthcare Ltd. v. Addl. CIT [2013] 56 SOT 89 (URO)/29 taxmann.com 229 (Ahd.), Commissioner (Appeals) had rightly adjudicated issue in favour of assessee - Held, yes [Para 26] [In favour of assessee]
FACTS - I
| ■ | The assessee was engaged in business of software services to cisco group of companies. | |
| ■ | A survey under section 133A(1) was conducted in the business premise of the assessee company where it was revealed that assessee had not deducted tax at source on medical reimbursement and also on meal vouchers. | |
| ■ | The assessee made payment to employee which included a component towards medical expenditure. Towards this, employees were paid a sum every month. This sum, when paid was considered as part of taxable salary. If the employee submitted proof of having incurred the expenditure towards medical treatment, the sum spent towards medical treatment or Rs. 15,000, whichever is less, was excluded from salary. The exclusion was on the basis of the proviso (v) to section 17(2). If the amount spent towards medical treatment was in excess of Rs. 15,000, the excess was not considered as deduction. The excess amount spent continued to remain taxable. If no proof of having incurred the expenditure towards medical treatment was produced by the employee, the entire sum paid was considered as a perquisite. | |
| ■ | The Assessing Officer levied penalty and interest under section 201(1) and 201(1A) on the ground that the assessee was paying medical reimbursement as a component of the monthly payment to the employee and later it was claiming that it was not perquisite to the extent of Rs. 15,000. In fact, the same had to be considered as salary and not exempt perquisite. | |
| ■ | On appeal, the Commissioner (Appeals) reversed the order of the Assessing Officer on the ground that value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment would not be included in the taxable salary of the employee. | |
| ■ | On revenue's appeal: |
HELD-I
| ■ | Section 192(1) of the Act, requires tax to be deducted at average rate of income-tax in force on estimated income under the head 'salaries'. The person making payment has to make an honest of income under the head 'salary' payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VI-A of the Act, as also exemption come under section 10 of the Act. Rebate available under sections 88 and 88B can be considered by the employer. Employer should obtain the proof of investment made by the employee and should not rely on simple declaration or oral assurance. Certain employees who are entitled to relief under section 89(1) can furnish the information in prescribed form to the employer, and in such cases employer can adjust the amount of TDS by allowing relief available under section 89. It is for the employer to prove the allowances and perquisites given to the employee are tax-free and not to be included in the salary. [Para 15] | |
| ■ | It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Section 192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. In instant case, the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000 for availing exemption by the employees, have not been disputed by the Assessing Officer. Even assuming the case of the Assessing Officer, that at the time of payment the assessee ought to have deducted tax at source, is sustainable; the assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (v) to section 17(2) in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the last date of the previous year. The case of the Assessing Officer is that medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of section 192(3) of the Act and cannot be sustained. The reliance placed by the Assessing Officer on the expression 'actually incurred' found in proviso (iv) to section 17(2) of the Act, in our view cannot be sustained. In any event, the interpretation of the word 'actually paid' is not relevant while ascertaining the quantum of tax that has to be deducted at source under section 192. As far as the assessee is concerned, his obligation is only to make an estimate of the income under the head 'salaries' and such estimate has to be a bona fide estimate. [Para 16] | |
| ■ | The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and lease travel is made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000 whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer. [Para 17] | |
| ■ | In the present case, the exemption in respect of medical expenditure is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of the provision are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfil the process adopted in considering the exemption proviso to section 17(2). The assessee is a law abiding company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the Assessing Officer under section 201(1) and 201(1A) is therefore bad in law and rightly quashed by the Commissioner (Appeals). [Para 18] | |
| ■ | In the light of the admitted position that the conditions for grant of exemption up to Rs.15,000 per employee towards medical reimbursement paid by the assessee satisfies conditions contemplated by the proviso (v) to section 17(2), can the Assessing Officer deny the relief under the proviso (v) to section 17(2)? The answer admittedly is 'no', because the Assessing Officer does not dispute non-fulfilment of conditions for allowing exemption under proviso (iv) to section 17(2). The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The Assessing Officer has ignored this aspect and has proceeded to pass the order under section 201(1) and 201(1A). His order was rightly held to be unsustainable by the Commissioner (Appeals). [Para 19] |
CASE REVIEW
Asstt. CIT v. SAP Labs India (P.) Ltd. [2013] 36 taxmann.com 200 (Bang. - Trib.) (para 20) followed.
CASES REFERRED TO
CIT v. Nicholas Piramal India Ltd. [2008] 299 ITR 356/169 Taxman 233 (Bom.) (para 17), CIT v. Semi Conductor Complex Ltd. [2007] 292 ITR 636/160 Taxman 384 (Punj. & Har.) (para 17), CIT v. HCL Info System Ltd. [2006] 282 ITR 263/[2005] 146 Taxman 227 (Delhi) (para 17), CIT v.Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.) (para 17), ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd.[2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.) (para 17), CIT v. Nestle India Ltd. [2000] 243 ITR 435/109 Taxman 403 (Delhi) (para 17),Gwalior Rayan Silk Co. Ltd. v. CIT [1983] 140 ITR 832/14 Taxman 99 (MP) (para 17), ITO v. G.D. Goenka Public School (No. 2) [2008] 23 SOT 77 (Delhi) (para 17), Usha Martin Industries Ltd. v. Asstt. CIT [2004] 86 TTJ 574 (Kol.) (para 17), Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi) (para 17), Indian Airlines Ltd. v. Asstt. CIT [1996] 59 ITD 353 (Mum.) (para 17), Asstt. CIT v. SAP Labs India (P.) Ltd. [2013] 36 taxmann.com 200 (Bang. - Trib.) (para 20) and Cadila Healthcare Ltd. v. Addl. CIT [2013] 56 SOT 89 (URO)/29 taxmann.com 229 (Ahd.)(para 26).
Smt. Jacinta Zimik Vashai for the Appellant. Chavali Narayan for the Respondent.
ORDER
N. Barathvaja Sankar, Vice-President - These are two appeals filed by the Revenue in the case of the assessee, M/s. Cisco Systems Asia Services, Bangalore, against the common order of the Commissioner of Income-tax (Appeals)-II, Bangalore, dated.02.08.2012, in respect of the orders of the Assessing Officer u/s.201 & 201(1A) of the Act, for the assessment years 2008-09 and 2009-10.
2. Brief facts of the case are that the assessee is engaged in the business of provision of software services to Cisco group of companies. A survey u/s.133A(1) of the Act was conducted in the business premises of the assessee company on 14.10.2010. During the survey it was revealed that the assessee had not deducted tax at source on medical reimbursements of up to Rs.15,000/- each paid to its employees and also on meal vouchers (SODEXHO COUPONS). The aggregate income attributable to these allowances, demand raised u/s.201(1) and interest charged u/s.201(1A) are as follows :
| A.Y | Perquisites | 201(1) Rs. | 201(1A) Rs. | Total Rs. |
| 2008-09 | 46,86,892 | 15,77,608 | 8,28,241 | 24,05,849 |
| 2009-10 | 1,30,65,862 | 43,97,969 | 23,08,906 | 67,06,875 |
3. Section 192(1) of the Act casts an obligation on the part of person responsible for paying income chargeable under the head "salaries" to deduct tax at source, at the time of payment. Section 192 (1) of the Act reads as under:—
'192. Salary.—(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year.'
4. A perusal of section 192 of the Act clearly indicates that the person responsible for paying any income chargeable under the head "Salaries" shall be liable to deduct income-tax at source at the time of payment of such salary. The items of income that are chargeable to tax under the head income from "Salaries" is laid down in Sec.15 to 17 of the Act. Sec. 15 of the Act provides that income described therein shall be chargeable to tax under the head "Salaries". The income described therein consists of salary from the employer or former employer falling in three categories. Sec.16 of the Act contains deductions to be made from salaries. Section 17 of the Act contains an inclusive definition of "salary" for purposes of Section 15, Section 16 and Section 17 of the Act which, along with other items, includes "perquisite" and these terms are also separately defined therein. Sec.17 of the Act, which defines "Salary", "perquisite" and "profits in lieu of salary" in so far as it is relevant to the present appeal reads thus:
'For the purposes of sections 15 and 16 and of this section —
(1) "salary" includes—
| (i) to (iii)** | ** | ** |
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
| (v) to (viii)** | ** | ** |
(2) "perquisite" includes—
| (i) to (iii)** | ** | ** |
| (iv) | any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee; and |
| (v) to (vii)** | ** | ** |
Provided that nothing in this clause shall apply to,—
| (i) to (iv)** | ** | ** |
| (v) | any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (i) and (ii); so, however, that such sum does not exceed fifteen thousand rupees in the previous year. |
| | (vi) ** | ** | **' |
5. The dispute in these appeals are regarding the obligation of the assessee to deduct tax at source on "medical reimbursement". It is not in dispute that the amounts paid as medical reimbursements is in the nature of perquisite falling with the definition of perquisites as given in sec.17(2) (iv) proviso (v) of the Act.
6. As far as Medical reimbursement is concerned, if the amount paid by an employer to the employee for medical treatment of the employee or his family is Rs.15,000 or less per annum, then the same will not be perquisite as laid down in Sec.17(2) proviso (v) of the Act and therefore need not be considered as part of "salary" for the purpose of deducting tax at source at the time of payment by the employer to the employee. In other words, expenditure actually incurred on medical treatment to the extent of Rs.15,000/- is exempt and the remaining is taxable.
7. The payments to employees of the assessee include a component towards medical expenditure. Towards this, employees are paid a sum every month. This sum, when paid is considered as part of taxable salary. If the employee submits proof of having incurred the expenditure towards medical treatment, the sum spent towards medical treatment or Rs. 15,000/-, whichever is less, is excluded from salary. The exclusion is on the basis of the proviso (v) to section 17(2) of the Act. If the amount spent towards medical treatment is in excess of Rs. 15,000/- the excess (beyond Rs. 15,000) is considered not considered as a deduction. Effectively, the excess amount spent continues to remain taxable. If no proof of having incurred the expenditure towards the medical treatment is produced by the employee, the entire sum paid is considered as a perquisite. Tax under section 192 of the Act is deducted accordingly.
8. The AO has in a very elaborate order discussed various aspects and case laws relating to the relevant statutory provisions and ultimately concluded that the Assessee was an "Assessee in default" in respect of that portion of medical reimbursement paid to its employees which were considered as exempt and hence not treated as part of income under the head "Salaries" for the purpose of deducting tax at source. We have culled out the reasons for the AO to come to the above conclusion, which can be summarised in the following lines:
'As far as medical reimbursement is concerned, the AO was of the similar view that what is contemplated by proviso (iv) to Sec.17(2) of the Act was any sum paid by the employer in respect of any expenditure "actually incurred" by the employee on his medical treatment or treatment of any member of his family. Since the Assessee was paying medical reimbursement as a component of the monthly payment to the employee and later claiming that it was not perquisite to the extent of Rs.15,000, the same had to be considered as salary and not exempt perquisite. The reasoning is the same that the payment should not precede the actually incurring of the expenses and it should be only by way of reimbursement.'
9. The AO accordingly considered the Assessee as an "Assessee in default" u/s.201(1) of the Act, in respect of the portion of exemption claimed towards medical reimbursement for the AYs 2008-09 and 2009-10. The AO also levied interest u/s.201(1A) of the Act, on tax not deducted, from the date on which tax ought to have been deducted till the date on which the tax not deducted is paid over to the credit of the Government.
10. On appeal by the Assessee, the CIT(A) cancelled the order of the AO treating the Assessee as an "Assessee in default" u/s.201(1) of the Act and also levying interest u/s.201(1A) of the Act, holding that amount paid even as reimbursement ought to be considered as perquisite. In coming to the above conclusion, the CIT(A) relied on the Circular of the CBDT, viz., Circular No.603 dated 6.6.1991, wherein the CBDT has opined that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment will not be included in the taxable salary of the employee. The following were the relevant observations of the CIT(A):—
'3. MEDICAL REIMBURSEMENT
| ** | ** | ** |
3.3 I have carefully considered the appellant's submissions and perused the AO's order. The employees are paid up to Rs.15,000/-per annum which is paid as advance at Rs.1,250/- every month for the sake of administrative convenience. This amount is treated as exempt under the provisions of I.T. Act only if supported by bills. Wherever bills are (not) provided the amount is treated as a taxable salary and tax is deducted during the financial year end.
3.4 On the facts of the case, I find that:
| (a) | No instance has been brought on record to suggest that, in the case of any employee, the benefit or allowance has been allowed without TDS during the financial year if it is not backed by actual expenditure. | |
| (b) | In such a case, the benefit provided clearly fits into the ambit of the exemption provided in the proviso to section 17(2) which says: | |
| "(v) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family other than the treatment referred to in clauses (1) and (ii); so, however, that such sum does not exceed *fifteen thousand rupees, in the previous year;" | ||
| [increased from 'ten thousand rupees' with effect from 1/4/1999] | ||
| (c) | The Board's Circular No.603 dated 6/6/1991 reads as follows: | |
| CIRCULAR No.603 dated 6.6.1991 (CLARI.) | ||
| "Non-inclusion of value of perquisite arising from expenditure on medical treatment incurred by employee on himself or on his spouse, children, etc. in certain cases | ||
| In suppression of Circular No. 376 dt. 6th Jan., 1984, Circular No. 445 dt. 31st Dec., 1985, Circular No. 481 dt. 20th Feb., 1987 and all other instructions on the subject, the Board have decided that the value of the perquisite arising by way of payment or reimbursement by an employer of expenditure on medical treatment incurred by his employee on himself or on his spouse, children or parents, including the provision of free medical treatment or treatment at a concessional rate, will not be included in the taxable salary of the employee in the following cases: |
| (i) | Where the medical treatment is availed at hospitals, clinics, etc., maintained by the employer; | |
| (ii) | Where the medical treatment is availed at hospitals maintained by the Government or local authorities or hospitals approved for the purposes of the Central Government Health Schedule or Central Medical Scheme (a list of such hospitals furnished by the Ministry of Health and family welfare on 11th April, 1991 is annexed). | |
| (iii) | Where the expenditure is on medical insurance premia; | |
| (iv) | Where the medical treatment is availed of from any doctor outside the institutions/schemes mentioned in (i) to (iii) above, an expenditure of upto Rs. 10,000 in a year, in the aggregate; and | |
| (v) | Where the medical treatment is availed of in a hospital outside India and the expenditure is incurred for treatment (including on travel and stay abroad in connection with such treatment) as also on travel and stay abroad of one attendant, to the extent permitted by the Reserve Bank of India, subject to the condition that the amount qualifying for such tax exemption would not include expenditure incurred on travel in the case of employees whose gross total income, as computed under the IT Act without considering the amountpaid or reimbursed for expenditure in connection with medical treatment abroad, exceeds Rs. 1,00,000. (emphasis supplied) |
| 2. The contents of this circular will be applicable in relation to the assessment year 1991-92 and the subsequent years" | ||
| (d) | Moreover, in the present case, the amount of Rs.15,000/-per employee per annum is too small draw any other inference. | |
| 4.6 It is clear, therefore, that in effect there is no infringement of the tax provisions allowable to the employees by the employer appellant. Merely because the same is taken into account at the beginning of the year or at the time of deciding his/her salary, which itself is in terms of cost to company, it cannot be said that it ceases to be a perquisite and, therefore, not entitled to exemption u/s 17(2). Perquisite in any case also forms part of taxable salary. The employer has clarified that, wherever the said disbursement is not backed by bills, it is liable to TDS and this liability is not denied or infringed. | ||
| 4.7 Therefore, in my view, the view of the AO is a very narrow and technical interpretation and in respect of a welfare measure to the employees across the salaried strata it cannot be the correct interpretation.' |
11. Aggrieved by the order of the CIT(A), the revenue is in appeals before the Tribunal. The following are the grounds of appeal raised by the revenue in respect of both the issues, viz., medical reimbursement and meal vouchers sodexho coupons (which is common for both the assessment years) are as under :
| "(1) | The CIT(A) has erred in not according the AO an opportunity of being heard as envisaged u/s 250(1) and 250(2) of the I.T. Act. | |
| (2) | The CIT(A) has erred in not considering the letters dated 15/09/2011, 21/11/2011, 23/02/2012, 04/06/2012 and 13/07/2012 of the Commissioner, for affording the AO an opportunity of being heard. | |
| (3) | The CIT(A) has erred in holding that no instance has been brought on record that an employee was conferred the benefit without TDS if it is not backed by actual expenditure. | |
| (4) | The CIT(A) has erred in not appreciating the fact that the nature of income is to be determined at its source. | |
| (5) | The CIT(A) has erred in not appreciating the fact that the application of funds cannot determine the nature of income. | |
| (6) | The CIT(A) has erred in not appreciating the fact that an exemption granted or the application of funds cannot determine a type of income which is to be determined at source. | |
| (7) | The CIT(A) has erred in holding that the perquisite also being a taxable income could constitute a part of cost to the company. | |
| (8) | The CIT(A) has erred in not appreciating the fact that the same has not been considered as a perquisite by the employer in the remuneration package. | |
| (9) | The CIT(A) has erred in holding that the order was based on narrow and technical interpretation in respect of a welfare measure. | |
| (10) | The Commissioner of Income-tax (Appeals) has erred in placing reliance on the decision of the Hon'ble ITAT Bench 'A' Ahmedabad in the case of ITO, TDS-I, Ahmedabad against M/s. Cadila Healthcare Ltd. | |
| (11) | The Commissioner of Income-tax (Appeals) has erred in not considering the distinction drawn by the Assessing Officer on the issue of Sodexo coupons as against the facts in the said case. | |
| (12) | The Commissioner of Income-tax (Appeals) has erred in providing weightage to the administrative convenience of the employer against the cost to the exchequer. | |
| (13) | The Commissioner of Income-tax (Appeals) has erred in not appreciating the fact that all employees would then be entitled for exemption in respect of food expenses as they are applied from the salary income of the employee. | |
| (14) | The CIT(A) has erred in not appreciating the fact that the employer has itself not considered these amounts as perquisites in the Form 12BA issued to the employees. | |
| (15) | The CIT(A) has erred in not taking cognizance of the fact that the employer cannot consider a disbursement as a perquisite only for the purpose of exemption, and not for the purposes of Form 12BA. | |
| (16) | The CIT(A) has erred in not considering the fact that every contention of the deductor has been addressed elaborately while the AO's contentions and findings have not been reasoned against. | |
| (17) | The CIT(A) has erred in passing an order which allows employees who enjoy unintended benefits as per the existing provisions of law. | |
| (18) | The CIT(A) has erred in not considering the distinctions drawn in respect of the judicial decisions relied upon by the deductor. | |
| (19) | The CIT(A) has erred in not considering the fact that the AO has studied the Board's Circulars and their applicability as evident from the order passed. | |
| (20) | The CIT(A) has erred in not considering the fact that such exempted income was not admitted by the employee on the basis of the Form 16 and 12BA issued. | |
| (21) | The CIT(A) has erred in not considering the fact that the provisions of Sec.191 also are not been followed due to such issue of erroneous certificates in Form 16 and 12BA. | |
| (22) | The CIT(A) has erred in not considering the term "actually incurred" in the proviso to Sec.17(2) of the I.T. Act. | |
| (23) | For these and other grounds that may be urged during the course of appeal, the order of the AO may be restored." |
12. The learned DR reiterated the stand of the revenue as reflected in the grounds of appeal and relied on the order of the AO.
13. The learned counsel for the Assessee reiterated the stand of the Assessee as put forth before AO and CIT(A) and relied on the order of the CIT(A).
14. To appreciate the stand taken by the AO, we have to look at the relevant provisions of Sec.192 of the Act in so far as the same is relevant for the present case.
"192. Salary.—(1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made on the estimated income of the assessee under this head for that financial year
| (2)** | ** | ** |
(3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B)] may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year."
15. Section 192(1) of the Act, requires tax to be deducted at average rate of income-tax in force on estimated income under the head salaries. The person making payment has to make an honest of income under the head salary payable by him to his employee at the time of payment. The person making the payment has to take into consideration various deductions permitted under the Act under Chapter VIA of the Act, as also exempt income under Sec.10 of the Act. Rebate available under sections 88 and 88B can be considered by the employer. Employer should obtain the proof of investment made by the employee and should not rely on simple declaration or oral assurance. Certain employees who are entitled to relief under section 89(1) can furnish the information in prescribed form to the employer, and in such cases employer can adjust the amount of TDS by allowing relief available under section 89. It is for the employer to prove the allowances and perquisites given to the employee are tax-free and not to be included in the salary.
16. It is no doubt true that TDS is to be made at the time of payment of salary and not on the basis of salary accrued. Sec.192(3) of the Act permits the employer to increase or reduce the amount of TDS for any excess or deficiency. We have already noticed that the fact that bills/evidence to substantiate incurring of expenditure on medical treatment up to Rs.15,000/-for availing exemption by the employees, have not been disputed by the AO. Even assuming the case of the AO, that at the time of payment the Assessee ought to have deducted tax at source, is sustainable; the Assessee on a review of the taxes deducted during the earlier months of the previous year is entitled to give effect to the deductions permissible under proviso (v) to Sec.17(2) of the Act in the later months of the previous year. What has to be seen is the taxes to be deducted on income under the head 'salaries' as on the last date of the previous year. The case of the AO is that medical reimbursement should be paid at the time the expenditure is incurred or after the expenditure is incurred by way of reimbursement and not at an earlier point of time. If it is so paid, then, even though the payment would not form part of taxable salary of an employee, the employer has to deduct tax at source treating it as part of salary, is contrary to the provisions of Sec.192(3) of the Act and cannot be sustained. The reliance placed by the AO on the expression "actually incurred" found in proviso (iv) to Sec.17(2) of the Act, in our view cannot be sustained. In any event, the interpretation of the word "actually paid" is not relevant while ascertaining the quantum of tax that has to be deducted at source u/s.192 of the Act. As far as the Assessee is concerned, his obligation is only to make an "estimate" of the income under the head "salaries" and such estimate has to be a bona fide estimate.
17. The primary liability of the payee to pay tax remains. Section 191 confirms this. In a situation of honest difference of opinion, it is not the deductor that is to be proceeded against but the payees of the sums. To reiterate, the payment towards medical expenditure and leave travel is made keeping in view the employee welfare. The exclusion in respect of payment towards medical expenditure is considered after verifying the details and evidence furnished by the employees. No exemption is granted in the absence of details and/or evidence. The exemption in respect of medical expenditure is restricted to expenditure actually incurred by the employees, or Rs. 15,000/- whichever is lower. The exemption is granted even if the payment precedes the incurrence of expenditure. The requirements/conditions of proviso to section 17(2) are meticulously followed before extending the deduction/ exemption to an employee. No tax can be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee is made by the employer, is the ratio of the following decisions.
| ♦ | CIT v. Nicholas Piramal India Ltd. [2008] 299 ITR 356/169 Taxman 233 (Bom.); | |
| ♦ | CIT v. Semi Conductor Complex Ltd. [2007] 292 ITR 636/160 Taxman 384 (Punj & Har.) | |
| ♦ | CIT v. HCL Info System Ltd. [2006] 282 ITR 263/[2005] 146 Taxman 227 (Delhi) | |
| ♦ | CIT v. Oil & Natural Gas Corpn. Ltd. [2002] 254 ITR 121/125 Taxman 698 (Guj.) | |
| ♦ | ITO v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2001] 247 ITR 305/[2000] 113 Taxman 586 (Guj.) | |
| ♦ | CIT v. Nestle India Ltd. [2000] 243 ITR 435/109 Taxman 403 (Delhi) | |
| ♦ | Gwalior Rayan Silk Co. Ltd. v. CIT [1983] 140 ITR 832/14 Taxman 99 (MP) | |
| ♦ | ITO v. G.D. Goenka Public School (No. 2) [2008] 23 SOT 77 (Delhi) | |
| ♦ | Usha Martin Industries Ltd. v. Asstt. CIT [2004] 86 TTJ 574 (Kol.) | |
| ♦ | Nestle India Ltd. v. Asstt. CIT [1997] 61 ITD 444 (Delhi) | |
| ♦ | Indian Airlines Ltd. v. Asstt. CIT [1996] 59 ITD 353 (Mum.) |
18. In the present case, as already detailed, the exemption in respect of medical expenditure is considered after collecting and verifying the details and evidence furnished by the employees. Policies and controls are in force to ensure that the requirements of the provision are fulfilled. The details filed before the TDS officer explains the policies adopted to fulfil the process adopted in considering the exemption proviso to section 17(2). The assessee is a law abiding Company. Internal controls are in place to discharge the statutory obligation under section 192. Honest and bona fide estimate of taxable salary is made in the process of deducting tax at source under section 192. Every effort is made by the assessee to comply with the requirements of section 192. The assessee is not benefited by allowing employees to claim exemption. The order passed by the AO under section 201(1) & 201(1A) is therefore bad in law and rightly quashed by the CIT(A).
19. In the light of the admitted position that the conditions for grant of exemption up to Rs.15,000 per employee towards medical reimbursement paid by the Assessee satisfies conditions contemplated by the proviso (v) to Sec.17(2) of the Act, can the AO deny the relief under the proviso (v) to Sec.17(2) of the Act? The answer admittedly is 'no', because the AO does not dispute non-fulfilment of conditions for allowing exemption under proviso (iv) to Sec.17(2) of the Act. The liability of the person deducting tax at source cannot be greater than the liability of the person on whose behalf tax at source is deducted. The AO has ignored this aspect and has proceeded to pass the order u/s.201(1) and 201(1A) of the Act. His order was rightly held to be unsustainable by the CIT(A).
20. We find that identical issue has been considered by the Tribunal in the case of Asstt. CIT v. SAP Labs India (P.) Ltd. [2013] 36 taxmann.com 200 (Bang - Trib) (Wherein the undersigned are parties), wherein the Tribunal has upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the Revenue's appeal. Following the same, we dismiss the Revenue's appeal on this issue.
Meal Vouchers :
21. As regards the issue relating to Sodexho coupons, the facts are that the Assessing Officer made enquiries regarding the manner in which the Sodexho coupons which are also known as meal vouchers were used. The Assessing Officer found that there was no proper system prevailing and he smelt scope for misuse of these coupons, as the identity of users could not be verified. In view of these, the Assessing Officer disallowed the claim for each assessment year as given below :
| Assessment year | Amount in Rupees |
| 2008-09 | 36,54,000 |
| 2009-10 | 1,12,26,000 |
Aggrieved with the above disallowance, the assessee went in appeal before the Commissioner of Income-tax (Appeals).
22. It was contended by the assessee before the Commissioner of Income-tax (Appeals) that meal vouchers which are provided to the employees are not taxable. The Commissioner of Income-tax (Appeals) in his order has dealt with this issue also at length. While doing so, he has considered the provisions of Rule 3(7)(iii) of the IT Rules, 1962 which has been reproduced in his order. In para 4.6, the Commissioner of Income-tax (Appeals) has observed as under :
'4.6. It is also to be seen that these benefits are provided to employees all across salaried strata in the private sector in this manner and employers are dealing with a large number of employees (numbering tens of thousands) and not merely a few hundreds or thousands to monitor each meal coupon usage. On the whole, whether sufficient checks and balances have been provided by the employer to ensure that in sum and substance the benefit provided is as per Rule 3(7)(iii) or not, is what would be relevant. I do not feel that from the amount involved per employee in the present case, any other inference can be drawn, but the administrative convenience of the employer in disbursing the said benefit, which is also a welfare measure aimed at ensuring better productivity from the employees and well within the ambit of the provisions of the I. T. Act. The interpretation of the Assessing Officer is too narrow and technical and in respect of a welfare measure cannot be the correct interpretation. In this context, I derive support from the order of the Hon'ble ITAT, Bench 'A', Ahmedabad in the case of ITO, TDS-1, Ahmedabad v. M/s. Cadila Healthcare Ltd., reported in 2011-TIOL-582-ITAT-AHM, where the Hon'ble Tribunal has held as under:
"…the assessee distributed 'sodexo' meal coupons pursuant to an agreement with sodexo' and such coupons were to be used by the employees only at the specified eating joints or outlets. With the introduction of provisions relating to FBT by the Finance Act, 2005 with effect from 01-04-2005, the relevant provisions of Rule 3(7)(iii) of the IT Rules, 1962 relating to valuation of any perquisite in the nature of provision of food provided by the employer were amended. As per clause (ii) of section 115WB(2)(B) of the IT Act, even FBT was not payable by the employer on the expenditure incurred through paid food vouchers which were not transferable and usable only at eating joints or outlets. Since the Assessing Officer did not bring any material on record that sodexo Lunch Coupons were misused by the employees, the learned Commissioner of Income-tax (Appeals) while relying upon the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Reliance Industries Ltd., concluded that the assessee was not liable to deduct tax at source on expenditure incurred on Sodexo Lunch Coupons given to the employees of the company. Revenue having not placed any material so as to enable to take a different view in the matter, the order of the Commissioner of Income-tax (Appeals) is upheld."
4.7 In view of the discussions made in the preceding paragraphs, I hold that the disbursement of the meal coupons made by the appellant employer in the present case to its employees did not attract TDS u/s.192 and the action of the A O in raising demand u/s.201(1) and charging interest u/s.201(1A) is uncalled for and delete the same.'
24. Aggrieved with the same, the Revenue is in appeals before this Tribunal with the grounds of appeal reproduced elsewhere in this order.
25. We have heard the rival submissions and perused the materials on record. Before us the learned DR reiterated the stand of the revenue as reflected in the grounds of appeal and relied on the order of the AO. The learned counsel for the Assessee reiterated the stand of the Assessee as put forth before AO and CIT(A) and relied on the order of the CIT(A).
26. We find that the Commissioner of Income-tax (Appeals) has rightly adjudicated the issue in favour of the assessee by following the order of the ITAT, Ahmedabad Bench in the case of Cadila Healthcare Ltd. v. Addl. CIT [2013] 56 SOT 89 (URO)/29 taxmann.com 229 (Ahd.). We do not find any grounds to interfere with the order of the CIT(A). Consequently, the appeals by the Revenue on this issue are also dismissed.
27. In the result, both the appeals filed by the Revenue are dismissed.
SB *In favour of assessee.
IT : In view of order passed by Special Bench in case of Dy.CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.), assessee's claim for set off of unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 against income of assessment year 2007-08, was to be rejected
IT : Where Assessing Officer allowed assessee's claim for set off of unabsorbed depreciation without examining material available on record, order passed by him was erroneous and prejudicial to interest of revenue and, thus Commissioner was justified in setting aside same in exercise of his revisional power
■■■
[2013] 35 taxmann.com 563 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'A'
Dharti Dredging & Infrastructure Ltd.
v.
Additional Commissioner of Income-tax, Range-1, Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NO. 145 (HYD.) OF 2012
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
NOVEMBER 16, 2012
Section 32, of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation [Set off of unabsorbed depreciation] - Assessment year 2007-08 - Assessee claimed set off of unabsorbed depreciation relating to assessment years 1996-97 and 1998-99 against income of relevant assessment year - Whether in view of order passed by Special Bench in case of Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.), unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 was to be dealt with in accordance with provisions of section 32(2) as applicable to those assessment year and, therefore, assessee could not claim set off of unabsorbed depreciation relating to those assessment years under any head of income other than 'income from business or profession' in assessment years 2003-04 and 2004-05 - Held, yes - Whether in view of aforesaid, assessee's claim was to be rejected - Held, yes [Para 41] [In favour of revenue]
Section 32, read with section 263, of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation [Revision by Commissioner] - Assessment year 2007-08 - Whether where Assessing Officer allowed assessee's claim for set off of unabsorbed depreciation without examining material available on record, order passed by him was erroneous and prejudicial to interest of revenue and, thus Commissioner was justified in setting aside same in exercise of his revisional power - Held, yes [Para 32] [In favour of revenue]
FACTS
| ■ | The assessee filed its return wherein it set off unabsorbed depreciation relating to assessment years 1996-97 and 1998-99 in the year under consideration i.e. 2007-08. | |
| ■ | The Assessing Officer allowed the assessee's claim for set off. | |
| ■ | According to the Commissioner, the law applicable to the relevant assessment year stipulated that such carry forward of unabsorbed depreciation was to be limited to 8 years only. | |
| ■ | The Commissioner further relied on the order of the Special Bench in the case of Dy. CIT v.Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.) wherein it was held that unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 was to be dealt with in accordance with the provisions of section 32(2) as applicable for assessment years 1997-98 to 1999-2000 and, therefore, assessee could not claim set off of unabsorbed depreciation relating to those assessment years against income under any head other than "profits and gains of business or profession" in assessment year 2003-04. | |
| ■ | The Commissioner, thus, passed a revisional order setting aside the assessment order whereby assessee's claim for set off of unabsorbed depreciation, was allowed. | |
| ■ | On appeal: |
HELD
| ■ | Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. He simply accepted the claim of the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the Assessing Officer. | |
| ■ | It is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed on record is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. | |
| ■ | The Assessing Officer has completely omitted to examine the issues in question and made the assessment in an arbitrary manner. His order is a completely non-speaking order. It was a fit case for the Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the Commissioner. [Para 32] | |
| ■ | Coming to the merit of the issue raised by the assessee relating to set off of unabsorbed depreciation allowances carried forward from assessment years 1996-97 and 1998-99 against income relating to assessment year 2007-08, this issue is covered against the assessee by the order of the Special Bench cited supra wherein it was held that unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 was to be dealt with in accordance with the provisions of section 32(2) as applicable to those years and, therefore, assessee could not claim set off of unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 under any head of income other than 'income from business or profession' in assessment years 2003-04 and 2004-05. | |
| ■ | In view of the above decision, it is held that assessee's case is squarely covered by the above decision and as such assessee cannot claim set off of unabsorbed carried forward depreciation relating to assessment years 1996-97 and 1998-99 against the income relating to assessment year 2007-08. On merit also, this issue is decided against the assessee. [Para 41] | |
| ■ | In the result, appeal of the assessee is dismissed. [Para 46] |
CASE REVIEW
Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.) (SB) (para 41) followed.
CASES REFERRED TO
UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 (SC) (para 3), Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.) (SB) (para 3), Malabar Industries Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) (para 4), CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC)(para 13), Motors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman 20 (Guj.)(para 19), Singhvi & Doshi Enterprises v. ITO [2011] 131 ITD 151/12 taxmann.com 240 (Chennai) (TM) (para 20), Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) (para 28), Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) (para 28), Siemens Engg. Mfg. Co. Ltd. v.Union of India AIR 1976 SC 1785 (para 30), Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC)(para 37), CIT v. Pioneer Asia Packing (P.) Ltd. [2010] 310 ITR 198/[2008] 170 Taxman 127 (Mad.) (para 42), CIT v. S&S Power Switchgear Ltd. [2009] 318 ITR 187 (Mad.) (para 42), Kamal Oil & Export Industries Ltd. v. Jt. CIT [2009] 121 ITD 596 (TM) (Ahd.) (para 42), CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429 (SC) (para 43) and Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA) (para 43).
S.C. Tiwari for the Appellant. Narahari Biswal for the Respondent.
ORDER
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT-I, Hyderabad dated 26-12-2011 for A.Y. 2007-08.
2. The assessee raised the following grounds of appeal:
| 1. | That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in observing that the assessment order made by the learned Assessing Officer is erroneous and prejudicial to the interests of revenue in relation to set off of unabsorbed depreciation allowance brought forward from Assessment Year 1998-99 and therefore required revision u/s. 263 of the Act. | |
| 2. | That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in observing that the assessment order made by the learned Assessing Officer is erroneous and prejudicial to the interests of revenue in relation to set off of unabsorbed depreciation allowance brought forward from Assessment Year 1996-97 and therefore required revision u/s. 263 of the Act. | |
| 3. | That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in observing that the assessment order made by the learned Assessing Officer is erroneous and prejudicial to the interests of revenue in relation to the compromised settlement of dues with Stressed Assets Stabilization Fund IDBI. | |
| 4. | That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in not following the principle that CBDT circular favourable to the assessee is binding on the learned Assessing Officer. | |
| 5. | That on the facts and in the circumstances of the appellant's case and in law, learned Commissioner of Income-tax has erred in not appreciating that even if ITAT takes, more so subsequently, a different view; the view taken by the learned Assessing Officer does not cease to be a possible view and cannot be called erroneous for the purposes of section 263. | |
| 6. | That on the facts and in the circumstances of the appellant's case and in law, learned CIT has erred in applying provisions of section 263 on the point(s) for which no show-cause notice was issued to the appellant. | |
| 7. | That on the facts and in the circumstances of the appellant's case and in law, learned CIT has erred in observing that the appellant agreed to setting aside of the assessment order as made by the learned Assessing Officer. | |
| 8. | That each of the grounds of appeal above are independent and without prejudice to one another. | |
| 9. | That the impugned order of learned CIT being contrary to facts and circumstances of the appellant's case, law applicable and material on record may be set aside or such order may be passed thereupon as Hon'ble Tribunal may deem fit. | |
| 10. | That the appellant craves leave to reserve to itself to add on, cancel, alter or modify any of the grounds of appeal above before or at the time of hearing of this appeal and to produce such documents, evidence or material in support of this appeal as considered necessary by the appellant. |
3. Brief facts of the issue are that in this case the assessment was completed u/s. 143(3) of Income-tax Act, 1961 vide order dated 29-12-2009. On going through the records it was observed by the CIT that unabsorbed depreciation relating to A.Y. 1998-99 was wrongly set off in the A.Y. 2007-08 and according to the CIT it is to be withdrawn. It was also observed that unabsorbed depreciation relating to A.Y. 1996-97 was also wrongly set off in the A.Y. 2007-08 also and it has to be withdrawn. According to the CIT as the law applicable to the relevant assessment year stipulated that such carry forward of unabsorbed depreciation is to be limited to 8 years only. The assessee was wrong in setting off of the unabsorbed depreciation relating to A.Ys. 1996-97 and 1998-99 in the current year under consideration i.e., 2007-08. The assessee objected to the proposal of the CIT placing reliance on the Circular No. 14 of 2001 which permits carryforward of unabsorbed depreciation indefinitely. At the same time, the assessee relied on the judgment of Supreme Court in the case of Uco Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 for the proposition that the circular is binding in nature. The CIT relied on the order of the Special Bench in the case of Dy. CIT v. Times Guarantee Ltd. [2010] 40 SOT 14 (Mum.) wherein held that unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) of the Act as applicable for A.Ys. 1997-98 to 1999-2000 and, therefore, assessee cannot claim set off of unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 against income under any head other than 'profits and gains of business or profession' in A.Y. 2003-04. Further, the CIT has also dealt with the issue relating to compromise settlement of dues with Stressed Assets Stabilisation Fund IDBI. It was the contention of the assessee that no income arose out of the settlement even under the provisions of section 41 of the Act. However, the details of interest waived as against what was earlier allowed as deduction and such other information giving the particulars of the gross sum of Rs. 10.70 crores are not available. Being so, the CIT remitted the issue back to the file of the Assessing Officer for fresh consideration. Against this issue and with regard to assumption of jurisdiction u/s. 263 of the Act, the assessee is in appeal before us.
4. The learned AR submitted that the impugned order passed by the learned Commissioner of Income-tax is against the basic tenets of provisions of Section 263 of Income-tax Act, 1961 on the following aspects of law governing the facts of the case. The assessment order passed cannot be termed as "erroneous" inasmuch as the Assessing Officer has passed the order after application of his mind on the very same issue, after considering all the information, Explanation filed. The Commissioner of Income-tax cannot substitute his own views on the issue in exercise of the jurisdiction under Section 263 of Income-tax Act, 1961. For this purpose, he relied on the following case-law:
| 1. | Malabar Industries Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) | |
| 2. | CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) |
5. Further AR submitted that the impugned order under Section 263 of Income-tax Act, 1961 is not maintainable for the reason that the show cause notice was issued for alleged failure of further enquiry into the matter, even in the body of the impugned order it goes to show that the assessment order was proposed to be revised for further enquiry into the matter. It was submitted that if the learned Commissioner was of the opinion that no enquiry was made by the Assessing Officer, even then he should not have directed the Assessing Officer to disallow the claim of the assessee itself. Thus, the impugned order had travelled beyond the scope and ambit of show-cause notice and therefore, the order under section 263 of IT Act, 1961 is null and void and is liable to be quashed. Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income-tax Act, 1961 cannot be assumed as it was only in the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income-tax Act, 1961 can be assumed.
6. The AR submitted that in Gabriel India Ltd. (supra), law on this aspect was discussed in the following manner (page 113) :
"From a reading of sub-section (1) of section 263, it is clear that the power of suo moto revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofaras it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power; it can be exercised only on fulfilment of the requirements laid down by sub-section (1). The consideration of the Commissioner, as to whether an order is erroneous in sofaras it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in ether spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) ....
From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as 'erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed Explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the Explanation of the assessee, Such decision of the Income- tax Officer cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard...."
7. The learned AR submitted that in the instant case, the learned Assessing Officer called for Explanation on the very same issue on various occasions from the Assessee and the Assessee had furnished its Explanation which clearly shows that the Assessing Officer has undertaken the exercise of examining the issues in dispute and on being satisfied with the Explanation furnished by the Assessee, the AO accepted the same.
8. The AR submitted that thus, even the learned Commissioner of Income-tax conceded the fact that Assessing Officer made enquiries. The only grievance of the learned Commissioner of Income-tax was that the Assessing Officer should have made further enquiries rather than accepting the claim. Therefore, it cannot be said that it is a case of "lack of enquiry."
9. The AR further submitted that the impugned order is also liable to be set aside for the simple reason that the learned Commissioner of Income-tax had not furnished the material in the show-cause notice based on which he jumped over to the conclusion impetuously, without proper application of mind, that the assessment order is erroneous and prejudicial to the interests of revenue. It was only in the impugned order, a mention was made to the subsequent order of the Special Bench, based on which he had come to such conclusion. It is well settled principle of law that the principle of res judicata does not apply to the Income-tax proceedings.
10. No new material has been brought on record to suggest that the assessment order was erroneous and prejudicial to the interests of revenue. Therefore, the jurisdiction under Section 263 of Income-tax Act, 1961 cannot be assumed.
11. The AR submitted that the learned Assessing Officer after duly considering the Explanation and information filed in response to the questionnaire on the issue, on being satisfied with such Explanation chose not to make any further enquiry. Endless enquiry is not possible and it is for the learned Assessing Officer to decide when to end the enquiry. The learned CIT cannot transgress the jurisdiction under Section 263 of I.T. Act, 1961 by mentioning that no proper enquiry was made.
12. The learned AR also submitted that there is a contradiction between the show-cause notice and the order of the CIT and the CIT has not given any finding and also given wrong direction to the Assessing Officer to redo the entire assessment by setting aside the assessment order. Being so, it was submitted that the order on this issue cannot be sustained.
13. The AR submitted that the Assessing Officer relied on Circular No. 14 of 2001 which permits carry forward of unabsorbed depreciation indefinitely. As per the judgment of Supreme Court in the case of Uco Bank Ltd. (supra) the circular of the CBDT is binding on the Department. Being so, the Assessing Officer has not committed any error while passing the assessment order dated 29-12-2009. Further, he submitted that as per the Income-tax Act, the law stands amended on the first day of April of any financial year must apply to the assessment of that year. Any amendment in the Act which comes into force after the first day of April of the financial year would not apply to the assessment for the year, even if the assessment is actually made after the amendment comes into force. For this purpose he relied on the judgment of Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 and on the judgment of Bombay High Court in the case of CIT v. Orkay Silk Mills (P.) Ltd. [1998] 230 ITR 108. Further, he also submitted that the order of the Tribunal Special Bench Mumbai in the case of Times Guarantee Ltd. (supra) was delivered on 30-6-2010 wherein it was held that unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) of the Act as applicable for A.Ys. 1997-98 to 1999-2000 and, therefore, the assessee cannot claim set off of unabsorbed depreciation relating to A.Ys. 1997-98 to 1999-2000 against the income under any head other than 'profit and gains of business or profession' for the A.Ys. 2003-04 and 2004-05. As the assessment order was passed on 29-12-2009, this Special Bench order dated 30-6-2010 was not available to the Assessing Officer.
14. Further, he drew our attention to the provisions of section 32(2) as they stood as on 1-4-2007 which reads as under:
"(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profit or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous year."
15. He submitted that from the above it is clear that there is no time limit u/s 32(2) for set off of any unabsorbed depreciation brought forward from earlier years. It may be pointed out that this is the interpretation given by CBDT in circular No. 14 of 2001 dated 12-12-10 reported in 252 ITR (Statute) 65.
16. As regards the objection of Audit, based on ITAT Special Bench decision in the case of Times Guaranty Ltd. (supra) it is submitted by the AR that no cognizance of that decision can be taken by any Assessing Officer in view of CBDT circular No. 14 (supra) It is a settled legal position that CBDT circular cannot be dissented by the Assessing Officer, more so if the circular is beneficial to taxpayer. For this, there is a clear authority in the Hon'ble Supreme Court judgment in the case ofUCO Bank (supra). It, therefore, follows that even after ITAT (SB) decision in the case of Times Guarantee (supra) an Assessing Officer is liable to take the same action as has been taken by the Assessing Officer in the case under consideration.
17. He submitted that in the instant case the assessment order has been made on 29-12-09 whereas the Special Bench of the Tribunal has pronounced their decision in the case of Times Guarantee(supra) on 30-06-10. The very fact that the larger bench of Tribunal was constituted shows that there were two possible views, which have been sorted out by the Special Bench in the case ofTimes Guarantee (Supra). It is well established that in a case where two views are possible and the Assessing Officer takes in the assessment order the view which is favourable to the assessee, no fault can be found with the Assessing Officer and the order passed by him cannot be said to be erroneous. Authority for the same can be found in the judgment of Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) and Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra).
18. Further, it was pointed out that during assessment year 2001-02, when the amended provision of sec. 32(2) became effective, the unabsorbed depreciation of the assessee for assessment year 1998-99 was live and capable of being carriedforward.
19. Further he relied on the judgement of Gujarat High Court in Special Civil Application No. 1773 of 2012 in the case of General Motors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman 20 wherein held as under:
"37. The AR drew our attention to the law of Income-tax by Sampath Iyengar with regard to scope and effect of the amendment as explained by the Board in Circular No. 14 of 2001 The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A. Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue. But if the Legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied. However, Circular No. 14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Ys. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carriedforward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carriedforward till the time it is set off against the profits and gains of subsequent years.
38. It can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1 is day of April 2002 (A. Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carryforward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 up to the A.Y. 2001-02 got carriedforward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carryforward and set off against the profits and gains of subsequent years, without any limit whatsoever."
20. The AR further relied on the order of the Tribunal Third Member in the case of Singhvi & Doshi Enterprises v. ITO [2011] 131 ITD 151/12 taxmann.com 240 (Chennai)(TM) wherein held that decision of non-jurisdictional High Court is binding so long as there is no decision of jurisdictional High Court, the Tribunal is bound by the judgment of any other High Court which is available directly on the subject.
21. According to AR, in view of the Third Member decision of Chennai Bench cited supra Gujarat High Court decision is to be followed instead of Special Bench decision.
22. The AR drew our attention to the law of Income-tax by Sampath Iyengar with regard to scope and effect of the amendment as explained by the Board in Circular No. 14 of 2001.
23. The AR submitted that, therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates. If such depreciation amount is larger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, carried on by the assessee. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A. Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carryforward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 up to the A.Y. 2001-02 got carriedforward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carryforward and set off against the profits and gains of subsequent years, without any limit whatsoever.
24. The learned DR submitted that there is no enquiry on the part of the Assessing Officer while completing assessment. He simply accepted the claim of the assessee with regard to set off of unabsorbed depreciation while completing assessment. Being so, nothing prohibits the CIT in assuming jurisdiction u/s. 263 of the Act. Even on merit, there is no case to assessee as the issue was already decided by the Special Bench (Mumbai) (cited supra) in favour of the Department.
25. We have heard both the parties and perused the material on record. We have carefully considered the rival submissions in the light of material placed before us and also gone through all the judgments cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Assessing Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., (supra), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the Assessing Officer sought to be revised is (i) erroneous; and also (ii) prejudicial to the interests of the revenue. The word 'erroneous' has not been defined in the Income-tax Act. It has been however defined at page 562 in Black's Law Dictionary (seventh Edition) thus;
"erroneous, adj. Involving error, deviating from the law'.
The word 'error' has been defined at the same page in the same dictionary thus:
'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'.
At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean-
'Error: A mistaken judgment or deviation from the truth in matters of fact, and from the law in matters of judgment 'error' is a fault in judgment, or in the process or proceeding to judgment or in the execution upon the same, in a Court of Record; which in the Civil Law is called a 'Nullityie' (termes de la ley).
Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC.
'Error, Fault, Error respects the Act; fault respect the agent, an error may lay in the judgment, or in the conduct, but a fault lies in the will or intention."
26. At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus:
"An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgment or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived."
27. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue.
28. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was Statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to Act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323, and Malabar Industrial Co. Ltd.'s case (supra).
29. In Malabar Industrial Co. Ltd. case (supra) the Hon'ble Court has held as under:
"There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind.
In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to Act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows:
Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a Court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."
30. Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd.v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case.
31. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases:
| (i) | The order sought to be revised contains error of reasoning or of law or of fact on the face of it. | |
| (ii) | The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. | |
| (iii) | The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. |
32. We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. He simply accepted the claim of the assessee. This is a case where the Assessing Officer mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the Assessing Officer. It is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 of the IT Act.
33. It was however contended by the learned Counsel that the Assessing Officer had taken a possible view in accepting the return of the assessee with reference to expenditure and hence, the Commissioner was not justified in assuming the revisional jurisdiction under Section 263. We have given our thoughtful consideration to the aforesaid submissions. As already stated earlier, an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. One would not know as to what would have happened if the Assessing Officer had made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee's claim. Equally, he could have also rejected the assessee's claim depending upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue.
34. We are unable to accept the submission of the learned Counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee / revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview of Section 263 unless it is shown that the view so taken by the Assessing Officer contains some apparent error of reasoning or of law or of fact on the face of it.
35. The learned Counsel has strongly relied upon the following observations made in the case ofMalabar Industrial Co. Ltd. (supra) and submitted that the learned Commissioner was not justified in substituting his view for that of the Assessing Officer:
"... Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law."
36. We have carefully gone through the aforesaid observations. "Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the light of relevant law and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has "adopted" a permissible course of law or, where two views are possible, the Assessing Officer has "taken" one such possible view in the order sought to be revised under Section 263. This requires the Assessing Officer to take a conscious decision; else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The aforesaid observations of the Hon'ble Supreme Court do not, in our view, help the assessee; and rather they are against the assessee.
37. In the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147, the Hon'ble Supreme Court has held that
'... There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases...." Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned Counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under Section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible.'
38. It was next contended by the learned Authorised Representative that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the Assessing Officer was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under Section 263 reflects no proper application of mind by the Assessing Officer and thus be amenable to revision under Section 263. In this case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is not supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under Section 263.
39. In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order-passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under Section 264 at the instance of the assessee also. The line of difference between Sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of Section 263 would lose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263.
40. Adverting to the facts of the present case, there is no enquiry by the Assessing Officer whatsoever on the issue in dispute. He just accepted the claim of set off of earlier year unabsorbed depreciation in the assessment year under consideration. Being so, the CIT assumed jurisdiction u/s. 263 of the Act. The argument of the assessee's counsel is that there are decisions in favour of the assessee. Therefore, the view adopted by the Assessing Officer is one of the possible views. The general law on the question of revisional jurisdiction is that an order passed by the Assessing Officer cannot be held to be erroneous, if the Assessing Officer has followed one of the possible views on the subject. But this principle by and large applies to questions of fact. When it comes to question of law, the law laid down by the competent authority has to be invariably followed. It is a settled law that when a Court declares the law on a subject, the declaration goes back to the date of enactment of that particular law as to state that the law from the date of its enactment itself was in the manner decided by the Court subsequently. Therefore, the pronounced order of the Special Bench dates back to the date of enactment and, therefore, the superimposition made by the judicial pronouncement the assessment order has become erroneous. It is not only erroneous, but also prejudicial to the interest of revenue inasmuch as the error has contributed in granting excessive relief to the assessee. The arguments of the CIT DR that the question of allowability of claim was sub-judice before the Tribunal Special Bench (Mumbai) at the time of passing the revision order is accepted and the argument of the assessee's counsel that it is a debatable issue is rejected as there was no discussion of whatsoever by the Assessing Officer in the impugned assessment order. In our humble opinion subject matter of the revision is pending before the Special Bench for adjudication and the Assessing Officer passed the assessment order without an iota of discussion on the issue of whatsoever as such the CIT exercised his powers u/s. 263 of the Act to revise the order of the Assessing Officer which was in conformity with the order of the Special Bench and invoking the provisions of section 263 is justified.
41. Coming to the merit of the issue raised by the assessee relating to set off of unabsorbed depreciation allowances carriedforward from assessment year 1996-97 and 1998-99 against income relating to assessment year 2007-08, this issue is covered against the assessee by the order of the Special Bench cited supra wherein held that unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) of the IT Act as applicable to assessment years 1997-98 to 1999-2000 and, therefore, assessee cannot claim set off of unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 under any head of income other than "income from business or profession" in assessment years 2003-04 and 2004-05. In view of the above decision, we are inclined to hold that the assessee case is squarely covered by the above decision and as such assessee cannot claim set off of unabsorbed carried forward depreciation relating to assessment years 1996-97 and 1998-99 against the income relating to assessment year 2007-08. On merit also, this issue is decided against the assessee.
42. The learned AR relied on the judgment of Gujarat High Court in Special Civil Application No. 1773 of 2012 dated 23-8-2012 in the case of General Motors India (P.) Ltd. (supra) for the proposition of set off of unabsorbed depreciation allowance disputed before us against the profit and gains of subsequent year without any limit of period whatsoever. In our opinion this judgment cannot be considered as binding precedent as this is not a jurisdictional High Court judgment. Further, on the same subject Hon'ble Madras High Court in the case of CIT v. Pioneer Asia Packing (P.) Ltd. [2010] 310 ITR 198/[2008] 170 Taxman 127 has held that unabsorbed depreciation brought forward as on 1st April 1997 could be set off against the business income or income under any other head for A.Y. 1997-98 and 7 subsequent years on the basis of clarification issued by the Finance Minister. Again the Hon'ble Madras High Court in the case of CIT v. S & S Power Switchgear Ltd. [2009] 318 ITR 187 reiterated the same view by laying down that the unabsorbed depreciation brought forward as on 1st April 1997, could be set off against business income or income under any other head for A.Y. 1997-98 and 7 subsequent assessment years by relying on the clarification of Finance Minister as well as CBDT circular No. 762 dated 18-2-1997 (145 ITR St. 5). Being so, un adjusted depreciation brought forward up to 1st April, 1997 became eligible for set off not only against the business income but also against income under the other heads in 8 assessment years only on the strength of the clarification given by the Finance Minister. Being so, in our opinion, judgment
IT : In view of order passed by Special Bench in case of Dy.CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.), assessee's claim for set off of unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 against income of assessment year 2007-08, was to be rejected
IT : Where Assessing Officer allowed assessee's claim for set off of unabsorbed depreciation without examining material available on record, order passed by him was erroneous and Imparting of yoga training by Baba Ramdev Trust is charitable educational object
Issue – That the Commissioner of Income-tax (Appeals) erred on facts and in law in further failing to appreciate that imparting of yoga training through well structured yoga shivirs/ camps also falls under the category of imparting "education', one of the charitable objects defined under section 2( 15) of the Act.Facts :- The brief facts of the case are that the appellant is a public charitable trust registered vide deed dated 05.01.1995. It is also registered u/s 12A of the I. T. Act, 1961 vide order dated 2.03.1995 issued by DIT(E), Dehradun. It was also enjoying approval granted u/s 80G(5)(vi) of the Act vide order dated 24.08.2007 applicable for the year under consideration. The appellant trust has been denied exemption by treating it as covered under the proviso to Section 2(15) of the Act on account of the fact that it was carrying on business activities having turnover of more than the prescribed limit. Ld. CIT(A) has upheld this action of the A.O. Aggrieved, the assessee has preferred the present appeal on the above grounds.
Held :- As discussed above the proviso to section 2(15) of the Act applies only to trusts/institution falling in the last limb of the definition of charitable purpose ; that too, if such trust / institution carry on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to trust / institution engaged in the charitable object of providing relief to the poor, imparting education and providing medical relief. The last limb of the definition of charitable purpose u/s 2 (15) talks about the advancement of any other object of general public utility. The aforesaid predominant objects and the vision make it clear that the objects of the appellant are to provide 'medical relief' 'impart education' to the society at large and 'relief to the poor' hence the proviso to section 2 (15) does not apply in the case of the assessee / appellant. The forth issue as to whether donation of Rs. 38.35 crores made to Patanjali Yog Peeth for the purpose of setting up Yog Bhawan and other yoga related activities these amounts to application of money for the purpose of medical relief has also been discussed and decided while adjudicating upon the first issue under the head medical relief or relief to the poor, following the same the fourth issue is also decided in favour of the appellant.
ST/VAT: Consumables used in manufacture of taxable as well as tax-free goods and also sugarcane exempted in hands of grower, are liable to purchase tax under Punjab General Sales Tax Act
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[2013] 38 taxmann.com 424 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Budhewal Cooperative Sugar Mills Ltd.
v.
State of Punjab*
AJAY KUMAR MITTAL AND GURMEET SINGH SANDHAWALIA, JJ.
G.S.T.R. NO. 18 OF 2006
MAY 9, 2012
Section 4B, read with section 4, of the Punjab General Sales Tax Act, 1948 Charge/Levy - Purchase Tax - Assessment year 1989-90, 1990-91 and 1991-92 - Assessee, a registered dealer, was engaged in manufacture and sale of sugar - Department argued that purchase of sugarcane and further, purchase, on strength of registration certificate, of consumables used in manufacture of taxable and tax-free goods was liable to purchase tax - HELD : Consumables that are subjected to process of manufacture and get transformed into end-product being taxable and tax-free goods are, on their purchase, liable to purchase tax - Accordingly, consumables used in manufacture of taxable and tax-free goods by assessee were liable to purchase tax - Similarly, since sale of sugarcane, being agricultural produce, was exempt in hands of grower by virtue of section 6 read with Schedule B of Act, purchase thereof was liable to purchase tax in hands of purchaser under section 4 [Paras 6 to 14] [In favour of revenue]
CASE REVEIW
Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC) (para 12) relied on.
Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) (para 9)distinguished.
CASES REFERRED TO
Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) (para 3), Indian Sucrose Ltd. v. State of Punjab [2011] 37 VST 85 (Punj & Har.) (para 4) and Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC) (para 6).
M.R. Sharma for the Petitioner. Gaurav Garg Dhuriwala for the Respondent.
JUDGMENT
Gurmeet Singh Sandhawalia, J. - In compliance with the order dated August 17, 2005 passed by this court in STC Nos. 9, 10 and 11 of 2003, relating to assessment years 1989-90, 1990-91 and 1991-92, the Tribunal has referred the following questions of law for the opinion of this court :
| "(1) | Whether, in the facts and circumstances of the case, the Tribunal was correct in law in holding that purchase tax was leviable under section 4B of the Punjab General Sales Tax Act, 1948 on the consumables purchased on the strength of registration certificate and used in manufacturing of taxable and tax-free goods ? | |
| (2) | Whether the Tribunal was correct in law in holding that purchase tax was leviable on sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948 ?" |
2. Briefly, the facts as narrated in the reference application may be noticed. The petitioner is a registered dealer under sales tax laws and is engaged in manufacturing and sale of sugar. It filed all the quarterly returns in time. Not satisfied with the returns, notice in form ST-XIV was issued to the petitioner by the Assessing Officer. After hearing the petitioner, the Assessing Officer framed assessment creating additional demands of Rs. 43,09,611, Rs. 1,06,89,637 and Rs. 1,23,51,885 for the years 1989-90, 1990-91 and 1991-92 vide orders dated December 27, 1995, July 9, 1996 and January 22, 1997, respectively. The Assessing Officer, inter alia, held that purchase tax was leviable on the sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948 (in short, "the Act"). Besides, it was also held that purchase tax under section 4B of the Act was imposable on the purchase of consumables used in the manufacture of the taxable and tax-free goods. Aggrieved by these orders, the petitioner filed three appeals before the DETC (A), Patiala Division, Patiala who after hearing both the parties remanded the cases to the Assessing Officer vide his separate orders dated December 30, 1997 and July 9, 1999. Feeling dissatisfied with these orders, the petitioner filed three appeals before the Sales Tax Tribunal. The Tribunal partly accepted the two appeals for the assessment years 1989-90 and 1990-91 vide its single order dated February 16, 2000 and dismissed the third one for the year 1991-92 vide its order dated May 20, 2003. Still not satisfied, the petitioner filed rectification applications for the years 1989-90 and 1990-91 which were dismissed by the Tribunal vide its order dated May 20, 2003. The State also filed one rectification application in Appeal Nos. 2 and 4 of 1998-99 pertaining to the assessment years 1989-90 and 1990-91 which was allowed to be withdrawn by the Tribunal vide its order dated May 20, 2003. Thereafter, the petitioner filed three reference applications for referring the above-mentioned questions of law to this court for its opinion.
3. The learned counsel for the petitioner submitted that the Tribunal was in error in holding that purchase tax was leviable under section 4B of the Act on the consumables which had been purchased by the dealer on the strength of registration certificate and were used in the manufacture of taxable and tax-free goods. Reliance was placed upon judgment of the apex court in Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC). Referring to the second question, it was submitted that under section 4(1) of the Act, no purchase tax was leviable on the sugarcane. The decision of the Tribunal to the contrary was legally unsustainable.
4. The learned counsel for the State, on the other hand, while supporting the order passed by the Tribunal, canvassed that the purchase tax under section 4B of the Act was rightly imposed on the consumables which were transformed into end-product by using them in the manufacture of other goods. On the strength of the Division Bench judgment of this court in Indian Sucrose Ltd. v. State of Punjab [2011] 37 VST 85 (Punj & Har.), it was urged that on the purchase of sugarcane, the same was chargeable to purchase tax under section 4(1) of the Act.
5. After giving thoughtful consideration to the respective submissions, we find that the Tribunal had rightly adjudicated the issue in favour of the State.
6. Adverting to question No. 1, it would be expedient to reproduce section 4B of the Act, which reads thus :
"4B. Levy of purchase tax on certain goods. — Where a dealer who is liable to pay tax under this Act purchases any goods other than those specified in Schedule B, from any source and—
| (i) | uses them within the State in the manufacture of goods specified in Schedule B, or | |
| (ii) | uses them within the State in the manufacture of any goods, other than those specified in Schedule B, and sends the goods so manufactured outside the State in any manner other than by way of sale in me course of inter-State trade or commerce or in the course of export out of the territory of India, or | |
| (iii) | uses such goods for a purpose other than that of resale within the State or sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, or | |
| (iv) | sends them outside the State other than by way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India | |
| and no tax, is payable on the purchase of such goods under any other provision of this Act, there shall be levied a tax on the purchase of such goods at such rate not exceeding the rate specified under sub-section (1) of section 5 as the State Government may direct." |
The honourable Supreme Court in Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC), had succinctly analysed the aforesaid provision as under (pages 351 and 352 in 96 STC) :
"16. Clause (i) says that purchase tax shall be leviable on the purchase of goods (other than those in Schedule B) if such goods are used in the manufacture of goods specified in Schedule B. Schedule B goods are not taxable at sale point. Since the goods manufactured by the dealer are exempt from tax on their sale, the Legislature sees no reason to exempt the raw material (goods purchased by such manufacturer-dealer) from the liability to purchase tax. Accordingly, section 4B retains and affirms the tax on the goods purchased by such manufacturer-dealer, i.e., it taxes the raw material in the hands of the purchaser-manufacturer-dealer.
17. Clause (ii) -which continues the idea behind clause (i) - says that where the manufacturer-dealer uses the goods purchased by him (raw material) in manufacture of goods other than the goods in Schedule B, (i.e., where the manufactured goods are taxable at the sale point) but sends the goods so manufactured outside the State in any manner other than by way of inter-State sale or export sale, he shall be liable to pay tax on the purchase of raw material. The object is again the same. If the manufactured goods, which are taxable on sale point are sent out of the State, the State does not get any income. If, on the other hand, they are taken out of the State as a result of inter-State sale, the State gets the tax by virtue of article 269 of the Constitution. In the case of export sale, the State forgoes the tax but it does so because it serves the national interest of promoting exports. (See Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC), in this regard.). In other words, according to this clause, if the manufactured goods are taken out of the State in such a manner that State does not derive any tax (nor the national interest aforesaid is served), the purchase of raw material is taxed. Conversely, if the manufactured goods are sold within the State or sold in the course of inter-State trade or commerce or sold in the course of export sale, the raw material is exempted from purchase tax. In case, however, the manufactured goods are those mentioned in Schedule B-not taxable on sale point-clause (i) does not concern itself with their manner of disposal. From the point of Revenue, it makes no difference whether such goods are sold within the State or sold in the course of inter-State trade or commerce or sold in the course of export; in any of the situations, the State does not derive any revenue.
18. Clause (iii) says that where the goods purchased are used for a purpose other than resale within the State or in the course of inter-State sale or export sale, tax shall be levied on the purchase of such goods. This means that if the very goods purchased are resold within the State, no purchase tax shall be leviable on their purchase. Similarly, if the goods purchased are sold in the course of inter-State trade/commerce or in the course of export sale, again no tax will be levied on the purchase of such goods by the purchasing dealer. The idea is again the same. In the case of resale within the State and inter-State sale, the State gets the tax and, therefore, purchase of such goods is exempted from tax. Where goods are sold in the course of export, though the State does not get any tax, national interest is served. In these three situations, the purchase of such goods is not taxed.
19. Clause (iv) reiterates more or less the same idea as in clause (iii). According to it, if the goods purchased are sent out of the State otherwise than by way of inter-State sale or export sale, then the purchase of such goods will be taxed.
20. The above analysis shows up the object and purpose underlying section 4B. Clauses (i) and (ii) deal with situations where the goods purchased are used as raw material while clauses (iii) and (iv) provide for situations where the very goods purchased are dealt with in certain specified modes. Though put in a negative form, section 4B is really intended (a) to avoid taxing the raw material where the manufactured goods are taxable and are sold within the State or sold in the course of inter-State trade or commerce in both of which situations, they fetch revenue to the State or where they are sold in the course of export, which does not fetch any revenue to the State but promotes national interest in promoting exports; and (b) to avoid taxing the purchase of the goods where the very goods are resold within the State so as to fetch tax on their sale (it must be remembered that the goods dealt with by section 4 are goods other than the goods in Schedule B and hence taxable at sale point) or are sold in the course of inter-State sale (in which event too the State gets the revenue by virtue of article 269) or where they are sold in export trade (in which event though no tax is realised by State, yet the national interest aforesaid is served)."
7. It was further noticed that section 4B of the Act was actuated by the same idea as is underlying section 6A of the Andhra Pradesh General Sales Tax Act, section 7A of the Tamil Nadu General Sales Tax Act, section 5A of the Kerala General Sales Tax Act and section 7 of the Madhya Pradesh General Sales Tax Act.
8. The apex court in Thomas Stephen & Co. Ltd.'s case (supra) was examining the issue where the cashew shells which had been used as fuel in the kiln but did not get transformed into the end-product, whether the provisions of purchase tax under section 5A(l)(a) of the Kerala General Sales Tax Act were applicable.
9. It was concluded that where the dealer on the strength of his registration certificate purchases consumables which are ultimately used in the manufacture of taxable and tax-free goods, he is liable to pay purchase tax thereon. However, in case the consumables so purchased are used as fuel for consumption for providing taxable or tax-free goods, the same are not exigible to purchase tax. The relevant observations of the apex court in Thomas Stephen & Co. Ltd.'s case (supra) are as under (pages 323 and 324 in 69 STC) :
"The cashew shells in the instant case, had been used as fuel in the kiln. The cashew shells did not get transformed into the end-product. These have not been used as raw materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by the assessee. Consumption must be in the manufacture as raw material or of other components which go into the making of the end-product to come within the mischief of the section. Cashew shells do not tend to the making of the end-product. Goods used for ancillary purposes like fuel in the process of the manufacture, do not fall within section 5A(l)(a) of the Act. Cashew shells, therefore, do not attract levy of tax under the said section. The same is the position with regard to the lime shell and consumed stores, which have been used only in the maintenance of the kiln and the factory and not used in the manufacture of the end-product. The Revenue therefore, was wrong in its contention on this aspect."
10. In the present case, the issue is relating to exigibility to purchase tax regarding consumables which were used in the manufacture of taxable and tax-free goods. Following the principles as enunciated by the apex court, the goods would be exigible to purchase tax. Thus, the Tribunal had correctly adjudicated the issue in favour of the State.
11. Referring to question No. 2, the matter is no longer res integra. It stands decided against the petitioner in view of the following observations recorded by the honourable Supreme Court in Jagatjit Sugar Mills' case (supra) (page 353 in 96 STC) :
"23....The answer is-section 4(1) itself. Section 4(1) not only levies tax on all sales but also levies tax on all purchases as well. Of course, in no case will both the sale point and purchase point of the same transaction be taxed, which feature is indicated in sub-section (2A) of section 4 also. It is, therefore, obvious that where the sale of certain goods is exempt from tax by virtue of section 6, their purchase will be taxed and conversely where the Act expressly taxes the purchase of certain goods their sale simultaneously will not be taxed- subject, of course, to any express provisions providing exemptions. In the case of sugarcane, it being an agricultural produce-and in cases where it is sold by the grower himself-such sale is exempt from tax by virtue of section 6 read with Schedule B. If so, the purchaser thereof is liable to pay tax on its purchase by virtue of section 4(1). That is the position in the cases before us. Since section 4B does not apply to Schedule B goods, the said provision is not relevant to the petitioners. The purchase tax on sugarcane is levied by section 4(1), since it being an agricultural produce, and said to be sold by growers themselves, is exempt from tax on its sale under section 6." Following the aforesaid judgment of the honourable Supreme Court, a Division Bench of this court in Indian Sucrose Ltd.'s case (supra) held as under (pages 92 and 93 in 37 VST) :
10. The first question which would arise for determination is whether three-Judge Bench judgment of the honourable Supreme Court rendered in the case of Jagatjit Sugar Mills (supra) is binding on the parties. In the aforesaid case the question of law was posed in para 4 of the judgment, namely, whether the sugar mill was liable to pay purchase tax on the sugarcane purchased by it from the growers of the sugarcane. In a categorical answer to the aforesaid question it has been held that section 4(1) of the PGST Act, 1948 contemplates levy of purchase tax on all sales and purchases. Once the aforesaid judgment in the categorical terms lays down that purchase tax is leviable under section 4(1) then it is well nigh impossible for us to say that such a tax cannot be levied on the ground that the PGST Act, 1948 is a statute of general character which deals with sale or purchase tax in respect of all goods whereas the 1953 Act is a special Act which deals with all aspects including levy of purchase tax on sugarcane. The petitioner has canvassed for the contrary view on the basis of the judgment rendered by a two-Judge Bench of the honourable Supreme Court in the case of Gobind Sugar Mills Ltd. v. State of Bihar (supra). The aforesaid judgment has been rendered by interpreting the Bihar Finance Act, 1981 and the Bihar Sugarcane (Regulation of Supply and Purchase) Act, 1981 by holding that both the Acts would operate in the same field. The underlying principle followed by the honourable Supreme Court is that the Sugarcane Act being a special Act pertaining to all aspects of control of the sugarcane as well as levy of purchase tax has to be preferred over the Finance Act which empower the State to levy all commercial taxes generally whereas the sugarcane Act empowered the levy of purchase tax only on sugarcane. Such a course would not be available to us as the specific Act which is applicable to the petitioner, namely, the PGST Act, 1948 has been interpreted by a three-Judge Bench in the case Jagatjit Sugar Mills' case (supra). Furthermore we would prefer the interpretation adopted by the honourable Supreme Court for the PGST Act,1948 which is in question before us. The judgment of Gobind Sugar Mills' case (supra) has emerged out of different statute. It is needless to emphasise that the judgment by the honourable Supreme Court is a law declared in respect of the field occupied by it which is binding on all courts within the territory of India including the High Courts. In that regard reliance may be placed on the observations made by a Constitution Bench of the honourable Supreme Court in the case of Behram Khurshid Pesikack v. State of Bombay AIR 1955 SC 123. Even otherwise the decision of three-Judge Bench in Jagatjit Sugar Mills' case (supra) has to be followed because that decision is by a larger Bench than the one deciding the Gobind Sugar Mills' case (supra). The three-Judge Bench judgment decision is also under the PGST Act 1948 which is applicable to the petitioner. Therefore, in our view there is no possibility whatsoever to reopen the question by opining that the provisions of section 4(1) of the PGST Act,1948 would not apply and those of the 1953 Act alone would apply. On the basis of the aforesaid premise, the writ petitions are liable to be dismissed."
12. In view of the above, the questions referred are answered against the petitioner and in favour of the Revenue,
13. The reference is disposed of accordingly.
VINEETRegards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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[2013] 38 taxmann.com 424 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Budhewal Cooperative Sugar Mills Ltd.
v.
State of Punjab*
AJAY KUMAR MITTAL AND GURMEET SINGH SANDHAWALIA, JJ.
G.S.T.R. NO. 18 OF 2006
MAY 9, 2012
Section 4B, read with section 4, of the Punjab General Sales Tax Act, 1948 Charge/Levy - Purchase Tax - Assessment year 1989-90, 1990-91 and 1991-92 - Assessee, a registered dealer, was engaged in manufacture and sale of sugar - Department argued that purchase of sugarcane and further, purchase, on strength of registration certificate, of consumables used in manufacture of taxable and tax-free goods was liable to purchase tax - HELD : Consumables that are subjected to process of manufacture and get transformed into end-product being taxable and tax-free goods are, on their purchase, liable to purchase tax - Accordingly, consumables used in manufacture of taxable and tax-free goods by assessee were liable to purchase tax - Similarly, since sale of sugarcane, being agricultural produce, was exempt in hands of grower by virtue of section 6 read with Schedule B of Act, purchase thereof was liable to purchase tax in hands of purchaser under section 4 [Paras 6 to 14] [In favour of revenue]
CASE REVEIW
Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC) (para 12) relied on.
Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) (para 9)distinguished.
CASES REFERRED TO
Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC) (para 3), Indian Sucrose Ltd. v. State of Punjab [2011] 37 VST 85 (Punj & Har.) (para 4) and Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC) (para 6).
M.R. Sharma for the Petitioner. Gaurav Garg Dhuriwala for the Respondent.
JUDGMENT
Gurmeet Singh Sandhawalia, J. - In compliance with the order dated August 17, 2005 passed by this court in STC Nos. 9, 10 and 11 of 2003, relating to assessment years 1989-90, 1990-91 and 1991-92, the Tribunal has referred the following questions of law for the opinion of this court :
| "(1) | Whether, in the facts and circumstances of the case, the Tribunal was correct in law in holding that purchase tax was leviable under section 4B of the Punjab General Sales Tax Act, 1948 on the consumables purchased on the strength of registration certificate and used in manufacturing of taxable and tax-free goods ? | |
| (2) | Whether the Tribunal was correct in law in holding that purchase tax was leviable on sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948 ?" |
2. Briefly, the facts as narrated in the reference application may be noticed. The petitioner is a registered dealer under sales tax laws and is engaged in manufacturing and sale of sugar. It filed all the quarterly returns in time. Not satisfied with the returns, notice in form ST-XIV was issued to the petitioner by the Assessing Officer. After hearing the petitioner, the Assessing Officer framed assessment creating additional demands of Rs. 43,09,611, Rs. 1,06,89,637 and Rs. 1,23,51,885 for the years 1989-90, 1990-91 and 1991-92 vide orders dated December 27, 1995, July 9, 1996 and January 22, 1997, respectively. The Assessing Officer, inter alia, held that purchase tax was leviable on the sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948 (in short, "the Act"). Besides, it was also held that purchase tax under section 4B of the Act was imposable on the purchase of consumables used in the manufacture of the taxable and tax-free goods. Aggrieved by these orders, the petitioner filed three appeals before the DETC (A), Patiala Division, Patiala who after hearing both the parties remanded the cases to the Assessing Officer vide his separate orders dated December 30, 1997 and July 9, 1999. Feeling dissatisfied with these orders, the petitioner filed three appeals before the Sales Tax Tribunal. The Tribunal partly accepted the two appeals for the assessment years 1989-90 and 1990-91 vide its single order dated February 16, 2000 and dismissed the third one for the year 1991-92 vide its order dated May 20, 2003. Still not satisfied, the petitioner filed rectification applications for the years 1989-90 and 1990-91 which were dismissed by the Tribunal vide its order dated May 20, 2003. The State also filed one rectification application in Appeal Nos. 2 and 4 of 1998-99 pertaining to the assessment years 1989-90 and 1990-91 which was allowed to be withdrawn by the Tribunal vide its order dated May 20, 2003. Thereafter, the petitioner filed three reference applications for referring the above-mentioned questions of law to this court for its opinion.
3. The learned counsel for the petitioner submitted that the Tribunal was in error in holding that purchase tax was leviable under section 4B of the Act on the consumables which had been purchased by the dealer on the strength of registration certificate and were used in the manufacture of taxable and tax-free goods. Reliance was placed upon judgment of the apex court in Dy. Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC). Referring to the second question, it was submitted that under section 4(1) of the Act, no purchase tax was leviable on the sugarcane. The decision of the Tribunal to the contrary was legally unsustainable.
4. The learned counsel for the State, on the other hand, while supporting the order passed by the Tribunal, canvassed that the purchase tax under section 4B of the Act was rightly imposed on the consumables which were transformed into end-product by using them in the manufacture of other goods. On the strength of the Division Bench judgment of this court in Indian Sucrose Ltd. v. State of Punjab [2011] 37 VST 85 (Punj & Har.), it was urged that on the purchase of sugarcane, the same was chargeable to purchase tax under section 4(1) of the Act.
5. After giving thoughtful consideration to the respective submissions, we find that the Tribunal had rightly adjudicated the issue in favour of the State.
6. Adverting to question No. 1, it would be expedient to reproduce section 4B of the Act, which reads thus :
"4B. Levy of purchase tax on certain goods. — Where a dealer who is liable to pay tax under this Act purchases any goods other than those specified in Schedule B, from any source and—
| (i) | uses them within the State in the manufacture of goods specified in Schedule B, or | |
| (ii) | uses them within the State in the manufacture of any goods, other than those specified in Schedule B, and sends the goods so manufactured outside the State in any manner other than by way of sale in me course of inter-State trade or commerce or in the course of export out of the territory of India, or | |
| (iii) | uses such goods for a purpose other than that of resale within the State or sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, or | |
| (iv) | sends them outside the State other than by way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India | |
| and no tax, is payable on the purchase of such goods under any other provision of this Act, there shall be levied a tax on the purchase of such goods at such rate not exceeding the rate specified under sub-section (1) of section 5 as the State Government may direct." |
The honourable Supreme Court in Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC), had succinctly analysed the aforesaid provision as under (pages 351 and 352 in 96 STC) :
"16. Clause (i) says that purchase tax shall be leviable on the purchase of goods (other than those in Schedule B) if such goods are used in the manufacture of goods specified in Schedule B. Schedule B goods are not taxable at sale point. Since the goods manufactured by the dealer are exempt from tax on their sale, the Legislature sees no reason to exempt the raw material (goods purchased by such manufacturer-dealer) from the liability to purchase tax. Accordingly, section 4B retains and affirms the tax on the goods purchased by such manufacturer-dealer, i.e., it taxes the raw material in the hands of the purchaser-manufacturer-dealer.
17. Clause (ii) -which continues the idea behind clause (i) - says that where the manufacturer-dealer uses the goods purchased by him (raw material) in manufacture of goods other than the goods in Schedule B, (i.e., where the manufactured goods are taxable at the sale point) but sends the goods so manufactured outside the State in any manner other than by way of inter-State sale or export sale, he shall be liable to pay tax on the purchase of raw material. The object is again the same. If the manufactured goods, which are taxable on sale point are sent out of the State, the State does not get any income. If, on the other hand, they are taken out of the State as a result of inter-State sale, the State gets the tax by virtue of article 269 of the Constitution. In the case of export sale, the State forgoes the tax but it does so because it serves the national interest of promoting exports. (See Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC), in this regard.). In other words, according to this clause, if the manufactured goods are taken out of the State in such a manner that State does not derive any tax (nor the national interest aforesaid is served), the purchase of raw material is taxed. Conversely, if the manufactured goods are sold within the State or sold in the course of inter-State trade or commerce or sold in the course of export sale, the raw material is exempted from purchase tax. In case, however, the manufactured goods are those mentioned in Schedule B-not taxable on sale point-clause (i) does not concern itself with their manner of disposal. From the point of Revenue, it makes no difference whether such goods are sold within the State or sold in the course of inter-State trade or commerce or sold in the course of export; in any of the situations, the State does not derive any revenue.
18. Clause (iii) says that where the goods purchased are used for a purpose other than resale within the State or in the course of inter-State sale or export sale, tax shall be levied on the purchase of such goods. This means that if the very goods purchased are resold within the State, no purchase tax shall be leviable on their purchase. Similarly, if the goods purchased are sold in the course of inter-State trade/commerce or in the course of export sale, again no tax will be levied on the purchase of such goods by the purchasing dealer. The idea is again the same. In the case of resale within the State and inter-State sale, the State gets the tax and, therefore, purchase of such goods is exempted from tax. Where goods are sold in the course of export, though the State does not get any tax, national interest is served. In these three situations, the purchase of such goods is not taxed.
19. Clause (iv) reiterates more or less the same idea as in clause (iii). According to it, if the goods purchased are sent out of the State otherwise than by way of inter-State sale or export sale, then the purchase of such goods will be taxed.
20. The above analysis shows up the object and purpose underlying section 4B. Clauses (i) and (ii) deal with situations where the goods purchased are used as raw material while clauses (iii) and (iv) provide for situations where the very goods purchased are dealt with in certain specified modes. Though put in a negative form, section 4B is really intended (a) to avoid taxing the raw material where the manufactured goods are taxable and are sold within the State or sold in the course of inter-State trade or commerce in both of which situations, they fetch revenue to the State or where they are sold in the course of export, which does not fetch any revenue to the State but promotes national interest in promoting exports; and (b) to avoid taxing the purchase of the goods where the very goods are resold within the State so as to fetch tax on their sale (it must be remembered that the goods dealt with by section 4 are goods other than the goods in Schedule B and hence taxable at sale point) or are sold in the course of inter-State sale (in which event too the State gets the revenue by virtue of article 269) or where they are sold in export trade (in which event though no tax is realised by State, yet the national interest aforesaid is served)."
7. It was further noticed that section 4B of the Act was actuated by the same idea as is underlying section 6A of the Andhra Pradesh General Sales Tax Act, section 7A of the Tamil Nadu General Sales Tax Act, section 5A of the Kerala General Sales Tax Act and section 7 of the Madhya Pradesh General Sales Tax Act.
8. The apex court in Thomas Stephen & Co. Ltd.'s case (supra) was examining the issue where the cashew shells which had been used as fuel in the kiln but did not get transformed into the end-product, whether the provisions of purchase tax under section 5A(l)(a) of the Kerala General Sales Tax Act were applicable.
9. It was concluded that where the dealer on the strength of his registration certificate purchases consumables which are ultimately used in the manufacture of taxable and tax-free goods, he is liable to pay purchase tax thereon. However, in case the consumables so purchased are used as fuel for consumption for providing taxable or tax-free goods, the same are not exigible to purchase tax. The relevant observations of the apex court in Thomas Stephen & Co. Ltd.'s case (supra) are as under (pages 323 and 324 in 69 STC) :
"The cashew shells in the instant case, had been used as fuel in the kiln. The cashew shells did not get transformed into the end-product. These have not been used as raw materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by the assessee. Consumption must be in the manufacture as raw material or of other components which go into the making of the end-product to come within the mischief of the section. Cashew shells do not tend to the making of the end-product. Goods used for ancillary purposes like fuel in the process of the manufacture, do not fall within section 5A(l)(a) of the Act. Cashew shells, therefore, do not attract levy of tax under the said section. The same is the position with regard to the lime shell and consumed stores, which have been used only in the maintenance of the kiln and the factory and not used in the manufacture of the end-product. The Revenue therefore, was wrong in its contention on this aspect."
10. In the present case, the issue is relating to exigibility to purchase tax regarding consumables which were used in the manufacture of taxable and tax-free goods. Following the principles as enunciated by the apex court, the goods would be exigible to purchase tax. Thus, the Tribunal had correctly adjudicated the issue in favour of the State.
11. Referring to question No. 2, the matter is no longer res integra. It stands decided against the petitioner in view of the following observations recorded by the honourable Supreme Court in Jagatjit Sugar Mills' case (supra) (page 353 in 96 STC) :
"23....The answer is-section 4(1) itself. Section 4(1) not only levies tax on all sales but also levies tax on all purchases as well. Of course, in no case will both the sale point and purchase point of the same transaction be taxed, which feature is indicated in sub-section (2A) of section 4 also. It is, therefore, obvious that where the sale of certain goods is exempt from tax by virtue of section 6, their purchase will be taxed and conversely where the Act expressly taxes the purchase of certain goods their sale simultaneously will not be taxed- subject, of course, to any express provisions providing exemptions. In the case of sugarcane, it being an agricultural produce-and in cases where it is sold by the grower himself-such sale is exempt from tax by virtue of section 6 read with Schedule B. If so, the purchaser thereof is liable to pay tax on its purchase by virtue of section 4(1). That is the position in the cases before us. Since section 4B does not apply to Schedule B goods, the said provision is not relevant to the petitioners. The purchase tax on sugarcane is levied by section 4(1), since it being an agricultural produce, and said to be sold by growers themselves, is exempt from tax on its sale under section 6." Following the aforesaid judgment of the honourable Supreme Court, a Division Bench of this court in Indian Sucrose Ltd.'s case (supra) held as under (pages 92 and 93 in 37 VST) :
10. The first question which would arise for determination is whether three-Judge Bench judgment of the honourable Supreme Court rendered in the case of Jagatjit Sugar Mills (supra) is binding on the parties. In the aforesaid case the question of law was posed in para 4 of the judgment, namely, whether the sugar mill was liable to pay purchase tax on the sugarcane purchased by it from the growers of the sugarcane. In a categorical answer to the aforesaid question it has been held that section 4(1) of the PGST Act, 1948 contemplates levy of purchase tax on all sales and purchases. Once the aforesaid judgment in the categorical terms lays down that purchase tax is leviable under section 4(1) then it is well nigh impossible for us to say that such a tax cannot be levied on the ground that the PGST Act, 1948 is a statute of general character which deals with sale or purchase tax in respect of all goods whereas the 1953 Act is a special Act which deals with all aspects including levy of purchase tax on sugarcane. The petitioner has canvassed for the contrary view on the basis of the judgment rendered by a two-Judge Bench of the honourable Supreme Court in the case of Gobind Sugar Mills Ltd. v. State of Bihar (supra). The aforesaid judgment has been rendered by interpreting the Bihar Finance Act, 1981 and the Bihar Sugarcane (Regulation of Supply and Purchase) Act, 1981 by holding that both the Acts would operate in the same field. The underlying principle followed by the honourable Supreme Court is that the Sugarcane Act being a special Act pertaining to all aspects of control of the sugarcane as well as levy of purchase tax has to be preferred over the Finance Act which empower the State to levy all commercial taxes generally whereas the sugarcane Act empowered the levy of purchase tax only on sugarcane. Such a course would not be available to us as the specific Act which is applicable to the petitioner, namely, the PGST Act, 1948 has been interpreted by a three-Judge Bench in the case Jagatjit Sugar Mills' case (supra). Furthermore we would prefer the interpretation adopted by the honourable Supreme Court for the PGST Act,1948 which is in question before us. The judgment of Gobind Sugar Mills' case (supra) has emerged out of different statute. It is needless to emphasise that the judgment by the honourable Supreme Court is a law declared in respect of the field occupied by it which is binding on all courts within the territory of India including the High Courts. In that regard reliance may be placed on the observations made by a Constitution Bench of the honourable Supreme Court in the case of Behram Khurshid Pesikack v. State of Bombay AIR 1955 SC 123. Even otherwise the decision of three-Judge Bench in Jagatjit Sugar Mills' case (supra) has to be followed because that decision is by a larger Bench than the one deciding the Gobind Sugar Mills' case (supra). The three-Judge Bench judgment decision is also under the PGST Act 1948 which is applicable to the petitioner. Therefore, in our view there is no possibility whatsoever to reopen the question by opining that the provisions of section 4(1) of the PGST Act,1948 would not apply and those of the 1953 Act alone would apply. On the basis of the aforesaid premise, the writ petitions are liable to be dismissed."
12. In view of the above, the questions referred are answered against the petitioner and in favour of the Revenue,
13. The reference is disposed of accordingly.
VINEETIn case of Part Payment Income tax paid shall first be adjusted towards interest payable
Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amount, i.e., the tax payable plus interest payable under Sections 234B and 234C that interest under Section 220(2) is calculated from the date mentioned in the notice of demand till the date of actual payment. Under Explanation to Section 140A(1), it is stipulated where the amount paid by an assessee under self-assessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when part payment is made and the entire amount, which is refund able is not paid to the assessee. Otherwise the Assessing Officer/Revenue can refund the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, which would amount to granting premium to a noncompliance of law. In the present case, the interest component was withheld for the period ranging between 9 to 13 years.
HIGH COURT OF DELHI AT NEW DELHI
INCOME TAX APPEAL NOS. 167/2012 & 168/2012
Date of decision: 6th September, 2013
INDIA TRADE PROMOTION ORGANISATION
versus
COMMISSIONER OF INCOME TAX
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
These appeals by India Trade Promotion Organisation under Section 260A of the Income Tax Act, 1961 (Act, for short) relate to Assessment Years 1989-90 and 1990-91. By order dated 22nd August, 2013, the following substantial questions of law were framed in these two appeals:
"Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.1,60,30,495/-, which it is claimed was payable alongwith the refund?
Whether the Income Tax Appellate Tribunal was right in denying interest of Rs.41 ,1 1,644/-, which it is claimed was payable alongwith the refund?"
2. Facts relevant for adjudication of the present appeals may be noticed in brief.
ASSESSMENT YEAR 1989-90
(a) At the outset, we record that there was an earlier round of litigation resulting in order of the Income Tax Appellate Tribunal (tribunal, for short) dated 22nd June, 2007 wherein it was held that the appellant was entitled to interest under Section 244A of the Act, it being a substantive right and the same cannot be denied on the basis of a letter written to Government of India, Central Board of Direct Taxes. We observe and record that the said order dated 22nd June, 2007 has attained finality and has not been challenged by the Revenue. Thus, we are required to proceed on the basis that the appellant is entitled to interest under Section 244A of the Act and the issue raised in the question of law framed above relates to quantification of interest payable under Section 244A of the Act. We further clarify that we have not examined the effect of the letter written by the appellant to the Government of India, Central Board of Direct Taxes and whether in view of the said letter no interest was payable.
(b) After the order of the tribunal dated 22nd June, 2007, an amount of Rs.1,60,30,495/- was paid by the respondent vide order dated 11th June, 2008. The contention of the appellant is that they are entitled to interest on this amount of Rs.1,60,30,495/- from the date it was due and payable. In order to appreciate the contention, we would like to refer to the following:
(i) Pursuant to the assessment order/appellate order, the appellant became entitled to refund of taxes paid of Rs.2,06,52,845/-.
(ii) On 28th March, 1995, Rs.1,70,01,266/- was refunded.
(iii) Rs.36,51,579/- was refunded on 1st June, 1999.
(iv) Rs.1,42,04,705/- had accrued as interest under Section 244A on Rs.2,06,52,845/- upto 28th March, 1995 when part payment of Rs.1,70,01,266/- was made.
(v) Interest of Rs.18,25,790/- had accrued on balance amount of Rs.36,51,579/- from 29th March, 1995 till 1st June, 1999.
(vi) Thus in all, interest of Rs. 1,60,30,495/- had accrued and payable but was not paid when the two refunds were issued. (Rs.1 ,42,04,705/- had accrued and should have been paid on 28th March, 1995 and Rs.18,25,790/- had accrued and should have been paid on 31st May, 1999).
(vii) The interest of Rs.1 ,60,30,495/- was paid on 1 1th June, 2008.
(c) The appellant claims that they are entitled to interest on this amount,i.e., on Rs.1,42,04,705/- with effect from 1st April, 1995 to 31st may, 2008 upto the date of refund of Rs.1,42,04,705/- and interest on Rs.18,25,790/- from 1st June, 1999 upto the date of refund. Interest on the said amounts is payable under Section 244A of the Act.
(d) The contention of the Revenue is that this would amount to payment of interest on interest and this is forbidden and should not be paid.
ASSESSMENT YEAR 1990-91
(a) In this year also the question whether the appellant was entitled to interest under Section 244A of the Act was decided in the first round by the tribunal vide order dated 22nd June, 2007. We need not, therefore, decide the question whether the appellant was entitled to interest because a letter was written by them to the Central Board of Direct Taxes. The said order has become final and, therefore, we are not required to go into the said issue and examine on merits whether or not this order dated 22nd June, 2007 passed by the tribunal was justified. The question raised in the present appeal relates to quantification of interest payable under Section 244A and not whether the interest was justified or should be denied on account of the said letter.
(b) On the basis of assessment proceedings, the appellant became entitled to refund of Rs.53,01 ,570/-.
(i) On 28th March, 1995, Rs.38,12,810/- was refunded.
(ii) On 31st March, 1997, Rs.10,87,686/- was refunded.
(iii) On 19th March, 1999, Rs.4,01 ,074/- was refunded.
(iv) The appellant became entitled to interest under Section 244A of Rs.36,58,084/- upto 28th March, 1995. This interest is calculated on Rs.53,01,570/-.
(v) Interest of Rs.3,57,302/- upto 31st March, 1997 on amount of Rs. 14,88,760/- (Rs.53,01 ,570/- minus Rs.38,1 2,810/-).
(vi) Interest of Rs.96,258/- on Rs.4,01,074/- from 19th March, 1999 upto date of refund on balance amount of Rs.4,01,074/-.
3. The appellant claims that it is entitled to interest on Rs.36,58,084/- from 1st April, 1995 upto the date of refund/payment. Rs.3,57,302/- from 1st April, 1997 upto the date of refund/payment and Rs.96,258/- from 1st June, 1999 upto the date of refund/payment. Interest, it is claimed, is payable under Section 244A of the Act.
4. The contention of the Revenue is that this would amount to paying interest on interest and this would be contrary to Section 244A of the Act.
DECISION
5. At the outset, we note that there is no dispute and debate on the initial interest, which is payable and should have been paid by the Revenue when they made the refund of the taxes. The dispute has arisen as the Revenue did not pay along with the refund of taxes, the interest which had accrued and had become due and payable on the tax amount refundable. The Revenue, therefore, had made part payment of the refund by not including the interest element.
6. Secondly, it should be clarified that the interest payable on the refund stands quantified on the date when the refund was issued/granted by the respondent. The quantum or the calculation of interest does not and has not undergone a change or modification. Interest has not accrued or is not payable by the Revenue after they have made payment of the refund as interest payable under Section 244A stopped running on the said day and became quantified and an amount due and payable. In other words, it became a part of the capital or principal amount due and payable.
7. The question really is in case the Revenue does not make payment of interest element, which had accrued and had become payable on the date when the tax amount is refunded, whether they would be liable to pay interest under Section 244A on the said amount. One can casually or loosely call it as interest on interest but in reality payment of interest on the said amount occurs because of non-payment of the total amount refundable, which is due and payable to the assessee, inter alia, consisting of the tax, which had to be refunded and the interest accrued on the delayed refund of the tax. It is not uncommon and in the commercial world and even in civil suits while computing interest under Section 34 of the Code of Civil Procedure, 1908 the principal amount and the interest due are added and treated as the primary amount in the decree drawn. Interest becomes due and payable on this primary amount. In other words, interest stands capitalised. We further note that it is not a case of compounding of interest as understood except once, i.e., on the date when it is quantified, i.e., when part refund payment is made by the Revenue. Therefore, it will be wrong to call it and treat it as compounding of interest.
8. It will be now relevant to refer to the provisions of the Act relating to refund and examine whether under the Act, interest is payable. Section 244A with effect from 1st April, 1989 reads as under:-
"Interest on refunds.
244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:-
(a) where the refund is out of any tax paid under section 11 5WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted:
Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment;
(b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.
Explanation.—For the purposes of this clause, ―date of payment of tax or penalty‖ means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.
(2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final.
(3) Where, as a result of an order under sub-section (3) of section 115WE or section 115WF or section 11 5WG or sub-section (3) of section 143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.
(4) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years:
Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures ―1989‖, the figures ―2006‖ had been substituted."
9. The words used in the Section 244A are ―where refund of any amount becomes due and payable to the assessee under the Act‖, the assessee shall be entitled to receive in addition to the said amount simple interest calculated in the manner stipulated. The Legislature has not used the words ―tax paid‖ or ―the principal amount of tax paid‖. The words used by the Legislature are ―any amount‖ and ―said amount‖. The words are, therefore, much wider and broader than the tax amount, which is to be refunded. The words ―any amount‖ would include within its scope and ambit the interest element, which has accrued and is payable on the date of the refund. Thus, when the Revenue does not pay full amount of refund but part amount is paid, they will be liable to pay interest on the balance outstanding amount. The balance outstanding amount may consist of the tax paid or the interest, which is payable till the payment of the part amount and interest payable on the principal amount, which remained outstanding thereafter.
10. The Delhi High Court in the case of Commissioner of Income Tax versus Goodyear India Limited, 2001 (249) ITR 527 (Delhi) had occasion to examine the earlier provisions of refund under Sections 240 and 244 of the Act and had observed as under:-
" Section 244 deals with interest on refund where no claim is needed. Sub-section (2), inter alia, provides that where a refund is due to the assessee, "in pursuance of an order referred to in Section 240″ and the Assessing Officer does not grant the refund within the stipulated time, the Central Government is required to pay simple interest at the stipulated rate. Section 240 deals with refund on appeal, etc. This provision clearly lays down that where as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessed without his having to make any claim in that behalf. The crucial expressions in Section 240 are "any amount which becomes due to the assessee as a result of any order passed in any appeal or other proceedings under the Act" and the "amount becomes due to the assessee". Section 244 refers to the liability fastened on the Central Government in case of failure to grant refund within the stipulated time in a case where refund is due to the assessee in pursuance of an order referred to in Section 240. A combined reading of both the provisions makes the position crystal clear that it is any amount which becomes due to the assessee and not necessarily the tax component. Undisputedly, a sum of Rs. 1,90,499 which qualifies for interest became payable to the assessee on the basis of an order passed under Section 240 of the Act. Merely because this was inclusive of an amount which was payable under Section 214 of the Act, that would not make the position any different. It is an amount which became due to the assessee on the basis of the appellate order. Therefore, the assessee was entitled to interest in terms of Section 244 of the Act. A similar view has been taken by the Gujarat High Court in D. J. Works v. Deputy CIT [1992]195 ITR 227and Chiman Lal S. Patel v. CIT [1994]210 ITR 419 though with different conclusions. Above being the position, we answer the question in the affirmative, in favor of the assessee and against the Revenue."
11. In R.K. Jain and Sons versus Commissioner of Income Tax, 2005 (142) Taxman 445 (Delhi) reference was made to several judgments passed by Gujarat High Court and decision of the Supreme Court in CIT versus Narender Doshi, (2002) 245 ITR 606 and it was held that interest should be awarded on the interest component of the unpaid refund. Recently in Motor and General Finance Limited versus Commissioner of Income Tax and other cases reported in [2010] 320 ITR 88 (Delhi) reference was made to the decision of the Supreme Court in Sandvik Asia Limited versus CIT, [2006] 280 ITR 643 (SC) and Narendra Doshi (supra) and it was observed as under:-
"20. It is, thus, manifest that at both the stages, namely, while passing intimation under Section 143(1)(a) of the Act, refund along with interest under Section 244A was given of the excess TDS and advance tax. Again, after the orders of the Tribunal were passed and the refund became payable as a consequence thereof, the excess amount of tax was refunded along with interest payable thereupon under Section 244A of the Act. Thus, the calculations are not disputed, as observed by the Tribunal also.
21. When the refund of tax becomes payable as a result of orders passed in appeal or other proceedings under the Act, this refund is to be given along with interest, which is to be calculated as per Section 244 of the Act. If that interest is paid along with the excess tax, no further payment is to be made. It is only when the excess amount of tax is refunded but the interest is not refunded along therewith, the retention of interest amount would become unjustified and interest on interest would also become payable. The reason is simple. It is the tax which was paid in excess by the assessee which became refundable. The assessee would be compensated by paying interest thereupon. It is only when the interest is not refunded along with excess tax that the withholding of the said interest becomes unjustified and it becomes an amount due to the assessee on which the assessee can claim further interest. Such a situation has not happened in the present case as the amount of interest is calculated and refunded along with the refundable tax amount."
12. Same view has been taken by Punjab and Haryana High Court in Roadm aster Industries of India Private Limited versus Commissioner of Income Tax and Another, [2010] 329 ITR 69 (P&H) and Gujarat High Court in Commissioner of Income Tax versus Hynoup Food and Oil Industries Limited, [2010] 320 ITR 365 (Guj.) and Gujarat Flourochemicals Limited versus Commissioner of Income Tax and Others, [2008] 300 ITR 328 (Guj.). The said cases refer to the principle of compensation when money, which is due and payable and refundable, is not paid.
13. Madhya Pradesh High Court had the occasion to deal with the similar issue in their decision in Commissioner of Income Tax versus HEG Limited, [2009] 310 ITR 341 (MP). The facts of the said case may be noticed. The assessee became entitled to refund along with interest under Section 244A. Referring to Section 240 of the Act, the High Court observed that the term used was ―refund of any amount becomes due to the assessee‖. The same words were also used in Section 244A. Reference was made to the decision of the Delhi High Court in Goodyear India Limited (supra) and decisions of the Supreme Court in Narender Doshi (supra) and Sandvik Asia Limited (supra). Decision of the Madras High Court in CIT versus Needle Industries Private Limited, [1998] 233 ITR 370 (Mad) reflected upon and it was held that the words or the phrase ―any amount‖ would include the amount refundable plus the interest due and payable on the tax amount refunded. Thus, in view of the express provisions of Section 244A, interest was directed to be paid by the Revenue.
14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:-
" Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department.
The next question which we are required to answer is – what is the meaning of the words ―refund of any amount becomes due to the assessee‖ in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of Rs.45,73,528 and tax paid after original assessment of Rs.1,71,00,320. The Department contends that the words ―any amount‖ will not include the interest which accrued to the respondent for not refunding Rs.45,73,528 for 57 months. We see no merit in this argument. The interest component will partake of the character of the ―amount due‖ under Section 244A. It becomes an integral part of Rs.45,73,528 which is not paid for 57 months after the said amount became due and payable. As can be seen from the facts narrated above, this is the case of short payment by the Department and it is in this way that the assessee claims interest under Section 244A of the Income-Tax Act. Therefore, on both the afore-stated grounds, we are of the view that the assessee was entitled to interest for 57 months on Rs.45,73,528/-. The principal amount of Rs.45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of ―amount due‖ under Section 244A. "
15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is that when refund order is issued, the same should include the interest payable on the amount, which is refunded. If the refund does not include interest due and payable on the amount refunded, the Revenue would be liable to pay interest on the shortfall. This does not amount to payment of interest on interest. An example will clarify the situation and help us to understand what is due and payable under Section 244A of the Act. Suppose Revenue is liable to refund Rs.1 lac to an assessee with effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 244A on 31st March, 2013, then no further interest is payable. However, if only Rs.1 lac is refunded by the Revenue on 31st March, 2013 and the interest accrued on Rs.1 lac under Section 244A is not refunded, the Revenue would be liable to pay interest on the amount due and payable but not refunded. Interest will not be due and payable on the amount refunded but only on the amount which remains unpaid, i.e, the interest element, which should have been refunded but is not paid. In another situation where part payment is made, Section 244A would be still applicable in the same manner. For example, if Rs.60,000/- was paid on 31st March, 2013, Revenue would be liable to pay interest on Rs.1 lac from 1st April, 2010 till 31st March, 2013 and thereafter on Rs.40,000/-. Further, interest payable on Rs.60,000/-, which stands paid, will be quantified on 31st March, 2013 and on this amount, i.e., interest amount quantified, Revenue would be liable to pay interest under Section 244A till payment is made.
16. The aforesaid manner of computation is not only applicable to cases where Revenue has to pay interest on refund, but is equally applied when an assessee is in default and interest is payable under Section 220(2) of the Act. Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amount, i.e., the tax payable plus interest payable under Sections 234B and 234C that interest under Section 220(2) is calculated from the date mentioned in the notice of demand till the date of actual payment. Under Explanation to Section 140A(1), it is stipulated where the amount paid by an assessee under self-assessment falls short of the aggregate amount of tax and interest aforesaid, the amount paid shall first be adjusted towards the interest payable and the balance, if any, shall be adjusted towards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when part payment is made and the entire amount, which is refundable is not paid to the assessee. Otherwise the Assessing Officer/Revenue can refund the principal amount and not pay the interest component under Section 244A for an unlimited period with impunity and without any sanction, which would amount to granting premium to a non¬compliance of law. In the present case, the interest component was withheld for the period ranging between 9 to 13 years.
17. In view of the aforesaid discussion, we answer the questions of law in favour of the appellant and against the Revenue. The appeals are disposed of. No costs.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
December, 02nd 2013
The Income Tax Department has launched a drive to ensure greater tax compliance. In recent months, thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details.
This sudden rise in the number of tax notices is not because people have stopped paying tax or filing their returns. It's just that the tax authorities now have an integrated database on taxpayers and can track almost all financial transactions of an individual.
The 10-digit alphanumeric PAN, which has been made mandatory for most money transactions, allows the tax department to peek into your financial life.
The PAN not only tells the tax department how much you have earned, but also how you have been spending and investing that money. Besides, the Central Board of Direct Taxes has a computer-aided scrutiny system (CASS), which flags any discrepancy in the tax return filed. Here are some common reasons for the taxpayers getting notices.
1. Not mentioning PAN or quoting incorrect PAN
The PAN is now mandatory for highvalue transactions. If you do not submit it while making an investment or taking up a job, your income will be subjected to a higher TDS of 20 per cent, instead of 10 per cent.
If the PAN is incorrect, you could even be slapped with a penalty of up to Rs 10,000. The bigger problem of an incorrect PAN is that the TDS will not be credited to your account. This often results in an additional tax demand. What's more, the tax refund can be credited to another account if you submit the wrong PAN.
2. Not checking Form 26AS before filing
The Form 26AS has details of the tax paid by an individual during a financial year. You can easily access your Form 26AS online. Some banks also provide this facility to their Net banking customers. Before you file your return, check whether your Form 26AS has correctly credited the tax deducted on your behalf.
If your bank, bond issuer or employer has deducted TDS, make sure it is mentioned in your Form 26AS. Also, check whether all the investments with TDS have been duly mentioned in the tax return. Any mismatch will lead to a notice from the department.
If your bank, bond issuer or employer has deducted TDS, make sure it is mentioned in your Form 26AS. Also, check whether all the investments with TDS have been duly mentioned in the tax return. Any mismatch will lead to a notice from the department.
3. Mismatch in income and expenses & investments
Financial services firms, registration authorities and merchant establishments are supposed to report certain high-value transactions to the CBDT. The CASS matches this information with the returns filed by the taxpayer and promptly issue a notice if there is a mismatch.
The Income Tax Department gets all infor mation about high-value financial transactions on the basis of the PAN that you submit to your bank, share broker, mutual fund house and registrar of properties. If the income you have declared is not matching your investments and spending, you can get a tax notice.
4. Not filing returns if income is above Rs 2 lakh
If your gross taxable income before deduction under any section is above Rs 2 lakh, it is mandatory for you to file your return. If you don't file it, you can be slapped with a penalty of up to 300 per cent of the outstanding tax. Even if there is no tax liability, the return has to be filed if the income before deductions (tax savings, education loan, home loan, etc) is above the basic tax exemption.
5. Not filing return by the due date
You can file your income tax return till the end of the assessment year if there is no tax due. For example, the tax return for 2012-13 can be filed till 31 March 2014 without incurring any interest or penalty if all the taxes have been paid. However, if some tax remains unpaid, filing your return after the deadline could lead to a penalty of Rs 5,000. Also, you are not allowed to carry forward your losses if you file after the due date, nor can you revise the tax return.
6. Not declaring the previous employer's income
This is a common problem and was easily missed by the tax authorities in the past. However, now that the tax database has been integrated, don't think you can ignore your income from a previous job. If your employer deducted TDS on your income, the details would be in your Form 26AS, and the CASS will immediately flag this discrepancy. You can be levied a penalty of up to 300 per cent of the tax evaded.
7. Avoiding TDS by misusing Forms 15G and 15H
If the interest income on bank deposits exceeds Rs 10,000 a year, the bank deducts TDS. You can avoid TDS by submitting Form 15G or 15H if you are not liable to tax. However, if you are trying to avoid TDS, you can get a notice from the tax department. Submitting a wrong declaration can invite a penalty of Rs 10,000. Splitting the deposits in different banks or bank branches to avoid TDS will not help as the PAN is the same.
8. Not declaring interest on bank deposits and post office savings
The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable and should be mentioned in your tax return. Up to Rs 10,000 earned on your savings bank account is tax-free, but it still needs to be included in your total income for the year. Likewise, the PPF interest income is tax-free, but should be included in the exempt income.
The following deductions are available on bank interest: interest on savings account is exempt up to Rs 10,000 for the assessment year 2013-14. The interest from post office savings is exempt up to Rs 3,500, or Rs 7,000 for joint accounts.
The following deductions are available on bank interest: interest on savings account is exempt up to Rs 10,000 for the assessment year 2013-14. The interest from post office savings is exempt up to Rs 3,500, or Rs 7,000 for joint accounts.
9. Not responding to intimation/notice from the tax department
Don't ignore the messages and notices from the tax department. If you do not respond, the interest and penalty keeps on increasing in case of any pending tax liability and the Income Tax Department will take a final decision that may not be beneficial for you.
How to Register under Employees' State Insurance Act, 1948
The promulgation of Employees' State Insurance Act, 1948 envisaged an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, and death due to employment injury resulting in loss of wages or earning capacity. The Act also guarantees reasonably good medical care to workers and their immediate dependents. Employees' State Insurance is a self-financing social security and health insurance scheme for Indian workers.
The ESI Act applies to non-seasonal factories or manufacturing units, shops & establishments, Private Medical & Educational Institutions employing 10 or more persons. Under the enabling provisions of the Act, a factory or establishment, located in a geographical area, notified for implementation of the scheme falls in the purview in the Act. Employees of the aforesaid categories of factories and establishments and drawing wages upto Rs.10,000/- a month are entitled to health Insurance cover under the ESI Act.
The Employees' State Insurance Corporation (ESIC) is the premier social security organization in the country. It is the highest policy making and decision taking authority under the ESI Act and oversees the functioning of the ESI Scheme under the Act. The corporation comprises members representing Central and State Governments, employers, employees, Parliament and the medical profession. Union Minister of Labour functions as the Chairman of the Corporation. A Standing Committee constituted from among the members of the Corporation acts as the Executive Body for the administration of the Scheme.
The basic provisions of the Act are :-
Every factory or establishment to which this Act applies shall be registered within such time and in such manner as may be specified in the regulations made in this behalf.
It provided for an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to employment injury resulting in loss of wages or earning capacity.
In ESI scheme, a worker in insurable employment is called insured person (IP). Insured persons and their family are entitled to different types of benefits. The benefits are broadly classified into two: (1) Medical benefits and (2) cash benefits.
The employees registered under the scheme are entitled to medical treatment for themselves and their dependents, unemployment cash benefit in certain contingencies and maternity benefit in case of women employees. In case of employment-related disablement or death there is provision for a disablement benefit and a family pension, respectively
Thus in nutshell we can say, it provided for six social security benefits:-
- Medical Benefit
- Sickness Benefit
- Maternity Benefit
- Disablement Benefit
- Dependants' Benefit
- Funeral Expenses
These were some of the provisions regarding Employees State Insurance Act.
How to Register Under Employees' State Insurance Act, 1948
Registration of a factory/establishment with the Employees' State Insurance Corporation is a statutory responsibility of the employer under Section 2-A of the Act read with Regulation 10-B. The employer, in respect of a factory/establishment to which the Act applies for the first time, is liable to furnish Declaration of Registration in Form 01 (Employers' Registration Form) to the concerned Regional / Sub Regional Office within 15 days after the Act becomes applicable.
This is obligatory on the part of the Employer. In addition to this, the employer will have to indicate, in a separate sheet, the name and address of the factory/establishment, number of employees, nature of duty and name, designation and address of the Manager, controlling such persons in respect of any other office(s) situated outside the premises of the Factory/ Establishment.
Procedure for Registration of Factories
Step 1
Ascertain whether your factory / establishment is situated within the area of implementation by ESIC (Implemented area). Regional Office, Sub Regional Office, Branch Offices, and Inspectorates Office of ESIC will guide you, on this matter, if contacted.
Step 2
It is statutory responsibility of the employer to get his factory registered under the ESI as per Section 2A of the Act, read with Regulation 10 B within 15 days of establishing or 15 days after the Act becomes applicable to the area in which the factory is situated. A declaration of registration in Form 01 (Employer's Registration form) is to be submitted to the appropriate office (Regional Office, ESI Corporation,Chennai in your case) for the purpose.
Step 3
The Sub Regional Office will allot a specific code number in Form C-11, after examining the aspect of coverage. This number so allotted is very specific for the employer and the same has to be used in all correspondence with ESIC. The area Branch Office to which the particular employer attached is the "Appropriate Office" for "Registration of Employees". List of Branch Offices and Dispensaries under the Coimbatore Sub Region is furnished in a separate Booklet.
Sub Code Number
There may be a case where the employer is having the main factory / establishment at one station and sub-unit, branch office, sales office or registered office at another station, either within the State or outside the State; In all such cases, on request of the employer to the Regional Office / Sub Regional Office concerned, Sub-Code number is allotted to each sub-unit, branch office, sales office and registered office.
Download Form for Employers Registration Under Employees' State Insurance Act, 1948
Please Note Article is been compiled from the Contents on Various Government website of ESI Corporations.
(Author- Sagar Gupta – Email: casgrgupta@gmail.com)
CMA President's Communique for December 2013
It is better to perform one's own duties imperfectly than to master the duties of another. By fulfilling the obligations he is born with, a person never comes to grief.
-Bhagwad Gita
Dear Professional Colleagues,
On the wake of the Draft Companies (Cost Records and Cost Audit) Rules, 2013 notified by the Ministry of Corporate Affairs, Government of India on 21st November, 2013 U/s 148 of the Companies Act, 2013, there is a genuine concern amongst members of our CMA fraternity that the said notification has curtailed the scope of the professionals to contribute its mite to ensure sustenance and growth of the economy under a global competitive environment. The larger aim of any mandated legislation is to serve the country's public purpose. The role of a professional institute's and that of it's members under the legislation is defined by the purpose for which it has been established under their own Act and Regulations. For us it is making the nation cost competitive within the framework of business and economic environment of the country, thru the cost accounting system within a corporate entity.
The council expresses its deep concern and feels that the Draft Rules on Cost Records and Cost Audit do not address the basic objective of inculcating cost competitiveness across all sectors as enshrined in the relevant provisions of the earlier Companies Act, 1956, which has been reiterated by the Honorable Parliament and Standing Committee on Finance on several occasions. The Council is very much concerned and will leave no stone unturned to impress upon the Government, to protect the interest of economy, stakeholders and provide a due value added role to the profession.
To take this challenge head on, the Council has formed a Task Force which has worked out an action plan, based on constructive suggestions received from various forums. Let us all join in sharing our wisdom and express our valued opinion by providing constructive suggestion so as to impress upon the Ministry in continuing with the existing cost accounting records and cost audit system, which is clearly designed for enabling cost competitiveness. Ever since its inception, CMAs have been tried and tested on several occasions and have proved our mettle through intelligence and proper representation.
The Task Force formed to advise on providing suggestions on the Draft Rules and the Council is presently working to achieve the common goal and the Council has escalated the matter at various levels, besides continuing to make proper representation to various stakeholders/ authorities for their consideration and issuance of appropriate communication to Ministry of Corporate Affairs, Government of India to restore the existing Rules to make Indian Industries competitive and sustainable.
I sincerely urge your technical support to further the socio-economic and national interest besides extending wide professional opportunity to our members to serve the economy. Let us all concentrate in making appropriate suggestions with justification to the Ministry within stipulated time with a copy to the Institute (to draftcostrules@icmai.in) to strengthen and support the efforts of the Council on Draft Rules.
At the same time, it is also an opportunity to relook into the activities of our Institute right upto the Region and Chapter levels and refocus our efforts in making the cost and management accounting system tools spread across the business entities from the small entities onwards, in collaboration with industry associations.
55TH NATIONAL COST CONVENTION – 2014
You are kindly aware that the Institute is organizing 55th National Cost Convention – 2014 on the theme "Nation Building through Cost Competitiveness and Responsible Governance" at Hotel Mayfair Lagoon, Bhubaneswar, the temple city of Odisha, during 17th – 18th January, 2014. Convention brochure including details of the Program with relevant forms is available in the website of the Institute.
The term competitiveness is interpreted in many ways aimed at the sustainability and growth of any business entity, be it in technology, quality, business process, market share or customer orientation. Cost competitiveness subsumes all of those as it examines the long-term growth and sustainability of the business model. It takes into account the business, economic, legal, governance and ethical environment of the business.
The drive to emerge as a winner by any means has entangled many a corporate into scams which have been result of unbridled greed for short term wealth generation, sacrificing the governance and control aspects at its alter. This has resulted in Government, Regulators and Professional institutes stepping in to stem the tide and introduce tight legislation and stricter control, which add to compliance costs, but are essential for protecting the public interest.
As Cost and Management Accountants it is vital for the profession, to build the cost competitiveness as a solid foundation built on responsible governance as envisaged in the Companies Act, 2013. Although we CMAs are "behind every successful business decision", it is imperative for us to have a 360 degree vision to ensure that the governance and ethical best practices are kept sight of, while inculcating cost competitiveness. Therefore,
The technical sessions will deliberate on: Cost Competitiveness for Inclusive Growth (CEO Forum), Transition from Regulatory to Affirmative Corporate Action , Professional Perspective – Response to the Emerging Challenges and Opportunities, Energizing MSMEs for Sustained Economic Development, Government Perspective – Tax & Expenditure Management, Service Sector as a Key Enabler for Sustainable Growth and CMA Growth Perspective (CFO Forum).
We extend a hearty and warm welcome to you to attend and participate in the Convention and request your kind support for sponsoring one of the items of the Convention, releasing an Advertisement in Convention Souvenir and nominating adequate number of delegates to the convention. While appreciating your continued support to this profession, we look forward for your kind cooperation and guidance for making the convention a grand success.
Meeting with CMD, IDBI
I had the opportunity to met Shri M.S.Raghavan, Chairman & Managing Director of IDBI Bank Limited at Kolkata and discussed various areas where the CMAs' could contribute to the performance improvements and sustainability of Banking Industry.
CII-TCM COST CONGRESS 2013
The Institute was associated with Confederation of Indian Industry as a Knowledge Partner for the 12th Edition of Cost Congress 2013 organized during 27th to 28th November 2013 at New Delhi on the theme 'De-risking value creation through innovation in Total Cost Management.' I had the opportunity to express the "Closing Remarks" in the Valedictory session of the Conference.
SMEs EXCELLENCE AWARD, 2013
The Institute in association with the Associated Chambers of Commerce & Industry of India (ASSOCHAM) has started SMEs Excellence Award, 2013 to propagate the best practices in cost management and to promote SMEs towards sustainable growth. The Awards will be distributed in the Seminar on SMEs "The Growth Drivers of the Economy" on 6th December, 2013 at Hotel The Park, New Delhi by Shri K.H. Muniyappa, Hon'ble Minister of State (I/C) for MSME, Government of India.
RESEARCH DIRECTORATE
The Institute in association with the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and with the support of Kolkata Port Trust organized a summit "Doors to the Shores – The Logistic Issues" on 8 November, 2013 at Taj Bengal, Kolkata. The Research team of the Institute published a Knowledge Study on the subject. Eminent dignitaries from the industry and profession attended the event.
TECHNICAL DIRECTORATE
I am happy to inform that the Cost Accounting Standards Board has recommended Cost Accounting Standard on Joint Costs (CAS 19) to the Council for approval and release. Guidance Note on Cost Accounting Standard on Repairs and Maintenance (CAS 12) has been circulated to the members of the CASB for suggestions / value additions. I am happy to mention that the representation from sister bodies of SAARC Countries has been sought to be Permanent Invitee (s) as observer (s) to the CASB to propagate Cost Accounting Standards in the Region and the representation from ICMAB and Sri Lanka has already been received.
CPD PROGRAMS DIRECTORATE
The Institute was associated with ISACA India as a "supporting organization" for the Conference on 'IT Governance, Risk Management and Compliance' held at Chennai during 27th to 29th November 2013.
It is heartening to mention that there is adequate response on the webinars organized by the Institute during the month on Companies Act 2013 on the theme 'Overview, New Concepts & Role of Independent Directors' and 'General Anti Avoidance Rule – Emerging Corporate Tax Discipline: Marking Presence of CMA'.
I am pleased to inform that during the month, the Regional Councils and Chapters organized many programs, seminars and discussions for the members on the contemporary subjects such as Drug Prices Control Order 2013, Recent Changes in Service Tax, Cost Accounting Standard-4, Doors to the Shores-The Logistic Issues, Tendering & Contracting with Public Fund, "Enhancing the Vision – Imperatives for Management Accountant of the modern era" with special reference to happenings in global finance, Impact of Indirect Taxation on Manufacturing Industries and so on.
ICWAI MARF PROGRAMS
The program on 'Contracts and their Management' organized at Goa during 22-25 October, 2013, was attended by senior level and Middle level Officers from different organizations.
The program on 'Recent Trends in Financial Management' organized at Goa during 22-25 October, 2013, was attended by senior level and Middle level Officers from different organizations. A program was organized for Central Warehousing Corporation on 'Contracts Management' during 29th October, 2013 to 31st October, 2013 at CWC Corporate Office, New Delhi.
MEMBERSHIP DEPARTMENT
The membership fee for the Financial Year 2013-14 became due on 1st April, 2013 and the last date has been expired on 30th September, 2013. To comply with the provisions of Regulation 7 (6) of the Cost and Works Accountants Regulations, 1959, the members who have not paid their dues for the year 2013-14 within 30th September, 2013 have been issued notice on 7th October, 2013 for payment of the fees for 2013-14 within 45 days of receipt of the notice. I sincerely request the honorable members to kindly clear their dues within the allowed time to continue their names in the Register of Members of the Institute and provide their support for growth of the profession.
ADVANCED STUDIES DEPARTMENT
The Diploma courses on Business Valuation and Information Systems Audit has been approved by the Council for the members. I sincerely look forward for adequate response from the learned members for value addition to their professional career and contribution to the soceity.
CAT DIRECTORATE
I am happy to inform that the first ever On-Line Self Study and Assessment Module for CAT students has been launched. This module will enable the students to practice the subjects taught in the class room by logging to the web site of the Institute at their own convenience. I am confident that this mode will go a long way in providing a latest tool in the hands of the students to develop their skill. It is heartening to mention that the CAT Course introduced as part of Government of Kerala's Additional Skill Acquisition Programme (ASAP) has been well received by the students. I sincerely acknowledge the leadership efforts by CMA H Padmanabhan, Vice Chairman, SIRC to make the CAT course a reality in Kerala.
INTERNATIONAL AFFAIRS
The Institute was represented by CMA Sanjay Gupta and CMA (Dr.) PVS Jagan Mohan Rao, Council Members in United Nations Conference on Trade and Development (UNCTAD) 30th session of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) at Geneva from 6-8 November 2013.
The Institute has taken the Institutional Membership of the Commonwealth Association of Accountants (CAA). The launch function of CAA was attended by CMA TCA Srinivasa Prasad, CCM on behalf of the Institute at Colombo on 8th November 2013.
The CAPA and SAFA events were organized at Kolkata for the first time and the Institute representatives attended CAPA & SAFA Committee meetings and Board meetings during the period 19th November to 23rd November,2013.
Having invited, I had the opportunity to make a presentation on "Expanding Trade through Innovation and Digital Economy" in the International Conference organized by Institute of Chartered Accountants of India at Kolkata.
Prof Lakshman R Watawala, President, The Institute of Certified Management Accountants of Sri Lanka visited the Headquarter of the Institute, Kolkata. I along with Vice-President and my Council colleagues and officials of the Institute held discussions on matters of mutual professional interest.
As the December 2013 term examinations are round the corner, I hope the students/prospective examinees are engaged in shaping their knowledge further in this penultimate period. My best wishes to you all. May God blessings shower on each one of you to maintain good health, imbibe right spirit to develop proper acumen to be a responsible citizen and one of the proud torch bearers of this CMA profession.
I wish all the members and their families and other stakeholders Merry Christmas and a very happy and prosperous New Year, 2014.
With warm regards,
(CMA Suresh Chandra Mohanty)
1st December 2013
Source- The Institute of Cost Accountants of India
CBDT notifies Multi Commodity Exchange of India Limited for the Purpose of Section 43(5)
NOTIFICATION NO. 92/2013
New Delhi, the 29th November, 2013
INCOME-TAX
S.O.3539 (E).─ In exercise of the powers conferred by clause (iii) of the Explanation 2 of clause (e) of the proviso to clause (5) of section 43 of the Income-tax Act, 1961 (43 of 1961) read with sub-rule (4) of rule 6DDD of the Income-tax Rules, 1962, the Central Government hereby notifies the Multi Commodity Exchange of India Limited, Mumbai as a recognised association for the purposes of clause (e) of the proviso to clause (5) of the said section, with effect from the date of publication of this notification in the Official Gazette.
2. The Central Government may withdraw the recognition of Multi Commodity Exchange of India Limited, Mumbai if any of the conditions specified in rule 6DDC of the Income -tax Rules, 1962, is violated.
3. This notification shall remain in force until the approval granted by the Forward Markets Commission is withdrawn or expires, or the notification is rescinded by the Central Government under sub-rule (5) of rule 6DDD of the Income-tax Rules, 1962.
[Notification No.92/2013] [F. No. 142/31/2013-TPL]
[Ashis Mohanty]
Under Secretary to the Govt. of India
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this is really good information. chartered accountant more information pls visit once..Chartered accountant in bangalore
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