IT : Where some amount has been paid to an employee in excess to what he was entitled or payable to him, said amount can be recovered from him after giving an opportunity of being heard and, mere fact that said payment was not due to any fraud or misrepresentation on part of employee would make no difference
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[2013] 40 taxmann.com 377 (Allahabad)
HIGH COURT OF ALLAHABAD
Janardan Yadav
v.
State of U.P.*
SUDHIR AGARWAL, J.
WRIT A NO. 60800 OF 2013
NOVEMBER 6, 2013
Section 226 of the Income-tax Act, 1961 - Collection and recovery of tax - Other modes of recovery [Government employees - Recovery of excess payments made to] - Whether where some amount has been paid to an employee in excess to what he was entitled or payable to him, it can be recovered from him and mere fact that said payment was not due to any fraud or misrepresentation on part of employee would make no difference - Held, yes - Whether, however, before initiating such recovery proceedings, an opportunity of being heard has to be afforded to employee - Held, yes [Paras 25 and 26] [In favour of revenue]
FACTS
| ■ | The assessees filed instant writ petition against the impugned recovery whereby certain amount paid to them as salary was sought to be recovered from them alleging that they had been paid the aforesaid amount in excess to what actually they were entitled to. | |
| ■ | The case of assessees was that they had not been paid any amount as alleged in excess inasmuch whatever was actually due and payable, had been paid and, therefore, entire recovery was wholly illegal and without any authority of law. | |
| ■ | It was further stressed that the impugned recovery had been initiated without issuing any show-cause notice or giving opportunity of being heard and, therefore, it was in utter violation of principles of natural justice. |
HELD
| ■ | There is no right of assessees in law or otherwise that admitted excess payment wrongly made cannot be recovered. As a matter of right, assessees cannot contend that though they had been paid certain amount wrongly in excess to what was due to them, yet it cannot be recovered by the administration. [Para 17] | |
| ■ | Moreover, the above argument also presupposes an admission on the part of assessee that they were not entitled to the payment made in excess which is now being sought to be recovered. It is not the case that assessee were not aware or would not have been aware as to what would have been the correct pay scale or the allowance etc., which they would have been entitled to, but they continued to receive salary. | |
| ■ | If the fixation would have been made in a lower pay scale, it has always been seen that employee concerned immediately raises a protest that he is being paid wrong amount or lesser amount but when an employee receives more than the amount to which he is entitled, he does not inform the authorities concerned or bring this fact to their notice. | |
| ■ | It shows a tacit acquiescence on the part of employee in the wrong committed by administration to which he was the beneficiary and became part and parcel to the administration in this regard. [Para 18] | |
| ■ | There is one more aspect of matter which requires consideration. The excess money received by assessees is not anybody's private money but it has come from the coffer of public exchequer. It is a public money contributed by taxpayers and hard earned money of public at large. | |
| ■ | If an excess money is allowed to be retained by a person who is not authorised, that would result in denying user and consumption of that money other than the purpose for which it is meant. [Para 20] | |
| ■ | Administration, whether in executive or judiciary, holds public funds in trust and with responsibility of spending it strictly in the manner they are required to do so and not to enrich anyone or waste money by its unmindful, unauthorized and illegal acts. | |
| ■ | If any such thing has happened even if unknowingly and in deliberately, the administration is legally, morally and by any standard of civilised society, is bound to restore back such wasteful expenditure to the public exchequer so that it may thereafter be utilised in the manner and for the purpose, so prescribed. | |
| ■ | Any attempt on the part of administration to allow an employee to retain certain money, which the administration has wrongly paid to him, though the employee was not entitled to the same, or, any act on the part of administration, in not realising the said amount from the employee, is liable to be treated as breach of trust. | |
| ■ | Such decision would amount to not only waste of public money but also an attempt to perpetuate an illegal act. It is not a private property to which one can show any attitude of charity and so-called broad heart and magnanimity. | |
| ■ | This would be against any principle of administrative law. Simultaneously, an employee if retains something which he did not owe, he being also equally responsible to the public and public fund holding an office of trust, is bound to return/refund it. [Para 21] | |
| ■ | The Court also tried to find out as to from which budgetary allocation excess money was paid to the employee and to which it can be adjusted. Since the allocated money is already identified and beyond that nothing could have been paid by anybody, no authority can be allowed to retain any amount which he has received unauthorisedly or on account of mistake of administration. It shall also amount to financial indiscipline and misuse of public fund. [Para 24] | |
| ■ | In view of above discussion, it cannot be doubted, that, if admittedly some amount has been paid to an employee in excess to what he was entitled or payable to him, it can be recovered from him and the mere fact that the said payment was not due to any fraud or misrepresentation on the part of employee would make no difference. [Para 25] | |
| ■ | Coming to the second question regarding application of principles of natural justice, it cannot be doubted that whenever an employer takes a view, or from the record, finds, that certain amount has been paid to an employee, in excess to what he was not entitled, before issuing an order of recovery of the same, he must give an opportunity to the employee concerned to show cause, whether such amount should be recovered from him or not. | |
| ■ | If this opportunity is given to an employee, he can always show that what was paid to him, he was entitled therefor, and, there is neither any excess payment, nor any payment for which he was not entitled. | |
| ■ | An order passed directly without giving any show-cause notice or opportunity to the employee, would suffer the vice of non-observance of principles of natural justice. In a case where there is a dispute as to whether the employee has been paid an amount rightly or not, before passing any order, having civil consequences, the employer must afford an opportunity to the employee, else, such an order would be in violation of principles of natural justice. [Para 26] | |
| ■ | Applying the above expositions of law, in the present case, it is found from a bare perusal of impugned recovery that it has been initiated without giving any opportunity of hearing, i.e. without issuing any show-cause notice and, thus, the impugned recovery, apparently, is in violation of principles of natural justice. [Para 27] | |
| ■ | In the result, the writ petition succeeds and is allowed. The impugned orders insofar as it relates to assessees are hereby quashed. However, the respondents are at liberty to pass a fresh order after giving an opportunity of hearing to the assessee. [Para 30] |
CASES REFERRED TO
B.N. Singh v. State of U.P. 1979 ALJ 1184 (para 5), Surya Deo Mishra v. State of U.P. 2006 (1) UPLBEC 399 (para 5), Shyam Babu Verma v.Union of India [1994] 2 SCC 521 (para 5), Gabriel Saver Fernandes v. State of Karnatka 1995 Suppl. (1) SCC 149 (para 5), Mahmood Hasanv. State of U.P. IT 1997 (1) SC 353 (para 5), State of Karnataka v. Mangalore University Non-Teaching Employees' Association [2002] 3 SCC 302 (para 5), Purushottam Lal Das v. State of Bihar 2006 (10) SCALE 1999 (para 5), State of Haryana v. O.P. Sharma AIR 1993 SC 1903 (para 7), Union of India v. Smt. Sujatha Vedachalam AIR 2000 SC 2709 (para 8), Comptroller & Auditor General of India v. Farid Sattar AIR 2000 SC 1557 (para 8), B.J. Akkara v. Government of India [2006] 11 SCC 709 (para 9), Registrar Cooperative Societies v. Israil Khan [2010] 1 SCC 440 (para 10), Sahib Ram v. State of Haryana 1995 Supp (1) SCC 18 (para 10), Chandi Prasad Uniyal v. State of Uttarakhand 2012 (3) UPLBEC 2057 (para 11), State of Bihar v. Pandey Jagdishwar Prasad [2009] 2 SCC 117 (para 11), Yogeshwar Prasad v. National Institute of Education Planning and Administration [2010] 14 SCC 323 (para 11), Syed Abdul Qadir v. State of Bihar [2009] 3 SCC 475 (para 12), State of U.P. v. Vindeshwari Prasad Singh [Special Appeal No. 503 of 2008, dated 28-7-2009] (para 13), Union of India v. Rakesh Chandra Sharma2004 (1) ESC (Allahabad) 455 (para 16), P.K. Chinnaswamy v. Government of Tamilnadu AIR 1978 SC 78 (para 22) and Bhagwan Shukla v.Union of India [1994] 6 SCC 154 (para 26).
Ratnesh Kumar Pandey for the Appellant.
JUDGMENT
Sudhir Agarwal, J. - Considering the pure legal submission advanced by learned counsel for the petitioner, learned Standing Counsel stated that he does not propose to file any counter affidavit but would make oral submissions and the writ petition may be disposed of finally at this stage under the Rules of this Court, hence I proceed accordingly.
2. The Writ petition is directed against the impugned recovery whereby certain amount is sought to be recovered from petitioners alleging that they has been paid the aforesaid amount in excess to what actually they were entitled and payable.
3. The case of petitioners is that they have not been paid any amount as alleged in excess inasmuch whatever was actually due and payable, has been paid and, therefore, entire recovery is wholly illegal and without any authority of law . It is stressed that the impugned recovery has been initiated without issuing any show cause notice or giving opportunity to petitioner and, therefore, it is in utter violation of principles of natural justice. Learned counsel for petitioner further urged that had the petitioners been afforded opportunity, they would show to the authorities concerned itself, that, there is no error as alleged, and, no amount has been wrongly or excessively paid, and, therefore, no recovery is permissible or desirable. It is lastly contended that in any case, the amount received by petitioners, allegedly in excess, cannot be recovered since there is no element of fraud or misrepresentation on their part and, therefore, in view of various authorities of this Court and the Apex Court, no recovery can be given effect.
4. In substance, there are two submissions, which have to be considered by this Court:
| "(1) | Whether recovery of an amount, alleged to have been paid in excess, to an employee can not be affected by the employer, unless the (the employer) can show that there is an element of fraud or misrepresentation on the part of employees concerned. In other words, if there is no allegation of fraud or misrepresentation on the part of employee, whether an amount, paid in excess to an employee, can be recovered? | |
| (2) | Where the order of recovery has been passed, without issuing any show cause notice or giving opportunity, can it sustain?" |
5. I propose to consider question no. 1 first. Petitioners have sought to fortify their submissions that unless there is an element of fraud or misrepresentation on the part of concerned employee, a recovery of alleged excess paid amount cannot be effected, placed reliance on certain authorities of this Court as also the Apex Court which are a Division Bench decision of this Court in B.N. Singh v. State of U.P. 1979 ALJ 1184, a Full Bench judgment in Surya Deo Mishra v. State of U.P. 2006 (1) UPLBEC 399 and Apex Court's decisions in Shyam Babu Verma v. Union of India [1994] 2 SCC 521, Gabriel Saver Fernandes v. State of Karnataka 1995 Suppl.(1) SCC 149, Mahmood Hasan v. State of U.P. JT 1997(1) SC 353,State of Karnataka v. Mangalore University Non-Teaching Employees' Association [2002] 3 SCC 302, Purushottam Lal Das v. State of Bihar2006 (10) SCALE 1999. There are some other judgments of this Court which have followed the above authorities.
6. However, I find that there are certain direct authorities of Apex Court looking into this very question and taking a view otherwise and in the light of those binding authorities of Apex Court, which are of recent period also, I find it difficult to follow the authorities cited by the petitioners and, in my view, the later decisions of the Apex Court dealing with this question directly is a law binding on this Court under Article 141 of the Constitution of India and, therefore, I have no option but to follow the same, particularly, when most of the authorities of Apex Court cited at the bar on behalf petitioners have also been considered, discussed and distinguished or explained in the later authorities of the Apex Court. I propose to refer the decisions of the Apex Court which have taken a view otherwise holding that an amount, if has been wrongly paid to an employee and he is not entitled for the same, recovery of such amount cannot be said to be bad except of certain very limited exceptions which have also been described therein.
7. The first is State of Haryana v. O.P. Shrama AIR 1993 SC 1903.There an ad hoc interim relief was granted in 1972 by the Government on slab basis pending fixation of additional dearness allowance. No formula with reference to cost of living was adopted while granting ad hoc relief. When the formula for grant of additional dearness allowance of the cycle of increase by 8 points in the Consumer Price Index was adopted by the State Government, it realised that the ad-hoc interim relief was in excess by Rs. 9.40 to Rs. 45 per month depending on the pay-slab of a Government servant. It then decided to adjust increase rather than order lump sum recovery of the excess amount, in subsequent emoluments, payable to the employees, instead of recovering entire amount. Such order was passed in March 1974. The Court did not find order bad, illegal, arbitrary, unreasonable or unfair. It held that the Government has rightly chosen to recover excess amount in a phased manner.
8. In Union of India v. Smt. Sujatha Vedachalam AIR 2000 SC 2709,an employee was working as Senior Clerk (Accounts) in the pay scale of Rs.1400-2600. On his personal request, he was transferred from Nagpur to Bangalore. One of the conditions of transfer was that the employee shall technically resign from the post held at Nagpur and join as Direct Recruit on the post of Clerk at Bangalore. At the time of transfer, basic pay drawn by the employee at Nagpur in the cadre of Senior Accountant, was Rs. 1260/-. When the employee joined on the lower post of clerk, by mistake, her salary was fixed at basic pay of Rs.1250/- per month instead of Rs. 1070/-. On detection of mistake, pay was refixed at the stage of Rs. 1070/- by order dated 1.12.1995. The order(s) of recovery and refixation were challenged before Central Administrative Tribunal. Employee's claim was allowed by the Tribunal and Government's Writ Petition was dismissed by High Court. The Apex Court relying on its earlier decision in Comptroller & Auditor General of India v. Farid Sattar, AIR 2000 SC 1557, set aside both the judgments and upheld G.O. of refixation and recovery, with the only indulgence that excess pay may be recovered in easy instalments. The Court herein upheld recovery and permitted instalments.
9. Next is B.J. Akkara v. Government of India [2006] 11 SCC 709 wherein the law relating to recovery of excess payment from employees was considered. The Court held that cases wherein excess payment has not been allowed to be recovered from employees' are not founded because of any right in the employees but in equity and in exercise of judicial discretion to relieve employees from the hardship that may be caused, if recovery is implemented. Such a discretion is exercised by the Court and one of the reasons therefore, has been, as that the employee was receiving excess payment for a long period and utilising the same, genuinely believing that he is entitled to it, but where the employee had knowledge that the payment so received was in excess of what was due and the error was detected within a short period of wrong payment, Court would not give relief against such recovery. It is said that these matters lie in the realm of judicial discretion of the Court.
10. Then comes Registrar Cooperative Societies v. Israil Khan [2010] 1 SCC 440 wherein recovery of excess amount paid to employees of cooperative society was challenged relying on Apex Court's decision in Sahib Ram v. State of Haryana 1995 Supp.(1) SCC 18 and Shyam Babu Verma (supra). A two Judges Bench of Apex Court, consisting of Hon'ble R.V. Raveendran and Hon'ble P. Sathasivam said in para 6 of the judgment that there is no principle that any excess payment to an employee should not be recovered back by the employer. The Court observed that in certain cases merely a judicial discretion has been exercised by Apex Court to refuse recovery of excess wrong payments of emoluments/allowances from employees on the ground of hardship where the following conditions were fulfilled:
| (a) | The excess payment was not made on account of any misrepresentation or fraud on the part of employee; | |
| | and | |
| (b) | such excess payment was made by the employer by applying a wrong principle for calculating the pay/allowance or on the basis of a particular interpretation of rule/order, which is subsequently found to be erroneous. |
11. Now very recently, the Apex Court in Chandi Prasad Uniyal v. State of Uttarakhand 2012(3) UPLBEC 2057 has said that there is no such principle of law that wrong payment made to an employee can be recovered only in those cases where he is guilty of fraud and misrepresentation, and not otherwise. The Court has distinguished all its earlier decisions in Shyam Babu Verma (supra), Sahib Ram (supra), State of Bihar v. Pandey Jagdishwar Prasad [2009] 2 SCC 117 and Yogeshwar Prasad v. National Institute of Education Planning and Administration [2010] 14 SCC 323. In paragraphs 9, 15, 16 and 18 of the judgment the Court has said:
' "9. We are of the considered view, after going through various judgements cited at the bar, hat this court has not laid down any principle of law that only if there is misrepresentation or fraud on the part of the recipients of the money in getting the excess pay, the amount paid due to irregular /wrong fixation of pay be recovered."
"15. We are not convinced that this Court in various judgments referred to hereinbefore has laid down any proposition of law that only if the State or its officials establish that there was misrepresentation or fraud on the part of the recipients of the excess pay, then only the amount paid could be recovered. On the other hand, most of the cases referred to hereinbefore turned on the peculiar facts and circumstances of those cases either because the recipients had retired or on the verge of retirement or were occupying lower posts in the administrative hierarchy."
"16. We are concerned with the excess payment of public money which is often described as "tax payers money" which belongs neither to the officers who have effected over-payment nor that of the recipients. We fail to see why the concept of fraud or misrepresentation is being brought in such situation. Question to be asked is whether excess money has been paid or not may be due to a bona fide mistake. Possibly, effecting excess payment of public money by Government officers, may be due to various reasons like negligence, carelessness, collusion, favouritism etc. because money in such situation does not belong to the payer of the payee. Situations may also arise where both the payer and the payee are at fault, then the mistake is mutual. Payments are being effected in many situations without any authority of law and payments have been received by the recipients also without any authority of law. Any amount paid /received without authority of law can always be recovered barring few exceptions of extreme hardships but not as a matter of right, in such situations law implies an obligation on the payee to repay the money, otherwise it would amount to unjust enrichment."
"18. Appellants in the appeal will not fall in any of these exceptional categories, over and above, there was a stipulation in the fixation order that in the condition of irregular/wrong pay fixation, the institution in which the appellants were working would be responsible for recovery of the amount received in excess from the salary/pension. In such circumstances, we find no reason to interfere with the judgment of the High Court. However, we order the excess payment made be recovered from the appellant's salary in twelve equal monthly instalments starting form October 2012. The appeal stands dismissed with no order as to costs. IA nos. 2 and 3 are disposed of." '
12. The Apex Court further held that decision in Shyam Babu Verma (supra), Sahib Ram (supra), Yogeshwar Prasad (supra), etc. are all decided on their own facts and do not lay down any principle of law, restraining recovery of excess payment of salary from the concerned employee. On the contrary, in para 17 of the judgment the Court said that except few instances pointed out in Syed Abdul Qadir v. State of Bihar [2009] 3 SCC 475 and in B.J. Akkara (supra), excess payment due to wrong/irregular pay fixation can always be recovered.
13. There is a Division Bench judgement of this Court also in State of U.P. v. Vindeshwari Prasad Singh [Special Appeal No.503 of 2008, decided on 28th July, 2009]. The Court formulated two questions, as under:
| "(i) | Whether any financial benefit given to an employee by mistake without any misrepresentation or fraud on his part can be recovered from him later on after his superannuation from service? | |
| (ii) | Whether before directing for recovery of the amount paid in excess, the employee concerned is required to be given notice and opportunity of hearing?" |
14. Having said so, the Court said:
"Having given my most anxious consideration, neither on first principle nor precedent, I am prepared to accept the broad submission that excess amount paid to an employee by mistake cannot be recovered after his superannuation only on the ground that while obtaining monetary benefit, it has not made false representation or played fraud."
15. Further, the Court referred to Section 72 of Indian Contract Act and thereafter said:
"From a plain reading of the aforesaid provision it is evident that a person to whom money has been paid by mistake is obliged to return the same. In my opinion an employee not entitled to receive monetary benefit gets it, it becomes a case of unjust enrichment and restitution in case of unjust enrichment is an accepted principle for ensuring justice in appropriate cases. In my opinion in a case of mistake clear, plain and simple, excess amount paid to and employee can be recovered after retirement despite the fact that he had not made any misrepresentation or played fraud. There is no legal impediment in ordering for recovery from a retired employee such monetary benefits, which he had received on account of mistake and not entitled to such benefits. However, I would hasten to add that a mistake, pure and simple though justifies recovery of excess amount paid but in a case in which two interpretations are possible and one was consciously approved and benefit given to an employee by the competent authority but such decision in the ultimate analysis and long process of reasoning, later on is found incorrect, it may be possible to correct the same at a latter stage but the amount already paid in the light of the earlier decision is not fit to be recovered. In other wards, excess payment is made upon reasonably possible view taken by competent authority without fraud or misrepresentation, the excess payment cannot be recovered. Excess payment is possible to be made by the order of the employer. It is also possible by interim or final order of the Court, which ultimately is found to be erroneous. In case of former, a recovery is permissible under the condition enumerated above. However, in latter case, it depends upon the facts and circumstances of each case and it is primarily within the discretion of the Court." (Emphasis supplied)
16. The Court also relied upon an earlier Division Bench Judgement in Union of India v. Rakesh Chandra Sharma 2004 (1) ESC (Allahabad) 455,observing that there is no law of universal application, restraining the employer from recovering the extra amount paid to an employee beyond entitlement. The Court also observed that rectification of mistake is not only permissible but desirable otherwise system/requirement of auditing of accounts would be rendered nugatory.
17. These authorities clearly show that there is no right of petitioners in law or otherwise that admitted excess payment wrongly made cannot be recovered. As a matter of right, petitioners cannot contend that though they had been paid certain amount wrongly in excess to what was due to them, yet it cannot be recovered by the administration.
18. Moreover, the above argument also pre-supposes an admission on the part of petitioners that they were not entitled to the payment made in excess which is now being sought to be recovered. It is not the case that petitioners were not aware or would not have been aware as to what would have been the correct pay scale or the allowance etc., which they would have been entitled to, but they continued to receive salary. If the fixation would have been made in a lower pay scale, it has always been seen that employee concerned immediately raises a protest that he is being paid wrong amount or lesser amount but when an employee receive more than the amount to which he is entitled, he does not inform the authorities concerned or bring this fact to their notice. It shows a tacit acquiescence on the part of employee in the wrong committed by administration to which he was the beneficiary and became part and parcel to the administration in this regard.
19. There is one more aspect to which this Court would like to consider this matter.
20. The excess money received by petitioners is not anybody's private money but it has come from the coffer of public exchequer. It is a public money contributed by tax payers and hard earned money of public at large. If an excess money is allowed to be retained by a person who is not authorised, that would result in denying user and consumption of that money other than the purpose for which it is meant.
21. Administration, whether in executive or judiciary, holds public funds in trust and with responsibility of spending it strictly in the manner they are required to do so and not to enrich anyone or waste money by its unmindful, unauthorised and illegal acts. If any such thing has happened even if unknowingly and indeliberately, the administration is legally, morally and by any standard of civilised society, is bound to restore back such wasteful expenditure to the public exchequer so that it may thereafter be utilised in the manner and for the purpose, so prescribed. Any attempt on the part of administration to allow an employee to retain certain money, which the Administration has wrongly paid to him, though the employee was not entitled to the same, or, any act on the part of administration, in not realising the said amount from the employee, is liable to be treated as breach of trust. Such decision would amount to not only waste of public money but also an attempt to perpetuate an illegal act. It is not a private property to which one can show any attitude of charity and so called broad heart and magnanimity. This would be against any principle of administrative law. Simultaneously, an employee if retains something which he did not owe, he being also equally responsible to the public and public fund holding an office of trust, is bound to return/refund it.
22. In P.K. Chinnaswamy v. Government of Tamilnadu AIR 1978 SC 78,the Apex Court said that every public officer is a trustee and in respect of the office he holds and the salary and other benefits which he draws, he is obliged to render appropriate service to the State. Conversely, it would also be true that a Government official would be entitled to payment of only that amount, which he is entitled towards salary etc. under the relevant provisions, applicable to him, in the context of his status, position, rank , etc. If he has received or paid even by mistake, certain amount to which he was not entitled, it would amount to excess drawl of money unauthorisedly from public exchequer to which every Government official is a trustee and, therefore, whether mistaken or otherwise, no one is entitled to retain such unauthorised money belonging to public exchequer but, is under a legal and ethical obligation to return/refund the same, so that, it may be utilized for the purpose, it is made and decided by the competent authorities in budgetary allocation.
23. Every single penny constituting consolidated fund of India/State comes from hard earned money of tax payers and others. It has to be utilized strictly in the manner in which the competent authority i.e., the legislature has resolved and decided. No amount of public exchequer can be allowed to be squandered as a matter of charity or otherwise to be retained by a Government servant who is not entitled to obtain such money but by another Government Servant has been allowed to withdraw from public exchequer, may be, by his mistake or may be collusive mistake or otherwise.
24. This Court also tried to find out as to from which budgetary allocation excess money was paid to the employee and to which it can be adjusted. Since the allocated money is already identified and beyond that nothing could have been paid by anybody, no authority can be allowed to retain any amount which he has received unauthorisedly or on account of mistake of administration. It shall also amount to financial indiscipline and misuse of public fund. In the context of above decisions, I am clearly of the view that various authorities cited by the learned counsel for petitioners would not help him to claim that excess amount paid should not be recovered.
25. In view of above discussion, It cannot be doubted, that, if admittedly some amount has been paid to an employee in excess to what he was entitled or payable to him, it can be recovered from him and the mere fact that the said payment was not due to any fraud or misrepresentation on the part of employee would make no difference. This question, therefore, is answered against the petitioners.
26. Now coming to the second question regarding application of principles of natural justice, it cannot be doubted that whenever an employer takes a view, or from the record, finds, that certain amount has been paid to an employee, in excess to what he was not entitled, before issuing an order of recovery of the same, he must give an opportunity to the employee concerned to show cause, whether such amount should be recovered from him or not. If this opportunity is given to an employee, he can always show that what was paid to him, he was entitled therefor, and, there is neither any excess payment, nor any payment for which he was not entitled. An order passed directly without giving any show cause notice or opportunity to the employee, in my view, would suffer the vice of non observance of principles of natural justice. In a case where there is a dispute as to whether the employee has been paid an amount rightly or not, before passing any order, having civil consequences, the employer must afford an opportunity to the employee, else, such an order would be in violation of principles of natural justice. The Apex Court in Bhagwan Shukla v. Union of India [1994] 6 SCC 154,is similar circumstances, has held that an order passed in violation of principles of natural justice cannot be sustained. In para 3 of the judgment, the Apex Court observed as under:
"The appellant has obviously been visited with civil consequences but he had been granted no opportunity to show cause ...Fair play in action warrants that no such order which has the effect of an employee suffering civil consequences should be passed without putting the concerned to notice and giving him hearing in the matter."
27. The second question, as a proposition of law, therefore, is answered in favour of petitioners.
28. Now applying the above expositions of law, in the present case, I find from a bare perusal of impugned recovery shows it has been initiated without giving any opportunity of hearing, i.e. without issuing any show cause notice. The impugned recovery, apparently, is in violation of principles of natural justice. Learned Standing Counsel also could not dispute that the impugned recovery has been initiated without any show cause notice or without any opportunity to petitioners to explain their point of view.
29. In view of the aforesaid expositions of law, and the admitted fact, in the case in hand, that, the impugned recovery was initiated without affording any opportunity to the petitioners, this writ petition deserved to be allowed, since the recovery impugned is unsustainable being in violation of the principle of natural justice.
30. In the result, the writ petition succeeds and is allowed. The impugned orders dated 12.08.2013, 10.09.2013, 01.10.2013, 21.09.2013 and 23.09.2013, insofar as it relates to petitioners, are hereby quashed. However, the respondents are at liberty to pass a fresh order after giving an opportunity of hearing to the petitioners.
31. It is clarified that in case, respondent-competent authority after observing the principles of natural justice comes to the conclusion that amount actually paid to petitioners was due to them or they were entitled for the same and there is no excess payment, the matter would stand dropped. In case, however, they come to the conclusion that the amount paid to petitioners was in excess or not was payable to them, and, hence, is recoverable, the employer shall recover the same in easy instalments.
32. There shall be no order as to costs.
SUNIL*In favour of revenue.
The Department of Service tax has found several banking services taxable on scrutiny following the negative list of services.
According to officials close to the development, some of the contentious issues are availing tax credit for payment of premium for insuring deposits, services rendered on behalf of the Reserve Bank of India (RBI) and commission on foreign exchange business. At present the banks treat most of these services exempt but they are not as per the department, sources said
The Department of Service Tax has also issued show cause notices to several banks in raising demand.
Explaining this, an official source said the banks pay premium to Deposit Insurance and Credit Guarantee Corporation (DICGC) for insuring their deposit (fixed deposits, saving banks deposits and current account) and pay 12% of the total amount paid premium as service tax.
Then these banks take credit for the service tax paid on these items for payment of taxes on other taxable services. The credit is availed by the banks for paying the service tax on insuring these items (various deposits) as according to banks these deposits are output services as per service tax rules.
Then these banks take credit for the service tax paid on these items for payment of taxes on other taxable services. The credit is availed by the banks for paying the service tax on insuring these items (various deposits) as according to banks these deposits are output services as per service tax rules.
However the Department is of the view that as per the rule 6 of the Cenvat Credit rules 2004, these deposits form part of negative services and not output services. Cenvat rules make it obligatory to get credit for payment of taxes on output services and not negative services as per the negative list. An output service is defined as any taxable service within taxable territory of India but does not include negative services as per cenvat credit rules and reverse charge payments.
While the department has found several omissions by the banks on this account in its scrutiny amounting to a lapse of around Rs 2,000-2,500 crore across the banking sector, this issue is still is under deliberation, said sources
Similarly, the RBI pays commission to the banks for collecting government taxes – customs, service tax, income tax etc. These are services rendered by the banks on behalf of the RBI. While department contends that banks should pay service tax on the commission received, banks at present do no pay service taxes.
Kerala Bench of CESTAT (Customs, Excise and Service Tax Appellate Tribunal) held that banks will not pay services tax on commission received from RBI on these services.
Similarly, the RBI pays commission to the banks for collecting government taxes – customs, service tax, income tax etc. These are services rendered by the banks on behalf of the RBI. While department contends that banks should pay service tax on the commission received, banks at present do no pay service taxes.
Kerala Bench of CESTAT (Customs, Excise and Service Tax Appellate Tribunal) held that banks will not pay services tax on commission received from RBI on these services.
The department is of the view that as per the negative list, services rendered by RBI are exempt from service but services to RBI and services undertaken on behalf of the RBI are taxable as these are rendered free. These banks receive commission for these services discharged on behalf of the RBI and hence should pay service tax.
To this effect, a total demand has been firmed up to the tune of Rs 80-100 crore and show cause notices have been issued to banks2012-TIOL-158-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Tax Appeal No. 2538 of 2009
COMMISSIONER OF INCOME TAX-I
Vs
BECHARBHAI P PARMAR
Akil Kureshi and Sonia Gokani, JJ
Dated: January 10, 2012
Appellant Rep by: Mrs Manish R Bhatt with Mr Malak Bhatt
Respondent Rep by: Mr S N Soparkar, Sr Adv with Mrs Swati Soparkar
Respondent Rep by: Mr S N Soparkar, Sr Adv with Mrs Swati Soparkar
Income tax - Sections 132, 158BFA, 271(1)(c) - Whether the penalty u/s 158BFA (2) is mandatory in nature - Whether while levying penalty u/s 158BFA(2), the concept of proving concealment of income cannot be applied as section 158BFA (2) does not require so and the penalty imposable u/s 271 [1](c) of the Act is different from Section 158BFA(2) - Whether when in the search proceedings, the addition is made even on estimated basis and is accepted, the penalty cannot be deleted stating that the addition was made on estimated basis as it would amount to re-opening the question of quantum addition.
Search and seizure operation u/s 132 was carried out. AO, while carrying out the assessment proceedings made various additions over and above the income disclosed by the assessee. CIT(A) restricted the additions. Tribunal granted further relief. Assessee did not carry the matter any further and Tribunal's order thus became final. AO issued notice for imposing penalty u/s 158BFA(2). No reply was received from the assessee and AO imposed penalty u/s 158BFA(2). CIT (A) confirmed the order of the AO. Tribunal retained a small portion of the penalty imposed.
Revenue raised the question of law that whether the penalty u/s 158BFA(2) was mandatory or discretionary in character and if it was held to be discretionary, did the Tribunal exercise its discretion on legally sound principles so as to delete the penalty.
In respect of various additions tribunal dealt with in penalty order addition-wise. In respect of addition towards unexplained investment in residential house, compound wall and farm house. Tribunal deleted the penalty holding that the income was required to be treated as unaccounted, was a mere presumption. Nothing incriminating had been found which would reveal that the assessee had incurred the said expenses. Though additions were confirmed to the above extent, the same being on estimation basis and the assessee is not found of guilty of concealment. Another addition was towards the inflation of agricultural income by assessee. Tribunal observed that there was nothing on the record to prove that the assessee had disguised his tax bearing income as agriculture income, for which penalty could be levied. In respect of the addition on account of investment in financial activities, Tribunal deleted such penalty observing that, no doubt there was a difference in undisclosed investment in finance activities, but for that the assessee had already demonstrated that there were estimates of additions by decoding the jottings and estimated rotation of funds by adopting six month's cycle. In view of the presence of large number of unavoidable factors which are co-related by logical imagination, no penalty could be levied.
Revenue contended that the penalty u/s 158BFA(2) of the Act is mandatory in nature. Once it is held that during the block assessment income is determined, which is higher than the declared income of the assessee, automatically penalty would follow. The only discretion would be at the rate at which such penalty should be imposed. Section 158BFA finds place in Chapter XIVB which makes special provisions for undisclosed income and the word, 'may' used in sub-section (2) of the said section should be constructed as, 'shall'. Even if penalty u/s 158BFA (2) was held to be discretionary, the Tribunal committed serious error in deleting the penalty on the grounds which were not germane.
Assessee contended that the penalty u/s 158BFA is not mandatory. Even if additions are sustained during the block assessment, it is still the discretion of the Assessing Officer whether or not to impose the penalty.
After hearing both the parties, the High Court held that,
++ upon perusal of sub-section (2) of Section 158BFA, it would emerge that the Assessing Officer or Commissioner (Appeals) has the power to impose penalty in course of any proceedings under the said Chapter, which penalty would range between 100% to 300% of the tax leviable on the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC of the Act. Proviso to sub-section (2) of Section 158BFA of the Act, however, provides for four conditions, upon satisfaction of which, the assessee would get immunity from such penalty. Such conditions are to be satisfied cumulatively. In essence, it provides that the penalty shall not be imposed if the assessee furnishes a return under clause (a) of Section 158BC; also pays tax on the basis of such return, or offers for adjustment any money seized, or produces evidence of having paid such tax, and also does not file appeal against assessment on that part of the income which is shown in the return. In other words, in cases of proceedings for block assessment, the assessee would have an additional chance to avoid penalty by furnishing a return, paying tax on such undisclosed return and accepting finality with respect to the same;
++ proviso to sub-section (2) of Section 158BFA is merely in nature of clarification and provides that the first proviso would not apply where undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return. Closely seen, sub-section (2) of Section 158BFA makes it clear that it is well within the discretion of the Assessing Officer, while framing the assessment for the block period, whether or not to impose any penalty or not. The words, 'may direct' has to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word, 'may' cannot be read as 'shall'. Thus the penalty u/s 158FBA(2) is not mandatory in nature;
++ section 273B of the Act which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as Section 271, 271A, etc., makes no mention of Section 158BFA(2). This still does not mean that penalty under Section 158BFA (2) is mandatory;
++ the Tribunal deleted the penalties on three grounds: firstly, that the addition was made only on estimation; secondly, there was no concealment proved by the Revenue, and thirdly, that according to the Tribunal, certain additions would not give rise to penalty proceedings. None of the grounds were sufficient to permit the Tribunal to delete the penalties. The concept of proving concealment of income can nowhere be traced in Section 158BFA (2). Penalty imposable u/s 271 [1](c) of the Act is different from the one that can be imposed u/s 158BFA. Section 158BF provides, inter alia, that no penalty under Section 271[1](c) of the Act shall be leviable with respect to undisclosed income determined in the block assessment. Thus, statutorily also, penalty provided under sub-section (2) of Section 158BFA is set apart from one imposable under Section 271 [1](c) of the Act. The concept of the onus on the Revenue to prove concealment of the income, therefore, cannot be imported while considering the question of penalty under sub-section (2) of Section 158BFA of the Act;
++ tribunal deleted penalty observing that the findings of the AO is mere presumption. Such an observation would amount to re-opening the question of quantum addition which had attained finality by virtue of the decision of the Tribunal. Similarly the deletion of penalty on inflated agricultural income would amount to re-opening the closed issues of addition sustained upto the level of the Tribunal. Regarding estimated addition, additions made on the basis of estimation may be one of the grounds on which discretion not to impose penalty may be exercised. However, in absence of any requirement to prove concealment or furnishing of inaccurate particulars found in Section 271 [1](c) of the Act cannot form the sole basis to delete penalty. Thus, Tribunal's order is restored to the tribunal for fresh consideration and disposal in accordance with law.
Search and seizure operation u/s 132 was carried out. AO, while carrying out the assessment proceedings made various additions over and above the income disclosed by the assessee. CIT(A) restricted the additions. Tribunal granted further relief. Assessee did not carry the matter any further and Tribunal's order thus became final. AO issued notice for imposing penalty u/s 158BFA(2). No reply was received from the assessee and AO imposed penalty u/s 158BFA(2). CIT (A) confirmed the order of the AO. Tribunal retained a small portion of the penalty imposed.
Revenue raised the question of law that whether the penalty u/s 158BFA(2) was mandatory or discretionary in character and if it was held to be discretionary, did the Tribunal exercise its discretion on legally sound principles so as to delete the penalty.
In respect of various additions tribunal dealt with in penalty order addition-wise. In respect of addition towards unexplained investment in residential house, compound wall and farm house. Tribunal deleted the penalty holding that the income was required to be treated as unaccounted, was a mere presumption. Nothing incriminating had been found which would reveal that the assessee had incurred the said expenses. Though additions were confirmed to the above extent, the same being on estimation basis and the assessee is not found of guilty of concealment. Another addition was towards the inflation of agricultural income by assessee. Tribunal observed that there was nothing on the record to prove that the assessee had disguised his tax bearing income as agriculture income, for which penalty could be levied. In respect of the addition on account of investment in financial activities, Tribunal deleted such penalty observing that, no doubt there was a difference in undisclosed investment in finance activities, but for that the assessee had already demonstrated that there were estimates of additions by decoding the jottings and estimated rotation of funds by adopting six month's cycle. In view of the presence of large number of unavoidable factors which are co-related by logical imagination, no penalty could be levied.
Revenue contended that the penalty u/s 158BFA(2) of the Act is mandatory in nature. Once it is held that during the block assessment income is determined, which is higher than the declared income of the assessee, automatically penalty would follow. The only discretion would be at the rate at which such penalty should be imposed. Section 158BFA finds place in Chapter XIVB which makes special provisions for undisclosed income and the word, 'may' used in sub-section (2) of the said section should be constructed as, 'shall'. Even if penalty u/s 158BFA (2) was held to be discretionary, the Tribunal committed serious error in deleting the penalty on the grounds which were not germane.
Assessee contended that the penalty u/s 158BFA is not mandatory. Even if additions are sustained during the block assessment, it is still the discretion of the Assessing Officer whether or not to impose the penalty.
After hearing both the parties, the High Court held that,
++ upon perusal of sub-section (2) of Section 158BFA, it would emerge that the Assessing Officer or Commissioner (Appeals) has the power to impose penalty in course of any proceedings under the said Chapter, which penalty would range between 100% to 300% of the tax leviable on the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC of the Act. Proviso to sub-section (2) of Section 158BFA of the Act, however, provides for four conditions, upon satisfaction of which, the assessee would get immunity from such penalty. Such conditions are to be satisfied cumulatively. In essence, it provides that the penalty shall not be imposed if the assessee furnishes a return under clause (a) of Section 158BC; also pays tax on the basis of such return, or offers for adjustment any money seized, or produces evidence of having paid such tax, and also does not file appeal against assessment on that part of the income which is shown in the return. In other words, in cases of proceedings for block assessment, the assessee would have an additional chance to avoid penalty by furnishing a return, paying tax on such undisclosed return and accepting finality with respect to the same;
++ proviso to sub-section (2) of Section 158BFA is merely in nature of clarification and provides that the first proviso would not apply where undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return. Closely seen, sub-section (2) of Section 158BFA makes it clear that it is well within the discretion of the Assessing Officer, while framing the assessment for the block period, whether or not to impose any penalty or not. The words, 'may direct' has to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word, 'may' cannot be read as 'shall'. Thus the penalty u/s 158FBA(2) is not mandatory in nature;
++ section 273B of the Act which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as Section 271, 271A, etc., makes no mention of Section 158BFA(2). This still does not mean that penalty under Section 158BFA (2) is mandatory;
++ the Tribunal deleted the penalties on three grounds: firstly, that the addition was made only on estimation; secondly, there was no concealment proved by the Revenue, and thirdly, that according to the Tribunal, certain additions would not give rise to penalty proceedings. None of the grounds were sufficient to permit the Tribunal to delete the penalties. The concept of proving concealment of income can nowhere be traced in Section 158BFA (2). Penalty imposable u/s 271 [1](c) of the Act is different from the one that can be imposed u/s 158BFA. Section 158BF provides, inter alia, that no penalty under Section 271[1](c) of the Act shall be leviable with respect to undisclosed income determined in the block assessment. Thus, statutorily also, penalty provided under sub-section (2) of Section 158BFA is set apart from one imposable under Section 271 [1](c) of the Act. The concept of the onus on the Revenue to prove concealment of the income, therefore, cannot be imported while considering the question of penalty under sub-section (2) of Section 158BFA of the Act;
++ tribunal deleted penalty observing that the findings of the AO is mere presumption. Such an observation would amount to re-opening the question of quantum addition which had attained finality by virtue of the decision of the Tribunal. Similarly the deletion of penalty on inflated agricultural income would amount to re-opening the closed issues of addition sustained upto the level of the Tribunal. Regarding estimated addition, additions made on the basis of estimation may be one of the grounds on which discretion not to impose penalty may be exercised. However, in absence of any requirement to prove concealment or furnishing of inaccurate particulars found in Section 271 [1](c) of the Act cannot form the sole basis to delete penalty. Thus, Tribunal's order is restored to the tribunal for fresh consideration and disposal in accordance with law.
Revenue's appeal allowed
JUDGEMENT
Per: Akil Kureshi:
Revenue is in appeal against the judgment of the Tribunal dated 25 th February 2009, by which the Tribunal was pleased to substantially allow the assessee's appeal and delete substantial portion of the penalty imposed by the Assessing Officer and confirmed by the CIT [A] on different additions made during the block assessment proceedings. On 11 th April 2011, we had issued notice for final disposal, pursuant to which, learned sr. advocate Shri Soparkar appeared and argued on behalf of the respondent-assessee. For the purpose of this appeal, following substantial questions of law arise :
[A] Whether or not penalty under sub-section (2) of Section 158BFA of the Income-tax Act, 1961 is of mandatory nature, or whether despite additions made in the Block Assessment, discretion still lies in the Assessing Officer whether or not to impose penalty; and[B] If it is held that it is discretionary whether or not to impose penalty under Section 158BFA (2) of the Act, whether the Tribunal correctly exercised its discretion to delete the penalty imposed by the Assessing Officer and confirmed by the CIT [A].
2. Briefly stated, facts are as follow :
2.1 In case of the respondent-assessee, search and seizure operation under Section 132 of the Act was carried out on 31 st May 2001 at his residence, giving rise to the block assessment proceedings. The assessee filed return of income. The Assessing Officer, while carrying out the assessment proceedings vide its order dated 30 th May 2003, made various additions over and above the income disclosed by the assessee in his return. The Assessing Officer determined the undisclosed income at Rs. 4.08 Crores [ rounded off ] against the disclosed income of the assessee of Rs. 45,00,000/= in the return for the block period.
2.2 Assessee carried the issue in appeal. CIT[A] vide its order dated 27 th February 2004, restricted the additions and assessed the net income of the assessee at Rs. 97.30 lacs [rounded off ]. In further appeal by the assessee, the Tribunal granted further relief. By virtue of the Tribunal's order, the assessee's total income for the block period came to Rs. 71.30 lacs [ rounded off ]. After giving benefit of the returned total income for the block period of Rs. 52.94 lacs [ rounded off ], which included Rs. 45.00 lacs of income declared by the assessee during the block assessment, the additions as per the Tribunal's final order worked out to Rs. 18.35 lacs [rounded off]. Assessee did not carry the matter any further. Tribunal's order thus became final.
2.3 On the basis of such concluded additions, the Assessing Officer issued notice for imposing penalty under Section 158BFA (2) of the Act, calling upon the assessee why penalty of Rs. 11.00 lacs being minimum @ 100% of the tax sought to be evaded should not be imposed on the assessee. No reply was received from the assessee. The Assessing Officer thereupon passed his order dated 10 th April 2006 confirming the penalty of Rs. 11.01 lacs [ rounded off].
2.4 The assessee, aggrieved by the said order of the Assessing Officer imposing penalty, carried the matter in appeal before the CIT[A] who confirmed the order of Assessing Officer, upon which the assessee approached the Tribunal.
2.5 The Tribunal, by the impugned order, retained a small portion of the penalty imposed. The Tribunal, however, deleted penalty totalling Rs. 10.04 lacs. Thereupon, the Revenue has approached this Court by filing the present Tax Appeal.
3. From the questions framed by us, it can be seen that there are two aspects of the matter. First issue is whether the penalty under Section 158BFA (2) of the Act is mandatory or discretionary in character; and secondly, if it is held to be discretionary, did the Tribunal exercise its discretion on legally sound principles so as to delete the penalty.
3.1 Though, we would be discussing both these questions separately after taking note of submissions made by the counsel for the parties and authorities cited before us, to complete the narration, it would be appropriate to take note of the reasons given by the Tribunal to delete the penalties.
4. From the impugned order of the Tribunal, it can be seen that the Tribunal has discussed different heads of additions, on the basis of which the penalties were imposed. With respect to the additions which were confirmed to the extent of Rs. 25,000/= and Rs. 2,00,000/= towards unexplained investment in residential house, compound wall and farm house, the Tribunal deleted the penalty holding that the findings of the Assessing Officer that the income was required to be treated as unaccounted, is a mere presumption. The Tribunal observed that nothing incriminating had been found which would reveal that the appellant had incurred the said expenses. Though additions were confirmed to the above extent, the same being on estimation basis, revenue failed to prove that the appellant is guilty of concealment. In that view of the matter, the penalty to the extent of Rs. 25,000/= and Rs. 2,00,000/= [of income] was required to be deleted.
5. With respect to sum of Rs. 4.60 lacs, the Tribunal noted that the Assessing Officer added a sum of Rs. 70.92 lacs on the ground that the assessee had inflated his agricultural income. The addition was restricted to Rs. 11.28 lacs by CIT [A] and after giving set-off of the income added, the same was restricted to Rs. 4.60 lacs. With respect to penalty corresponding to this addition, the Tribunal observed that there is nothing on the record to prove that the assessee had disguised his tax bearing income as agriculture income, for which penalty can be levied. Though assessee had failed to furnish supporting evidence, however, it cannot be held that such agricultural income did not exist. On this basis, the Tribunal directed deletion of penalty.
6. Regarding addition of a sum of Rs. 17.22 lacs, on account of investment in financial activities, the Tribunal noted that initially addition of Rs. 2.58 Crores was made by the Assessing Officer on the basis of jottings on the back side of various visiting cards. Finally, Tribunal restricted the addition to Rs. 35.73 lacs. After giving set-off for the sum of Rs. 18.50 lacs offered by the assessee to tax as unexplained investment, penalty was levied on difference of Rs. 17.22 lacs. The Tribunal deleted such penalty observing that, " ..On perusal of facts of the case, we find that no doubt there is a difference in undisclosed investment in finance activities declared by the appellant and ultimately determined by the A.O., but for that the appellant has already demonstrated that there were estimates of additions by decoding the jottings and estimated rotation of funds by adopting six month's cycle as against appellant's contention of 1 to 2 months, we are of the opinion in view of the presence of large number of unavoidable factors which are co-related by logical imagination, no penalty could be levied. Hence, the penalty levied on this sum of Rs. 17,22,820/= is directed to be deleted .�
6.1 On the basis of the above facts, counsel for the Revenue vehemently contended that the penalty under Section 158BFA (2) of the Act is mandatory in nature. Once it is held that during the block assessment income is determined, which is higher than the declared income of the assessee, automatically penalty would follow. The only discretion of the Assessing Officer would be at the rate at which such penalty should be imposed. In other words, the Assessing Officer would have discretion only to impose penalty ranging between 100% to 300% on the income sought to be evaded. Inviting our attention to the different statutory provisions, counsel would contend that Section 158BFA finds place in Chapter XIVB which makes special provisions for undisclosed income. He, therefore, submitted that the word, "may" used in sub-section (2) of the said section should be constructed as, " shall". In this regard, counsel relied upon the decision of the Apex Court in Bachahan Devi & Anr. v. Nagar Nigam, Gorakhpur & Anr., reported in [(2008) 12 SCC 372], wherein the Apex Court observed as under :-
" 17. The question, whether a particular provision of a statute, which, on the fact of it, appears mandatory inasmuch as it used the word "shall�, or is merely directory, cannot be resolved by laying down any general rule, but depends upon the facts of each case particularly on a consideration of the purpose and object of the enactment in making the provisions. To ascertain the intention, the court has to examine carefully the object of the statute, consequence that may follow from insisting on a strict observance of the particular provision and, above all, the general scheme of the other provisions of which it forms a part. The purpose for which the provision has been made, the object to be attained, the intention of the legislature in making the provisions, the serious inconvenience or injustice which may result in treating the provision one way or the other, the relation of the provision to other consideration which may arise on the facts of any particular case, have all to be taken into consideration in arriving at the conclusion whether the provision is mandatory or directory. Two main considerations for regarding a rule as directory are : (I) absence of any provision for the contingency of any particular rule not being complied with or followed, and (ii) serious general inconvenience and prejudice to the general public would result if the act in question is declared invalid for non-compliance with the particular rule.�
6.2 Counsel further submitted that even if penalty under Section 158BFA (2) was held to be discretionary, the Tribunal committed serious error in deleting the penalty on the grounds which were not germane. He submitted that the Assessing Officer as well as the CIT [A] had found sufficient reasons to impose the penalty. The Tribunal erred in deleting such penalty without proper reasons.
7. On the other hand, learned counsel for the assessee contended that the penalty under Section 158BFA is not mandatory. Even if additions are sustained during the block assessment, it is still the discretion of the Assessing Officer whether or not to impose the penalty. In this regard, he invited our attention to the following decisions :
[a] Commissioner of Income-Tax v. Smt. Anju R. Innan i, reported in [(2010) 323 ITR 626 (Bom) = (2010-TIOL-242-HC-MUM-IT)];[b] Commissioner of Income-Tax v. Satyendra Kumar Dosi & Anr. , reported in [(2009) 315 ITR 172 (Raj)];[c] Commissioner of Income-Tax v. Harkaran Das Ved Pal , reported in [(2011) 336 ITR 8 (Delhi) = (2008-TIOL-621-HC-DEL-IT)].
8. Having thus heard learned counsel for the parties, we may take note of the relevant statutory provisions. Section 158BFA of the Act is part of Chapter XIVB, which lays down special procedure for assessment of search cases. Section 158BFA pertains to levy of interest and penalty in certain cases. Sub-section (2) of Section 158BFA, which is relevant for our purpose, reads as under:-
"158BFA. Levy of interest and penalty in certain cases -(1) xx xx xx xx(2) The Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC :Provided that no order imposing penalty shall be made in respect of a person if -(i) such person has furnished a return under clause (a) of Section 158BC;(ii) the tax payable on the basis of such return has been paid or, if the assets seized consist money, the assessee offers the money so seized to be adjusted against the tax payable;(iii) evidence of tax paid is furnished along with the return; and(iv) an appeal is not filed against the assessment of that part of income which is shown in the return :Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.8. Upon perusal of sub-section (2) of Section 158BFA of the Act, it would emerge that the Assessing Officer or Commissioner (Appeals) has the power to impose penalty in course of any proceedings under the said Chapter, which penalty would range between 100% to 300% of the tax leviable on the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC of the Act.8.1 Proviso to sub-section (2) of Section 158BFA of the Act, however, provides for four conditions, upon satisfaction of which, the assessee would get immunity from such penalty. Such conditions are to be satisfied cumulatively. In essence, it provides that the penalty shall not be imposed if the assessee furnishes a return under clause (a) of Section 158BC; also pays tax on the basis of such return, or offers for adjustment any money seized, or produces evidence of having paid such tax, and also does not file appeal against assessment on that part of the income which is shown in the return. In other words, in cases of proceedings for block assessment, the assessee would have an additional chance to avoid penalty by furnishing a return, paying tax on such undisclosed return and accepting finality with respect to the same.8.2 Further proviso to sub-section (2) of Section 158BFA is merely in nature of clarification and provides that the first proviso would not apply where undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return.8.3 Closely seen, sub-section (2) of Section 158BFA makes it clear that it is well within the discretion of the Assessing Officer, while framing the assessment for the block period, whether or not to impose any penalty or not. The words, "may direct� has to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word, " may" cannot be read as "shall".8.4 In case of Hindustan Steel Limited v. State of Orissa, reported in 83 ITR 26 =(2002-TIOL-148-SC-CT), the Apex Court in connection with penalty prescribed in Orissa Sales Tax Act observed :".. ..An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to imposed penalty, when there is a technical or venial breach of the provisions of the Actor where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute�.
9. The contention of the counsel for the Revenue that only upon satisfaction of the conditions contained in proviso to sub-section (2) that the assessee, in case of the block assessment can be spared of the penalty cannot be accepted. It is, of course, true that upon satisfying such conditions, the assessee would get immunity from penalty. Nevertheless,this is not a thing as to suggest that in no other case, or on no other ground, the Assessing Officer may at his discretion, not impose penalty the moment additions under clause (c) of Section 158BC are sustained. In other words, we are unable to hold that the penalty under Section 158BFA(2) is mandatory in nature.
9.1 It is true that Section 273B of the Act which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as Section 271, 271A, etc., makes no mention of Section 158BFA(2). This still does not mean that penalty under Section 158BFA (2) is mandatory.
10. This view that we have taken gets support from various decisions of different High Courts cited before us. In case of Commissioner of Income Tax v. Smt. Anju R. Inani [Supra], it was observed as under :-
"9. The substantive part of sub-section (2) of Section 158BFA is an enabling provision by which the Assessing Officer or, as the case may be, the Commissioner (Appeals) is empowered to impose a penalty in the course of any proceedings under Chapter XIV B. Parliament has indicated its intent by using the expression "may direct that a person shall pay by way of penalty a sum...�. Consequently, under the substantive part of sub-section (2), the imposition of a penalty is not mandatory, but lies in the discretion of the Assessing Officer or, as the case may be, the Commissioner (Appeals). It is trite law that the imposition of a penalty is not mandatory merely because it is lawful. The imposition of a penalty is a matter which lies in the exercise of discretion which has to be determined judiciously.�
10.1 Same is also the view of the Rajasthan High Court in case of Commissioner of Income-Tax v. Satyendra Kumar Dosi & Anr. [Supra], wherein it was observed as under :-
"A bare perusal of section 158BFA (2) goes to show that by virtue of the said provisions, the Assessing Officer or the Commissioner (Appeals) is vested with the power to direct the assessee to pay the penalty as specified in respect of the undisclosed income determined by the Assessing Officer under clause (c) of Section 158BC, however, the Assessing Officer or the Commissioner of Income Tax (Appeals) is not empowered to impose the penalty in respect of the person who fulfills the conditions enumerated in the first proviso to section 158BFA. It is to be noticed that in the main provision providing for imposition of penalty, the word "may� has been used. It is settled law that the penal provision in the taxing statutes shall be construed strictly. From the plain reading of section 158BFA (2), it does not appear that in all the cases where the undisclosed income is determined by the Assessing Officer under clause (c) of Section 158BC, the imposition of penalty as specified under section 158BFA shall follow as a natural consequence thereof. In our considered opinion, in terms of Section 158BFA, a discretion is vested with the Assessing Officer to levy the penalty in respect of the undisclosed income but it cannot be inferred from the said provision that the liability for penalty is automatic. Of course, the proviso to section 158BFA (2) enumerates the circumstances wherein no penalty is leviable but from that also it cannot be inferred that the absence of the circumstances enumerated will attract the provision of penalty automatically.�
10.2 This view is also expressed by Kerala High Court in case of Dr. Attukal Radhkrishnan v. Assistant Commissioner of Income Tax & Ors., reported in 235 CTR p-384.
10.3 Delhi High Court in case of Commissioner of Income Tax v. Harkaran Das Ved Pal [Supra] also took a similar view, observing that -
" It is apparent that in the course of any proceedings under Chapter XIV-B, the Assessing Officer "may direct� that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income "determined bythe Assessing Officer under clause (c) of section 158BC�. This, in our view, implies that the Assessing Officer has discretion in imposing a penalty. This is apparent from the use of the expression "may direct that a person shall pay by way of penalty�. Once the Assessing Officer, exercising his discretion, comes to the conclusion that penalty is imposable, the statute requires that such sum of penalty "shall� not be less than the amount of tax leviable but "shall� not also exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer as indicated above. While it is discretionary for the Assessing Officer to direct that a person shall pay penalty, it is mandatory that, in case the Assessing Officer is of the opinion that such penalty is leviable, the penalty amount shall not be less than the amount of tax leviable in respect of the undisclosed income and not mor than three times of such tax. A plain reading of section 158BFA (2) gives us the indication that the Legislature did not intend that imposition of penalty by itself to be mandatory. The Legislature intended the same to be left to the discretion, which of course has to be exercised upon judicial considerations, of the Assessing Officer.�
11. Coming to the facts of the case, we have already noted the reasons recorded by the Tribunal for deleting the penalties under different heads. Principally, the Tribunal deleted the penalties on three grounds : firstly , that the addition was made only on estimation; secondly, there was no concealment proved by the Revenue, and thirdly, that according to the Tribunal, certain additions would not give rise to penalty proceedings.
12. We are afraid, none of the grounds were sufficient in facts of this case to permit the Tribunal to delete the penalties. Firstly, we are of the clear opinion that the concept of proving concealment of income can nowhere be traced in Section 158BFA (2). The penalty envisaged and imposable under Section 271 [1](c) of the Act is different from the one that can be imposed under Section 158BFA. Section 271 [1](c) of the Act provides for penalty in case an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It can be easily seen that during the course of assessment proceedings for normal assessment, large number of claims and deductions may be putforthby the assessee which may or may not be accepted in facts or on law by the Assessing Officer. Mere disallowance of a claim, therefore, would not give rise to the penal proceedings unless as provided in Section 271 [1](c) of the Act, the assessee had concealed the income or provided inaccurate particulars of such income. Under sub-section (2) of Section 158BFA, no such requirement is provided. None can be read therein. Significantly, as already noted, the said proviso is part of Chapter XIVB of the Act which makes special procedure for assessment of search cases. Additionally, we also notice that Section 158BF provides, inter alia, that no penalty under Section 271[1](c) of the Act shall be leviable with respect to undisclosed income determined in the block assessment. Thus, statutorily also, penalty provided under sub-section (2) of Section 158BFA is set apart from one imposable under Section 271 [1](c) of the Act. The concept of the onus on the Revenue to prove concealment of the income, therefore, cannot be imported while considering the question of penalty under sub-section (2) of Section 158BFA of the Act.
Recently, we had occasion to examine the provisions of Section 158BFA (2) and compare the same with penalty under Section 271[1](c) of the Act. In a decision dated 8 th November 2011 in Tax Appeal No. 2467 of 2010, it was observed as under :-
"If we analyze the provisions contained in Section (2) of Section 158BFA, it would appear that penalty not less than the amount of tax leviable but not exceeding three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause [c] of Section 158BC of the Act is envisaged. First proviso to sub-section (2) of Section 158BFA, however, provides that no order imposing penalty shall be made if the conditions (i) to (iv) therein are satisfied. In essence, no penalty would be imposed if the assessee furnishes return of income; pays or offers tax by way of adjustment on such income; produces evidence of tax having been paid alongwith the return and also does not dispute by filing appeal against that portion of assessment which he has shown in his return. By a further proviso, however, it is clarified that such exclusion will not be available where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such a case, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return.In essence, therefore, penalty under sub-section (2) of Section 158BFA of the Act is provided where the Assessing Officer computes income in excess of what is declared by the assessee for the block period.This proviso thus is vitally different from the penalty provisions contained in Section 271 [1](c) of the Act, which provides for penalty where the assessee has concealed the particulars of his income, or furnished inaccurate particulars of such income. It is, therefore, often stated by different Courts that mere disallowances of a claim or additions made by the Assessing Officer would not ipso facto give rise to penalty proceedings under Section 271 [1](c) of the Act. What is further required to be established is that the assessee had either concealed the particulars of his income or furnished inaccurate particulars of such income. In contrast, no such language is used in Section 158BFA of the Act. We may recall that under Section 158BFA(2) of the Act, penalty proceedings would arise while the Assessing Officer had assessed income for the block period in excess of the income declared by the assessee.�
12.1 This was also the view of the Delhi High Court in case of Commissioner of Income-Tax v. Harkaran Das Ved Pal [Supra], wherein, it was observed that, " ....However, with regard to question (b) we note that the Tribunal was concerned with concealment and/or furnishing of inaccurate particulars of income, which is an expression occurring in section 271[1](c) of the said Act but not in section 158BFA (2). The consideration of the question of concealment of income or furnishing inaccurate particulars of income was not a relevant consideration in the facts of the present case. To that extent, the Tribunal had misconstrued the scope of the penalty provisions applicable to the present case."
13. We are further of the opinion that the Tribunal deleted penalty on the grounds which were simply not permissible. As already noted, penalty on the grounds of addition of Rs. 7.23 lacs and Rs. 2 lacs was deleted observing that the findings of the Assessing Officer is mere presumption and that nothing incriminating was found which would reveal that the assessee had incurred such an expenditure. We are afraid, such an observation would amount to re-opening the question of quantum addition which had attained finality by virtue of the decision of the Tribunal.
13.1 Penalty on the income of Rs. 4.60 lacs was deleted observing that though the assessee had failed to produce supporting evidence, for mere absence of supporting evidence, it cannot be held that such agricultural income did not exist. Such observation again, in our opinion, would amount to re-opening the closed issues of addition sustained upto the level of the Tribunal. Surely, the Tribunal, while considering the penalty proceedings could not have overruled the previous findings which had attained finality.
13.2 Penalty corresponding to addition of Rs. 17.22 lacs was deleted on the ground that the assessee had demonstrated that there was estimation of additions and that therefore, no penalty could be levied. Here again, we are of the opinion that the Tribunal interfered with the penalty on the ground which was not permissible. Additions made on the basis of estimation may be one of the grounds on which discretion not to impose penalty may be exercised. However, in absence of any requirement to prove concealment or furnishing of inaccurate particulars found in Section 271 [1](c) of the Act cannot form the sole basis to delete penalty imposed by the Assessing Officer and confirmed by Commissioner [Appeals].
14. We are, therefore, of the opinion that the Tribunal committed a grave error in interfering with the penalties imposed by the Assessing Officer and confirmed by the CIT [A] on the grounds mentioned in the order. In other words, exercise of discretion by the Tribunal cannot be sustained. We are,therefore, inclined to set-aside the Tribunal's order and restore it to the Tribunal for fresh consideration and disposal in accordance with law.
15. In the result, we answer Question {A} in favour of the assessee and against the Revenue and hold that the penalty under Section 158BFA (2) is not mandatory. We answer Question {B} in negative ie., in favour of the Revenue and against the assessee and remand the proceedings to the Tribunal for fresh consideration, after quashing the impugned judgment of the Tribunal. Tax Appeal stands disposed of accordingly.
2014-TIOL-50-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Tax Appeal No.859 of 2007
THE COMMISSIONER OF INCOME TAX
Vs
INDO SWISS EMBROIDERY INDUSTRIES LTD
M R Shah And R P Dholaria, JJ
Date of Decision: December 26, 2013
Appellant Rep by: Mr Sudhir M Mehta, Adv.
Respondent Rep by: Mr B Soparkar, Adv.
Respondent Rep by: Mr B Soparkar, Adv.
Income Tax - Sections 43B, 80IB, 115JB, - duty drawback - manufacturing activity - Whether income from duty drawback receipt and DEPB benefits are included in the net profits of eligible industrial undertakings for the purpose of computing deduction u/s 80IA - Whether deduction for Provident Fund amount is to be allowed even in case deposit is made after the due date mentioned under the provident Fund Act.
The assessee company had filed return of income for AY 2002-03 declaring total loss of Rs.15,09,202/- and income of Rs.76,12,454/- u/s 115JB. That the assessment u/s 143(3) was finalized determining total taxable income at Rs.2,74,105/- under normal provisions and Rs.76,12,454/- u/s 115JB. While finalizing assessment, income from duty drawback of Rs.2,40,667/- was excluded from the profits eligible for deduction u/s 80IB and disallowance of Rs.10,638/- was made on account of delayed payment of PF (employees contribution). On appeal, CIT(A) allowed the said appeal and held that duty drawback should be included in the profits eligible for deduction u/s 80IB and also held that payment made to PF within the grace period to be allowed. On further appeal, Tribunal had dismissed the said appeal.
Held that,
++ it is required to be noted that as such the assessee deposited the aforesaid amount of Rs.10,638/- towards employees contribution within the grace period under the PF Act. Considering the fact that the tribunal has granted the relief to the issue with respect to the amount of provident fund when the assessee deposited the amount with the department within extended grace period under the PF Act, it cannot be said that the tribunal has committed any error in granting relief which calls for interference of this Court. Under the PF Act, if the assessee was entitled to make payment within the grace period and if within that grace period the amount is deposited, the assessee would be entitled to deduction. In view of the decision of SC in the case of CIT Vs. Alom Extrusions Ltd., (2009-TIOL-125-SC-IT) and recent decision of HC in Tax Appeal No.36 of 2008, and more particularly when the second proviso to Section 43B came to be deleted and there is amendment in first proviso to section 43B, which is held to be operative retrospectively, the tribunal has not committed any error and/or illegality in holding that the assessee would be entitled to the deduction as claimed. Under the circumstances Question No.(A) is held against the revenue;
++ in the case of Liberty India, SC has observed that duty drawback receipt and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of deduction under section 80- I/80-IA/80-IB. It is further observed by the SC in the said decision that duty drawback receipt and DEPB benefits Are incentives which flow from the Scheme framed by the Central Government or from section 75 of the Customs Act, 1962 and that such incentives profits are not profits derived from eligible business u/s 80-IB. It is further observed by the SC in the said decision that they belong to category of ancillary profit of such undertaking. It is further observed that profits derived by way of incentives such DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profit derived from industrial undertaking" under section 80-IB. Applying the ratio laid down by the Hon'ble Supreme Court in the case of Liberty India (supra), question No.(B) is held in favour of the revenue and against the assessee.
Revenue's appeal partly allowed
Cases followed:
CIT Vs. Alom Extrusions Ltd., (2009-TIOL-125-SC-IT)
Liberty India Vs. CIT, (2009-TIOL-100-SC-IT)
JUDGEMENT
Per: M R Shah:
1.00. Feeling aggrieved an dissatisfied with the impugned order dated 24/11/2006 passed by the Income Tax Appellate Tribunal (hereinafter referred to as "the ITAT" for short) in ITA No.1763/Ahd/2006 for AY 2002-03, revenue has preferred the present Tax Appeal to consider the following substantial questions of law :
"(A) Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that the amendment to the proviso to sec.43B by the Finance Act, 2003, w.e.f. 01/04/2004 is retrospective nature?(B) Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that income of Rs.2,40,667/- from duty drawback should not be excludes from the profits eligible for deduction under Section 80IB,though it has not been "derived from" manufacturing activity carried on by the assessee?"
2.00. That the assessee filed return of income for AY 2002-03 declaring total loss of Rs.15,09,202/- and income of Rs.76,12,454/- under section 115JB of the Income Tax Act, 1961. That the assessment under section 143(3) of the Act was finalized determining total taxable income at Rs.2,74,105/- under normal provisions and Rs.76,12,454/- under section 115JB of the Act. While finalizing assessment, income from duty drawback of Rs.2,40,667/- was excluded from the profits eligible for deduction under section 80IB of the Act and disallowance of Rs.10,638/- was made on account of delayed payment of PF (employees contribution).
2.01. Feeling aggrieved and dissatisfied with the order passed by the AO excluding income from duty drawback of Rs.2,40,667/- from the profits eligible for deduction under section 80IB of the Act and making disallowance of Rs.10,638/- made on account of delayed payment of PF (employees contribution), the assessee preferred an appeal before the CIT(A) and by order dated 15/5/2006, the learned CIT(A) allowed the said appeal and held that duty drawback should be included in the profits eligible for deduction under section 80IB of the Act and also held that payment made to PF within the grace period to be allowed.
2.02. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), revenue preferred an appeal before the ITAT and by the impugned judgement and order the learned ITAT has dismissed the said appeal.
2.03. Feeling aggrieved and dissatisfied with the impugned judgement and order passed by the learned ITAT, the revenue has preferred the present appeal to consider the following substantial questions of law :
"(A) Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that the amendment to the proviso to sec.43B by the Finance Act, 2003, w.e.f. 01/04/2004 is retrospective nature?(B) Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that income of Rs.2,40,667/- from duty drawback should not be excludes from the profits eligible for deduction under Section 80IB,though it has not been "derived from" manufacturing activity carried on by the assessee?"
3.00. Heard Mr.Sudhir Mehta, learned counsel appearing on behalf of the revenue and Mr.B.S. Soparkar, learned advocate appearing on behalf of the respondent - assessee.
3.01. Now, so far as question No.(A), Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that the amendment to the proviso to sec.43B by the Finance Act, 2003, w.e.f. 01/04/2004 is retrospective nature, is concerned, at the outset it is required to be noted that as such the assessee deposited the aforesaid amount of Rs.10,638/- towards employees contribution within the grace period under the Provident Fund Act. Considering the fact that the learned tribunal has granted the relief to the issue with respect to the amount of provident fund when the assessee deposited the amount with the department within extended grace period under the Provident Fund Act, it cannot be said that the learned tribunal has committed any error in granting relief which calls for interference of this Court. Under the PF Act, if the assessee was entitled to make payment within the grace period and if within that grace period the amount is deposited, the assessee would be entitled to deduction.
3.02. Now, so far as the employer's contribution is concerned, in view of the decision the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Alom Extrusions Ltd., reported in [2009] 319 ITR 306 (SC) = (2009-TIOL-125-SC-IT) and recent decision of this Court in Tax Appeal No.36 of 2008, and more particularly when the second proviso to Section 43B came to be deleted and there is amendment in first proviso to section 43B, which is held to be operative retrospectively, the tribunal has not committed any error and/or illegality in holding that the assessee would be entitled to the deduction as claimed. Under the circumstances Question No.(A) is held against the revenue.
3.03. Now, so far as Question No.(B), Whether on the facts and circumstances of the case and in law was the Appellate Tribunal right in holding that income of Rs.2,40,667/- from duty drawback should not be excludes from the profits eligible for deduction under Section 80IB, though it has not been "derived from" manufacturing activity carried on by the assessee, is concerned, the said question is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Liberty India Vs. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) = (2009-TIOL-100-SC-IT). In the case of Liberty India (supra), the Hon'ble Supreme Court has observed that duty drawback receipt and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of deduction under section 80- I/80-IA/80-IB of the Income Tax Act, 1961. It is further observed by the Hon'ble Supreme Court in the said decision that duty drawback receipt and DEPB benefits Are incentives which flow from the Scheme framed by the Central Government or from section 75 of the Customs Act, 1962 and that such incentives profits are not profits derived from eligible business under section 80-IB. It is further observed by the Hon'ble Supreme Court in the said decision that they belong to category of ancillary profit of such undertaking. It is further observed that profits derived by way of incentives such DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profit derived from industrial undertaking" under section 80-IB. Applying the ratio laid down by the Hon'ble Supreme Court in the case of Liberty India (supra), question No.(B) is held in favour of the revenue and against the assessee.
4.00. Consequently, Question No.(A) is held against the revenue and in favour of the assessee and Question No.(B) is held against the assessee and in favour of the revenue. Present appeal is partly allowed to the aforesaid extent.
2014-TIOL-49-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Tax Appeal No. 458 of 2009
THE COMMISSIONER OF INCOME TAX-I
Vs
BLOOM DECOR PRIVATE LTD
M R Shah And R P DHOLARIA, JJ
Dated: December 3, 2013
Appellants Rep by: Mr Manish Bhatt, Sr Adv., Mrs Mauna M Bhatt, Adv.
Respondents Rep by: Mr S N Soparkar, Sr Adv., Mrs Swati Soparkar, Adv.
Respondents Rep by: Mr S N Soparkar, Sr Adv., Mrs Swati Soparkar, Adv.
Income Tax - Section 80IA - Export Benefit - Whether export benefit adjustment should be included while computing deduction u/s 80IA.
The assessee concern was claiming deduction u/s 80IA. It was further claimed that export benefit should be adjusted while computing deduction us 80-IA. Regarding this the Revenue's counsel had argued that the aforesaid situation had been dealt by SC in the case of Liberty India Vs. CIT (2009-TIOL-100-SC-IT).
Held that,
++ under the circumstances and considering the ratio laid down by SC in the case of Liberty India to the facts of the present case, the ITAT has materially erred in holding that the export benefit adjustment amounting to Rs.1,79,05,996/- should be included while computing deduction u/s 80IA. Under the circumstances and applying the ratio/law laid down by SC in the case of Liberty India, the aforesaid question raised/formulated in the present Tax Appeal reproduced hereinabove is answered in favour of the revenue. Consequently, the impugned judgment and order passed by the ITAT is hereby quashed and set aside . The present Tax Appeal is allowed to the aforesaid extent. No order as to costs.
Revenue's appeal allowed
Case followed:
Liberty India Vs. CIT (2009-TIOL-100-SC-IT).
JUDGEMENT
Per: M R Shah:
1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'ITAT') dated 06/06/2008 in ITA No. 2997/Ahd/2004 for the Assessment Year 2001-02, the revenue has preferred the present Tax Appeal.
2. While admitting the present Tax Appeal, the Division Bench has framed/raised the following substantial question of law;
"Whether the appellate tribunal is right in law and on facts in reversing the order of the CIT(A) and thereby holding that export benefit adjustment amounting to Rs.1,79,05,996/- should be included while computing deduction under Section 80IA of the Income Tax Act?"
3. Shri Manish Bhatt, learned Counsel appearing on behalf of the revenue has vehemently submitted that the aforesaid question has been answered by Hon'ble the Supreme Court in the case of Liberty India Vs. Commissioner of Income-tax reported in [2009] 317 ITR 218 (SC) = (2009-TIOL-100-SC-IT).
4. Shri S.N. Soparkar, learned Counsel appearing on behalf of the assessee is not in a position to dispute the above. No contrary decision has been pointed out.
5. Under the circumstances and considering the ratio laid down by Hon'ble the Supreme Court in the case of Liberty India (Supra) to the facts of the present case, the ITAT has materially erred in holding that the export benefit adjustment amounting to Rs.1,79,05,996/- should be included while computing deduction under Section 80IA of the Income Tax Act.
6. Under the circumstances and applying the ratio/law laid down by Hon'ble the Supreme Court in the case of Liberty India (Supra), the aforesaid question raised/formulated in the present Tax Appeal reproduced hereinabove is answered in favour of the revenue. Consequently, the impugned judgment and order passed by the ITAT is hereby quashed and set aside . The present Tax Appeal is allowed to the aforesaid extent. No order as to costs.
S.10A : Free trade zone – Computation of profits – Unabsorbed depreciation and business loss of same unit brought forward from earlier years have to be set off against the profits before computing exempt profits. [S.10B]
The assessee set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994-95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the CIT. On appeal by the department, the High Court(CIT v. Himatasingike Seide Ltd. (2006) 286 ITR 255 (Kar)) reversed the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. On appeal by the assessee to the Supreme Court HELD dismissing the appeal:Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly (19 September, 2013) (A.Y.1994-95)Himatasingike seide Ltd. v. CIT (SC) www.itatonline.org
Before this judgement ,many high courts/ITATs have given verdict against the revenue. officers need to find all those cases and to take necessary action for recall of orders of appellate autorities.
-- S.40(b) : Amounts not deductible –Depreciation – Revenue cannot insist on depreciation being charge on profit has to be deducted first before considering any interest payment on the capital of the firm
The assessee claimed deduction under section 40(b) towards the payment of interest to the partners on the balances in the capital accounts in terms of the partnership deed. The Assessing Officer held that since the depreciation is a charge on the profit of the company, charging of interest has to be on the book profit of the firm. View of the Assessing Officer was affirmed by the Commissioner (Appeals) and Tribunal. On appeal the Court held that there being no restriction on the working of interest before working out depreciation as has been provided in case of salary that payment of salary to partners for purpose of deduction has to be worked out on percentage of book profit, revenue cannot insist that depreciation being a charge on profit, had to be deducted first before considering any interest payment on capital of firm. Order of Tribunal was set a side. (A.Ys. 1996-97 to 2000-01)
Sri Venkateswara Photo Studio v. ACIT (2013) 215 Taxman (Mag.) 119 (Mad.)(HC)
Service recipient is required to reimburse Service Tax paid by the Service provider
We are sharing with you an important judgement of the Hon'ble Allahabad High Court in the case of M/s Bhagwati Security Services (Regd.) Versus Union of India [2013 (11) TMI 649] on the following issue:
Issue:
Whether the service provider can get the reimbursement of service tax already paid by him, from the service recipient?
Facts of the case:
M/S. Bhagwati Security Services (Regd.), the Petitioner ("the Assessee" or "the Company") was providing security services under the service Agreement ("the Agreement") to BSNL. The Company deposited service tax to the Department on the basis of demand raised by the authorities. Thereafter, the Company applied for reimbursement of service tax from BSNL, which was denied on the ground that the same was not provided in the Agreement. The Company filed petition in the High Court.
Held:
The Hon'ble High Court after going through the Agreement and other legal provisions of the Finance Act and rules thereof held that:
- Service tax is statutory liability. It is a tax which is required to be collected by the service provider from the person to whom service is provided, and thereafter to be deposited with Government treasury within the prescribed time.
- Thus, essentially the statute is being imposing the tax upon the person to whom service is being provided and the service provider is merely a collecting agency.
- BSNL (i.e. service recipient) directed to make reimbursement of service tax to the petitioner without further delay.
———————————-
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com
IT : No penalty under section 271AAA where taxes and applicable interest were paid on undisclosed income and details of nature of undisclosed income and manner of earning was recorded
■■■
[2014] 41 taxmann.com 234 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Sudhir jain*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
IT APPEAL NO. 575 OF 2013
NOVEMBER 26, 2013
Section 271AAA, read with section 69, of the Income-tax Act, 1961 - Penalty - Where search has been initiated [Conditions precedent] - A certain sum was surrendered as undisclosed income by an AOP at time of search - Taxes and applicable interest were paid on undisclosed income and manner of earning was recorded in statement of one of members of AOP that income was derived from trading transactions not recorded in books - Whether penalty under section 271AAA could not be imposed - Held, yes [Para 7] [In favour of assessee]
FACTS
| ■ | During search and seizure operation, association of persons formed by assessee along with two members surrendered undisclosed income. Thereafter, (AOP) filed return of income declaring income under head 'income from business and profession' after claiming operational expenses from the surrendered amount. | |
| ■ | The Assessing Officer, however, came to the conclusion that surrendered amount should not be taxed in the hands of AOP, but individually in the hands of its members. In terms of the said order, surrendered sum was equally bifurcated in the hands its members and taxes on the same had been duly paid. | |
| ■ | Further, the Assessing Officer imposed penalty under section 271AAA holding that after surrendering undisclosed income the AOP in its revised return had declared 'nil' income therefore, the conditions for exoneration from penalty under section 271AAA were not satisfied. However, the Commissioner (Appeals) and the Tribunal deleted penalty. | |
| ■ | On further appeal: |
HELD
| ■ | The AOP consisted of three persons. Initially, the AOP had declared the entire undisclosed income. AOPs are taxed at maximum marginal rate, whereas individuals are taxed on cascading scale. The Assessing Officer had himself given tax credit to individual members of the tax paid by AOP. The Tribunal has taken a realistic and pragmatic view and accordingly deleted the penalty under section 271AAA noticing the factual matrix. 'AOP' had filed 'nil' return of income only after the Assessing Officer had decided that Rs. 12.5 crores should be equally divided and taxed in the hands of its members. The three assessees had filed appeals before the Commissioner (Appeals) questioning the said order/position. Meanwhile, the AOP filed an application under section 264, which was accepted by the Commissioner and in terms of said order, the individual assessees withdrew the appeal. Taxes and applicable interest were paid on the undisclosed income. Details of nature of undisclosed income and manner of earning was recorded in the statement of associated persons that the income was derived from trading transactions not recorded in the books. [Para 7] | |
| ■ | In the light of facts of present case, the present appeal need not be entertained. [Para 8] |
Rohit Madan and Ms. Suruchi Aggarwal for the Appellant.
ORDER
Sanjiv Khanna, J. - We feel that the order of the tribunal is just and fair Rs.20 cores was surrendered as undisclosed income at the time of search and it was agreed that the tax liability should be paid as set out in the statement recorded under Section 132(4) of the Income Tax Act, 1961 (Act, for short) of Virendara Kumar Gupta. The said statement has been reproduced in the impugned order passed by the tribunal. Subsequently, affidavit of Sarad Jain was filed on 15th May, 2009 wherein the undisclosed income of Rs.20 crores was duly maintained and accepted. The disclosure was bifurcated into Rs.7.50 crores, as on account of discrepancies in inventory prepared at the business premises of M/s Gupta and Company Private Limited. Rs.12.50 crores was disclosed as income earned through joint enterprise of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain, described as 'Sugandh Sansar' in terms of agreement dated 9th January, 1998.
2. The 'Sugandh Sansar' as an Association of Persons (AOP) filed return of income for the Assessment Year 2009-10 on 30th October, 2009 declaring income of Rs.11 crores under the head "income from business and profession" after claiming operational expenses of Rs.1.5 crores from the surrendered amount of Rs.12.5 crores. The Assessing Officer, however, came to the conclusion that this amount should not be taxed in the hands of three member AOP, but individually in the hands of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain. Thereafter, 'Sugandh Sansar' AOP filed a revision petition under Section 264 of the Act and the Commissioner of Income Tax, Delhi-VII passed an order dated 18th June, 2012. The relevant portion of the order reads as under:—
'6. I have given a careful consideration to the case law cited by the assessee and am of the view that the relief may be allowed to the assessee. This reminds me the judgement of Supreme Court in the case of ITO v Ch. Atchaiah [1996] 218 ITR 239 wherein it is held that the income has to be assessed in the hands of "right person" alone. By "right person" is meant the person who is liable to be taxed, according to law, with respect to a particular income. There are no words in the Income Tax Act, which empower the Income Tax Officer or give him an option to tax either the AOP or its members individually. If it is the income of the AOP in law, the association of persons alone has to be taxed; The members of the AOP cannot be taxed individually in respect of the income of the AOP. Consideration of the interest of the revenue has no place in this scheme. In the present case, department has taken a view that the surrendered income of Rs.12.5 crore belongs to the members individually and not to the AOP hence, no different view can be taken in the case of AOP by taxing the same amount again on the ground that the assessee himself had originally filed the return offering the surrendered amount in the hands of AOP. Hence the 2nd revised return filed by the assessee on 08.01.2011 requires consideration. The revisional powers of the Commissioner u/s 264 of the Income Tax Act 1961, has all the trappings of a judicial power. Jurisdictional High Court in the case of Aparna Ashram v. DIT [2002] 258 ITR 401(Delhi), after relying upon the judgement of Supreme Court in the case of Dwarka Nath v.ITO [1965] 57 ITR 349 have held that the jurisdiction conferred u/s 264 is a judicial one. The nature of the jurisdiction and the rights decided carry with them necessarily the duty to Act judicially in disposing of the revision. The revisional power has to be exercised on an objective consideration of the facts and circumstances of the case. The power is coupled with a duty to be exercised in the interest of doing real justice between the parties, particularly when under the Act the order passed u/s 263 is final. The assessee's claim has substantial merit. Assessment at Rs.22 crore made in the intimation u/s 143(1) requires to be set aside and the income has to be determined at "Nil".
7. It was specifically asked to the assessee as to what happened to the cash of Rs.1,46,46,900/- seized during search which was requested to be treated as advance tax and also to the sum of Rs.1,05,00,000/- (Rs.35 lac x 3) paid by all the 03 members of AOP equally as self assessment tax as the relief has been claimed only with respect to a sum of Rs.1,58,68,840/- paid by the AOP as self assessment tax. It has been explained by the assessee that the cash seized during search is already considered in the hands of persons from whom the same was seized. Similarly, amount of Rs.35 lac paid by each member as self assessment tax (total Rs.1,05,00,000/-) has been considered in the hands of each member and therefore, relief is claimed only with respect to a sum of Rs.1,58,68,840/-. I am of the view that when the sum of Rs.1,46,46,900/- and Rs.1,05,00,000/- has been considered in the hands of members then the relief may also be granted to the assessee with respect to self assessment tax of Rs.1,58,68,8401-and the same be considered in the hands of all the 03 members of AOP equally as self assessment tax paid by them with respect to the surrendered amount of Rs.12.5 crore.
8. In view of the fact that the appeals in the individual cases of the members of the AOP namely Shri V.K. Gupta, Shri Sudhir Jain and Shri Sharad Jain are still pending before CIT(A), the assessee was asked to clarify its position with regard to these appeals. The assessee has filed an undertaking from all the three members of the AOP pointing out that the appeal have been filed against the additions made of the same amount which had been offered to tax by the assessee AOP M/s Sugandh Sansar. Further it has been stated that in case the relief i allowed to the AOP M/s Sugandh Sansar, all the three members of the AOP undertake to withdraw their appeals from the CIT(A). In view of his undertaking, it is further held that the relief granted in the preceding para will be effective only after the appeals have been withdrawn in the case of members of the AOP and the same have become final.'
3. Revenue has not challenged and questioned the said order.
4. In terms of the said order, Rs.12.5 crores was equally bifurcated in the hands of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain. Taxes on Rs.12.5 crores have been duly paid.
5. The question raised in the present appeals is whether the assessee is liable to pay penalty @ 10% under Section 271AAA.
6. Learned counsel for the appellant-Revenue submits that initially the amount of Rs.12.5 crores was declared and disclosed by the AOP but subsequently the AOP had filed a revised return declaring 'nil' income. Therefore, the conditions for exoneration from penalty under Section 271AAA were not satisfied. It is stated that the individual-assessees in their return of income had not declared proportionate amount of Rs.12.5 cores nor had they substantiated their statements as to the manner in which the income was derived.
7. We have considered the said contention, but do not find any merit in the same. The AOP consisted of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain. Initially, the AOP had declared the entire undisclosed income. AOPs are taxed at maximum marginal rate, whereas individuals are taxed on cascading scale. The Assessing Officer had himself given tax credit to individual members of the tax paid by AOP. AOP consisted of three persons, including the present respondent-assessee. The tribunal has taken a realistic and pragmatic view and accordingly deleted the penalty under Section 271AAA of the Act noticing the factual matrix. 'Sugandh Sansar' had filed 'nil' return of income only after the Assessing Officer had decided that Rs.12.5 crores should be equally divided and taxed in the hands of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain. The three assessees had filed appeals before the Commissioner (Appeals) questioning the said order/position. Meanwhile, the AOP filed an application under Section 264, which was accepted by the Commissioner of Income Tax, Delhi-VII and in terms of the said order, the individual assessees withdrew the appeals. Taxes and applicable interest were paid on the undisclosed income. Details of nature of undisclosed income and manner of earning was recorded in the statement of Virendara Kumar Gupta. It was stated that the income was derived from trading transactions not recorded in the books.
8. In light of the facts of the present case, we are not inclined to interfere and entertain the present appeal. The same is accordingly dismissed.
POOJA *In favour of assessee.
IT : Disallowance upheld where expenditure on account of commission was found to be much higher as compared to earlier years and assessee could not justify its claim with relevant material
■■■
[2014] 41 taxmann.com 74 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'B'
Krishna R. Bhat
v.
Assistant Commissioner of Income-tax -23(1)*
B.R. MITTAL, JUDICIAL MEMBER
AND SANJAY ARORA, ACCOUNTANT MEMBER
AND SANJAY ARORA, ACCOUNTANT MEMBER
IT APPEAL NO. 218 (MUM.) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
OCTOBER 9, 2013
I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Commission] - Assessment year 2009-10 - Whether in absence of exceptional circumstances being pointed out, rising referral commission is inconsistent with normative behaviour particularly in pharmaceutical business model - Held, yes - A scrutiny in premises of assessee, a merchant exporter of pharmaceutical raw materials and drugs, was carried out - It revealed that referral commission expenses claimed by assessee were higher as compared to expenses for earlier years - On inquiry, it was found that parties to whom commission was claimed to have been paid, were involved in unrelated trades and/or had even remotely no connection with assessee's trade or business or products - They were not aware of products being dealt with by them - Most of them were also not aware of even rate at which commission stood paid to them - Whether, thus, assessee's claim for deduction on account of commission being sans any material, warranted dismissal - Held, yes [Paras 3.3 and 30.8] [In favour of revenue]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Office and sales promotion expenses] - Expenditure incurred by assessee towards conveyance, office expenses and sales promotion in cash was disallowed by Assessing Officer being not fully verifiable - Commissioner (Appeals) agreed with Assessing Officer but restricted disallowance to 10 per cent of expenditure claimed - Whether disallowance sustained by Commissioner (Appeals) was reasonable - Held, yes [Para 4] [In favour of revenue]
FACTS
| ■ | A scrutiny of the premises assessee, an individual engaged in the business of merchant export of pharmaceuticals raw materials and bulk drugs, revealed that claim of commission expenses was of more than double the ratio of such expenses for the preceding years. | |
| ■ | The Assessing Officer from the statements of persons to whom commission was paid concluded that they had no knowledge in the field of pharmaceuticals; there was no written agreement with the assessee regarding the commission and they had not done similar transactions with any other party except the assessee and, consequently, claim stood disallowed, claiming it to be in fact a colourable device adopted to suppress book profit. | |
| ■ | The Commissioner (Appeals), upon a detailed analysis of the facts of the case, was of the considered view that no case for allowance stood made out. | |
| ■ | On second appeal: |
HELD
| ■ | The findings of fact by both the authorities below remain uncontroverted. The assessee has, though impugned the same per its instant appeal been completely unable to show or exhibit any infirmity therein. The assessee's claim being sans any material, therefore, warrants being dismissed at the threshold. The said findings to scrutiny would be subjected to examine the same for their relevance and validity. [Para 3.2] | |
| ■ | The assessee has not provided any explanation at any stage, despite being specifically called upon to do so for increase by over 1.25 times (over 125 per cent) in the commission expenditure for the year vis-Ã -vis the immediately preceding year, and which is in line with the expenditure for the year prior thereto. [Para 3.3] | |
| ■ | In fact, the expenditure, given the assessee's business model as explained, ought to have witnessed a decline over time. This is as the commission agents have admittedly provided only referral services, i.e., conveyed the name (and at the most address) of the proposed seller/supplier to the assessee-buyer. The entire post referral work, i.e., the product profile, quality, pricing, negotiations of other terms and conditions, are left to be decided between the parties on a principal to principal basis - so much or the individual limitations spoken of by the assessee in support of it adopting the said route, i.e., taking the services of a commission agent. Be that as it may, once, therefore, a particular seller becomes a regular vendor for the assessee, i.e., by spending the referral commission, no further commission would be required to be spent inasmuch as he becomes a part of the assessee's supplier base. There may be some drop outs necessitating continuing addition to the existing supplier base, adding thereto cautiously over time, so as to built a stable supplier base. In fact, the assessee itself claims to have a supplier base of 50 domestic suppliers. This (addition) could also be for the reason of an anticipated increase in the volume of the business - which in fact is good for the supplier's business as well, and which the present supplier base is not able to cope with. No such circumstances, however, have been pointed out in the instant case. A turnover of vendors is neither good for the assessee or for its business, rather, is detrimental to its operations. [Para 3.3] | |
| ■ | In the normal course, therefore, the tendency would be to retain the existing suppliers, so that the expenditure on referral commission would only be where the addition to the vendor base becomes imperative on business considerations. In other words, a rising referral commission, which should thus be on a decline, is inconsistent with the normative behaviour, particularly given the assessee's business model, while no exceptional circumstances have been explained. [Para 3.3] | |
| ■ | The Agent's role is almost complete upon introduction, with all the work leading to the actual maturing of the transaction with the vendor being done by the assessee (or his staff), i.e., in house. Whether, therefore, the transaction with the particular vendor matures or not is not relevant insofar as the work actually done by the Agent, for which the commission is being paid to him, is concerned. He having introduced the potential supplier, his job is complete and he is entitled to his remuneration by way of referral commission. Why, again, would the assessee pay him on a transaction wise basis? On the contrary, there is some basis for an agent being not paid any commission, i.e., despite the reference, where no transaction takes place. This is as the maturity of the transaction/s with the vendor reflects the quality of the potential supplier. This is as there is no point referring a supplier who is not in a position to supply, or whose product mix or profile or pricing is not compatible with the assessee's business, each trader having a market niche or catering to a particular segment of the market. | |
| ■ | As such, though technically speaking a reference may have been made, it is not valid or relevant from the assessee's stand point. This, in fact, only suggests that some ground work for the same, i.e., a valid reference, is a prerequisite, while in the instant case, there has been admittedly, no examination of the background of the vendor, his product range, pricing, surplus capacity, etc. by the agent. They, in fact, are incompetent to do so, having no knowledge of the pharmaceutical products, though these attributes or other trade factors have a bearing on the purchase decision. There can also be a case where referral commission is paid at one uniform rate for referrals, followed by a (much) lower commission on regular transactions, which practice is almost universally followed and understandable where commission is paid for reference. This again is not the case. [Para 3.4] | |
| ■ | The assessee speaks of benefit of better pricing and mediation in the case of a dispute as the principal advantage, i.e., apart from cost, that inures to it by adopting this module and practice of working through agents. How this is so when they (agents) are admittedly not aware of the prices nor engaged or involved in finalizing the business. It is only where the transaction is conducted through an agent/broker that he is aware of the product (including its quality), price, delivery, or other terms and conditions, to be able to meaningfully mediate. A good and sound understanding of the business practices and, further, relevant business experience, is in fact necessary, almost a pre-condition, to be able to purposefully intervene and resolve disputes, which could only be where both the parties have faith in and respect for the mediator. The statement is, therefore, contradictory. [Para 3.5] | |
| ■ | The assessee speaks of variable commission rates in view of the differential role and responsibility of the agents, so that larger and higher the responsibility is the larger the commission, i.e., than that which is paid for just an introduction. That is fair enough, but the agents have admittedly no knowledge of the assessee's trade; it's products, much less of their technical specifications, pricing, market, etc. They are even, in some cases, not aware of the addresses or even the names of the concerned staff, i.e., those dealing with sales at the vendor's end, stating that only the proposed vendor's name is sufficient for the purpose of referral. No wonder the assessee's case is sans any explanation toward this, much less the said higher roles and responsibility being demonstrated or exhibited. | |
| ■ | It is no doubt understandable when the assessee says that he would have to keep technical persons if it were to keep salaried staff instead, and which would increase the cost. However, if the non-technical persons as the Agents are able to render the required services, why should the assessee insist on technical persons for staff, which would be available on a full time basis? Further, as the assessee is already undertaking or performing the functional services toward pricing, quotation, quality checking, bargaining, etc. at his end, i.e., in house, as explained, he has already incurred the cost toward the same. The argument, therefore, is false. [Para 3.5] | |
| ■ | Firstly, as also observed by the Commissioner (Appeals), there is nothing to exhibit the reference itself. This belies acceptance, as it is only on the basis of the reference - even though on subsequent maturity of the transaction - that the agent is entitled to his claim. He would, therefore, not only retain proper evidence toward the same (reference), which in fact would stand to be generated in the normal course of the business, but also track the developments and keep a record of the transactions, which the agents in the instant case are admittedly and blissfully unaware of. In fact, they did not even know the commission rates being paid to them! Secondly, a bridge between the buyer and the supplier implies a channel between the two, so that one who understands the business and the business requirements of the two could only act as a bridge. What is essential for a proper reference is a matching of the business requirements and needs of the two trading partners. This may or may not result or fructify in business, but in any case, it cannot be denied that at the minimum it is only on the basis of some information and data base that further negotiations could take place. [Para 3.6] | |
| ■ | In fact, a proper reference, so as to form part of the regular supplier base, would require much more complete and comprehensive information and experience than brokering or mediating a business transaction for supply of a consignment of goods, for which all that is required is specification of the product, of its delivery and the payment in its respect, which is also absent. The services ostensibly provided, i.e., collecting the names from the public domain, and forwarding it to the assessee does not fit the bill or serve the purpose of either reference or for brokering a transaction. Finally, even downloading the required information from the public domain, as internet, would require knowledge of the product and its specification, so that even the same is not possible. The products in pharmaceutical industries are known or identified by their generic names and composition, as each business house would have a different names for its product/s. The assessee's claims therefore fail on all counts. [Para 3.6] | |
| ■ | Therefore, there is to begin with, no evidence of the work actually performed, which is limited only to introduction, and which (evidence) would stand to be generated in the normal course of business. They are all persons who are either involved in unrelated trades and/or have even remotely no connection with the assessee's trade or business or products. They are, therefore, most unlikely to be contacted by the assessee for the purpose. Information which is not only readily available in the public domain, but also in the trade circles, as each supplier endeavours to increase his visibility by advertising in the trade journals, projection and participation in other forums, as well as through the net. They were unaware of the products being dealt with by them, even of assessee's requirements. In fact most of them were also not aware of even rate at which commission stood paid to them. The examination of the facts of the case including the modus operandi adopted was also found to be inconsistent with the business model being followed, which had led to conclusion that no brokering work could be undertaken in the circumstances, which is also not the claim, could be made, much less genuine referral work, which requires a much more comprehensive data base, analysis and knowledge. The paper-book placed on record, which has also been carefully perused, only bears the accounting information, and qua which there is no dispute, though that by itself would be of no moment. The assessee's case, to which no improvement could be made by it is thus without substance. [Para 3.8] |
CASES REFERRED TO
Sumati Dayal v CIT [1995] 214 ITR 801/80 Taxman 89 (SC) (para 2), Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439 (SC) (para 2), Dy. CIT v. McDowell & Co. Ltd. [2007] 291 ITR 107 (Kar.) (para 2), Vishnu Agencies (P.) Ltd. v. CIT [1979] 117 ITR 754 (Cal.) (para 2), CIT v.Durga Prasad More [1971] 82 ITR 540 (SC) (para 3.1), Assam Pesticides & Agro Chemicals v. CIT [1997] 227 ITR 846/[1998] 96 Taxman 366 (Gau.) (para 3.1), Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC) (para 3.1), Jaipur Electro (P.) Ltd. v. CIT[1997] 223 ITR 535/[1996] 89 Taxman 644 (Raj.) (para 3.1), CIT v. Transport Corporation of India Ltd. [2002] 256 ITR 701/123 Taxman 806 (AP) (para 3.1), Ramanand Sagar v. Dy. CIT [2002] 256 ITR 134/122 Taxman 152 (Bom.) (para 3.1) and Ram Bahadur Thakur Ltd. v. CIT[2003] 261 ITR 390/128 Taxman 599 (Ker.) (FB) (para 3.1).
Aditya Sharma for the Appellant. O.P. Singh for the Respondent.
ORDER
Sanjay Arora, Accountant Member - This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-33, Mumbai ('CIT(A)' for short) dated 02.11.2012, partly allowing the assessee's appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 29.12.2011.
2. The principal issue arising in the instant appeal by the assessee is as raised per its ground no. 2. A scrutiny of the assessee's, an individual engaged in the business of merchant export of pharmaceuticals raw materials and bulk drugs under the trade name M/s. Chempi Fine Chemicals, return of income for the year by the Assessing Officer (A.O.) under the verification procedure revealed claim of commission expenses in the sum of Rs.61.30 lacs, which was observed to be, at 5.30% of the turnover, more than double the ratio of such expenses for the preceding years. Party-wise details were called for, to verify which notices u/s. 133(6) of the Act were issued to several parties, besides summons u/s.131(1) to 18 parties to whom commission in an aggregate of Rs.45.76 lacs was paid/credited. 11 of them appeared, who were examined on oath and their statements recorded, while the balance 7 parties did not attend in response to the summons. Of the statements recorded, 5 find reproduction at pgs.3-9 of the assessment order, leading to the following findings by the A.O. (pg.9):
| i. | The parties have not contacted the purchases parties directly. They have just provided the names of the purchase parties to the assessee. | |
| ii. | They have no knowledge in the field of pharmaceuticals. | |
| iii. | There is no written agreement with the assessee regarding the commission. | |
| iv. | They have not done similar transactions with any other party except the assessee. | |
| v. | They have not done any work such as price comparison, price quoting, quality check, bargaining, etc. for which the commission is usually paid. |
The claim appearing to be unmerited, besides being exaggerated, the assessee was show caused by him in the matter vide notice dated 19.12.2011. The assessee responded vide letter dated 26.12.2011. In view of his factual findings, which held, and given the law in the matter, he found the same to be of no avail, being only in the nature of generalized claims, so that addition in respect of the claim sought to be verified by him, i.e., for Rs.45,76,492/-, stood disallowed, claiming it to be in fact a colorable device adopted to suppress book profit, relying on the decision by the apex court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89.
The same stood confirmed in appeal in view of the admitted facts, so that the so called agents had no knowledge of the assessee's business, with, in fact, even the referral work, claimed to have been undertaken, not evidenced. The ld. CIT(A) was, upon a detailed analysis of the facts of the case, of the considered view that no case for allowance stood made out, relying on the decisions, inter alia, in the case of Lachminarayan Madan Lal v. CIT[1972] 86 ITR 439 (SC); Dy. CIT v. McDowell & Co. Ltd. [2007] 291 ITR 107 (Kar); and Vishnu Agencies (P) Ltd. v. CIT [1979] 117 ITR 754 (Cal). Aggrieved, the assessee is in second appeal.
3. We have heard the parties, and perused the material on record.
3.1 The issue at hand, we may clarify at the outset, is essentially and primary factual. The host of case law relied upon by both the parties, either confirming or deleting the disallowance of claim of expenditure u/s. 37(1) is, thus, of limited value, being rendered in the obtaining facts of the case. What though is of relevance is the ratio of these decisions, which being qua the law in the matter would continue to be relevant and guide us in the matter. The onus to establish its return of income and the claim/s preferred thereby is only on the assessee. The law does not prescribe any quantitative test as to whether the said onus has been discharged, and it all depends on the facts and circumstances of the case CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Assam Pesticides & Agro Chemicals v. CIT [1997] 227 ITR 846/[1998] 96 Taxman 366 (Gau). The same, it may be appreciated, i.e., the satisfaction or discharge of the burden of proof, is a matter of fact to be decided upon the conspectus of the case. Further, no doubt, the assessee is a best judge of business expediency and the A.O. cannot sit in judgment over the business decisions (Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC)). However, the assessing authority has the right; rather, is duty bound to ascertain if the expenditure is incurred for business purpose or for extraneous considerations Jaipur Electro (P) Ltd. v. CIT [1997] 223 ITR 535/[1996] 89 Taxman 644 (Raj). In other words, the commercial consideration/s has to be proved CIT v. Transport Corp. of India Ltd. [2002] 256 ITR 701/123 Taxman 806 (AP). The decision of the A.O. is to be based on the entirety of the factual matrix of the case, and in issuing findings of fact he is not constrained not to pierce the corporate or documentary veil, which does not bind him; his obligation under law being to determine and reach to the truth of the matter, having regard also to the test of human probabilities and the other surrounding circumstances Sumati Dayal (supra); Lachminarayan Madan Lal (supra) and Durga Prasad More(supra). Though it may be said that an higher expenditure cannot itself be subject to disallowance, the same is, it may be realized, is only in the context and in view of the law that the Revenue cannot subject a genuine business decision to review, and it is for the assessee as a businessman to decide what is appropriate and desirable for his business. However, the Revenue is bound to consider the genuineness of the expenditure, so that where and to the extent the quantum is relevant factor, the same can definitely be taken into account inasmuch as the mandate of the Revenue is to examine and decide if the expenditure being claimed represents real expenditure Ramanand Sagar v. Dy. CIT [2002] 256 ITR 134/122 Taxman 152 (Bom). Inflation of expenditure is not unknown, and in fact most investigations begin on a preliminary finding of the expenditure being apparently higher or inordinate under the circumstances. Why, we see partial disallowances made by the Revenue all the time, which is only on the principle that the assessee had failed to prove that the expenditure as incurred wholly and exclusively for the purposes, as claimed. The test of section 37(1) is, in any case, to be satisfied, and which continues to be the litmus test Ramanand Sagar (supra) and Ram Bahadur Thakur Ltd. v. CIT [2003] 261 ITR 390/128 Taxman 599 (Ker) (FB).
3.2 Our first observation in the matter is that the findings of fact by both the authorities below remain uncontroverted. The assesse has, though impugned the same per its instant appeal, been completely unable to show or exhibit any infirmity therein. The assessee's claim being sans any material, therefore, warrants being dismissed at the threshold. We shall though subject the said findings to scrutiny, to examine the same for their relevance and validity.
3.3 Our second observation in the matter is that the assessee has not provided any explanation at any stage, including before us, despite being specifically called upon to do so (per the ld. AR during hearing) for increase by over 1.25 times (over 125%) in the commission expenditure for the year vis-Ã -vis the immediately preceding year, and which is in line with the expenditure for the year prior thereto; the expenditure for the preceding three years being as under:
| A.Y. | Turnover | Commission (Rs.) | Percentage to the total turnover |
| 2007-08 | 69518647 | 1899767 | 2.61% |
| 2008-09 | 77910165 | 1804246 | 2.31% |
| 2009-10 | 115480535 | 6129629 | 5.30% |
In fact, the expenditure, given the assessee's business model as explained, ought to have witnessed a decline over time. This is as the commission agents have admittedly provided only referral services, i.e., conveyed the name (and at the most address) of the proposed seller/supplier to the assessee-buyer. The entire post referral work, i.e., the product profile, quality, pricing, negotiations of other terms and conditions, are left to be decided between the parties on a principal to principal basis - so much for the individual limitations spoken of by the assessee in support of it adopting the said route, i.e., taking the services of a commission agent. Be that as it may, once, therefore, a particular seller becomes a regular vendor for the assessee, i.e., by spending the referral commission, no further commission would be required to be spent inasmuch as he becomes a part of the assessee's supplier base. There may be some dropouts necessitating continuing addition to the existing supplier base, adding thereto cautiously over time, so as to build a stable supplier base. In fact, the assessee itself claims to have a supplier base of 50 domestic suppliers. This (addition) could also be for the reason of an anticipated increase in the volume of the business - which in fact is good for the supplier's business as well, and which the present supplier base is not able to cope with. No such circumstances, however, have been pointed out in the instant case. A turnover of vendors is neither good for the assessee or for its business; rather, is detrimental to its operations. In the normal course, therefore, the tendency would be to retain the existing suppliers, so that the expenditure on referral commission would only be where the addition to the vendor base becomes imperative on business considerations. In other words, a rising referral commission, which should thus be on a decline, is inconsistent with the normative behavior, particularly given the assessee's business model, while no exceptional circumstances have been explained.
3.4 Be that as it may, why we wonder is the commission paid on transaction-wise basis, i.e., the volume of the turnover achieved with a particular vendor? This is as the Agent's role is almost complete upon introduction, with all the work leading to the actual maturing of the transaction with the vendor being done by the assessee (or his staff), i.e., in house. Whether, therefore, the transaction with the particular vendor matures or not is not relevant insofar as the work actually done by the Agent, for which the commission is being paid to him, is concerned. Why would, in fact, the Agent agree to being paid or not so on the basis of result of work not done by him? He having introduced the potential supplier, his job is complete and he is entitled to his remuneration by way of referral commission. Why, again, would the assessee pay him on a transaction-wise basis? On the contrary, we can understand some basis for an agent being not paid any commission, i.e., despite the reference, where no transaction takes place. This is as the maturity of the transaction/s with the vendor reflects the quality of the potential supplier. This is as there is no point referring a supplier who is not in a position to supply, or whose product mix or profile or pricing is not compatible with the assessee's business; each trader having a market niche or catering to a particular segment of the market. As such, though technically speaking a reference may have been made, it is not valid or relevant from the assessee's stand-point. This, in fact, only suggests that some ground work for the same, i.e., a valid reference, is a prerequisite, while in the instant case, there has been admittedly no examination of the background of the vendor, his product range, pricing, surplus capacity, etc. by the Agent. They, in fact, are incompetent to do so, having no knowledge of the pharmaceutical products, though these attributes or other trade factors have a bearing on the purchase decision. We can also understand a case where referral commission is paid at one uniform rate for referrals, followed by a (much) lower commission on regular transactions, which practice is almost universally followed and understandable where commission is paid for reference. This again is not the case.
3.5 The assessee speaks of benefit of better pricing and mediation in the case of a dispute as the principal advantage, i.e., apart from cost, that inures to it by adopting this module and practice of working through agents. How, we wonder, this is so when they (agents) are admittedly not aware of the prices nor engaged or involved in finalizing the business. It is only where the transaction is conducted through an agent/broker that he is aware of the product (including its quality), price, delivery, or other terms and conditions, to be able to meaningfully mediate. A good and sound understanding of the business practices and, further, relevant business experience, is in fact necessary, almost a precondition, to be able to purposefully intervene and resolve disputes, which could only be where both the parties have faith in and respect for the mediator. The statement is, therefore, contradictory.
The assessee speaks of variable commission rates in view of the differential role and responsibility of the agents, so that larger and higher the responsibility, the larger the commission, i.e., than that which is paid for just an introduction. That is fair enough, but the agents have admittedly no knowledge of the assessee's trade; it's products, much less of their technical specifications, pricing, market, etc. They are even, in some cases, not aware of the addresses or even the names of the concerned staff, i.e., those dealing with sales at the vendor's end, stating that only the proposed vendor's name is sufficient for the purpose of referral. What responsibility could possibly be assumed by them under such circumstances? No wonder the assessee's case is sans any explanation toward this, much less the said higher roles and responsibility being demonstrated or exhibited.
As regards the cost, again, we are afraid we are unable to appreciate the assessee's case. It is no doubt understandable when the assessee says that he would have to keep technical persons if it were to keep salaried staff instead, and which would increase the cost. However, if the non-technical persons as the Agents are able to render the required services, why should the assessee insist on technical persons for staff, which would be available on a full time basis? Further, as the assessee is already undertaking or performing the functional services toward pricing, quotation, quality checking, bargaining, etc. at his end, i.e., in house, as explained, he has already incurred the cost toward the same. The argument, therefore, is false.
3.6 In fact, given the scanty information at their command, it subjects one's imagination to incredulity to agree that a genuine referral work could be accomplished. Firstly, as also observed by the ld. CIT(A), there is nothing to exhibit the reference itself. This belies acceptance, as it is only on the basis of the reference - even though on subsequent maturity of the transaction - that the agent is entitled to his claim. He would, therefore, not only retain proper evidence toward the same (reference), which in fact would stand to be generated in the normal course of the business, but also track the developments and keep a record of the transactions, which the agents in the instant case are admittedly and blissfully unaware of. In fact, they did not even know the commission rates being paid to them! Secondly, a bridge between the buyer and the supplier implies a channel between the two, so that one who understands the business and the business requirements of the two could only act as a bridge. What is essential for a proper reference is a matching of the business requirements and needs of the two trading partners. This may or may not result or fructify in business, but in any case, it cannot be denied that at the minimum it is only on the basis of some information and data base that further negotiations could take place. In fact, a proper reference, so as to form part of the regular supplier base, would require much more complete and comprehensive information and experience than brokering or mediating a business transaction for supply of a consignment of goods, for which all that is required is specification of the product, of its delivery and the payment in its respect, which is also absent. The services ostensibly provided, i.e., collecting the names from the public domain, and forwarding it to the assessee does not fit the bill or serve the purpose of either reference or for brokering a transaction. Finally, even downloading the required information from the public domain, as internet, would require knowledge of the product and its specification, so that even the same is not possible. The products in pharmaceutical industries are known or identified by their generic names and composition, as each business house would have a different names for its product/s. The assessee's claims therefore fail on all counts.
3.7 Next, we may consider the specific evidences on record. The same is in the form of the statements u/s.131 as recorded by A.O. from 11 parties (as listed at pgs.2-3 of the assessment order), 5 of which stand reproduced in the assessment order (at pgs.3-8), arriving at his conclusions at para 2 above. The same stand reproduced (at pgs.4-8 of the impugned order) as well as examined by the ld. CIT(A), commenting separately on each of them vide paras 3.3 to 3.8 (pgs.15-16) of his order, followed by his overall analysis at paras 3.11 to 3.16. His findings thereby, which are being impugned would, therefore, need to be considered, even as we may clarify at the outset that no specific argument in their respect, or otherwise showing any infirmity therein, much less per some materials, has been brought to our notice by or on behalf of the assessee.
| (a) | Ms. Shamala Patel, the first deponent, accepted to have no special knowledge of the products being dealt with by the assessee, and that she has traced the names of the party from the data base and given them to one Ms. Vivita, and for which she has got the commission. She, in fact, is working as an Accountant with the assessee-firm itself, having drawn salary in the sum of Rs.1.69 lacs for the relevant year and, further, admits to having done the accounting part only. As such, her work of checking of the bills and payments of the correct quantity is a part of her duties as an accountant. Though she speaks of some agreement having been entered into by the assessee, admits to have done no work toward the same, viz. the source of the manufacture, negotiations, competitive rate, follow-up for delivery, etc., i.e., in terms of the said agreement. Though she is aware of the names of the four parties introduced by her, but admits to have not followed up the purchase orders on which she has got commission and, in fact, is not aware of the rate of commission itself. | |
| (b) | The second deponent, Ms. Jayshree Kedar Shah, though having located a single party, M/s. Supharma Chem, was unable to furnish the address or names of the contact persons, much less the details of their company. Again, she has no knowledge of the pharmaceutical products, nor has done work for any other party, admitting to have only introduced the sole party by way of furnishing its name and telephone number, and that too from the internet (so that the same is in the public domain), collecting a commission of Rs.75,000/- for the same. | |
| (c) | Shri Kamaldeep Singh Banga, the third deponent, again admits to have neither any knowledge nor experience of the pharmaceutical business, being in fact engaged in the field of designing and offset printing. The only work done by him is of having introduced the party by the name M/s. Sharon Bio-Medical Ltd., having its office at Vashi, Navi Mumbai, though was unaware of its complete address, admitting to have never visited its premises or known any of its concerned persons, i.e., supervising the sales function, but knowing its accountant, Mr. Kaushik, whose full name though he did not know. He could not even specify the exact product/s purchased by the assessee from M/s. Sharon Bio-Medical Ltd., and neither the details of the order/s placed by the assessee-firm. He had also not worked with or for with any other firm. | |
| (d) | Shri Avni Anand Gantara, the fourth deponent, is a part time clerk with one, M/s. Om Traders at Parle (W), Mumbai. He admits to have no knowledge or experience in the said business, and of having received commission (of Rs.3.08 lacs), though could not even as much as furnish the name of the product for which he has received the same, nor the products which the supplier, M/s. Amishi Pharma, Ahmedabad, was dealing in. | |
| (e) | Shri Ketan Shantilal Gandhi, the fifth deponent, is a partner in M/s. Shree Jitronics. He agrees to have done no work with regard to the transactions, viz. negotiations, price quotation, follow up for delivery, etc, i.e., apart from introducing the supplier who he states to have located with the help of his friends and contacted over phone. However, he had no knowledge of the products being either dealt with by the said parties or supplied to the assessee, and for which he is claimed to have received commission. Also, he had done no such work for any other party. |
The story obviously gets repeated over the other parties as well, which were also examined by the ld. CIT(A), as stated at paras 3.11 of his order. They have neither the educational background or knowledge or experience in the trade, even as each trade is a specialized one.
3.8 Firstly, therefore, there is to begin with, no evidence of the work actually performed, which is limited only to introduction, and which (evidence) we have explained would stand to be generated in the normal course of business. They are all persons who are either involved in unrelated trades and/or have even remotely no connection with the assessee's trade or business or products. They are, therefore, most unlikely to be contacted by the assessee for the purpose. They have only collected the information which is not only readily available in the public domain, but also in the trade circles, as each supplier endeavours to increase his visibility by advertising in the trade journals, projection and participation in other forums, as well as through the net. They are not aware of the products being dealt with by them, not to speak of the parties themselves, or even of the assessee's requirements. In fact, most of them are also not aware of even the rate at which the commission stands paid to them. Our examination of the facts of the case (refer paras 3.1 to 3.7 of this order), including the modus operandi adopted, which we have also found to be inconsistent with the business model being followed, has led us to find that no brokering work could under the circumstances, which is also not the claim, could be made, much less genuine referral work, which requires a much more comprehensive data base, analysis and knowledge. The paper-book placed on record, which has also been carefully perused, only bears the accounting information, and qua which there is no dispute, though that by itself would be of no moment. The assessee's case, to which no improvement could be made by it before us, is thus without substance. The case law relied upon would be of little moment in view of the matter being factual and having been decided on facts. Under the circumstances, therefore, we have no hesitation in confirming the concurrent findings of the authorities below. We decide accordingly.
4. The second and the only other ground being agitated by the assessee in respect of the disallowance Rs.1,07,404/-, being 10% of the expenditure claimed by the assessee under the heads of conveyance, office expenses and sales promotion. The facts being the same, the three disallowances stand impugned per a single ground. The expenses were disallowed by the A.O. principally on account of being incurred in cash and being not fully verifiable, at Rs.50,000/- for each of the three heads of expenditure, i.e., as against the total expenditure there-under, at Rs.3,95,091/-, Rs.3,56,855/- and Rs.3,58,103/-respectively. The ld. CIT(A) while agreeing in principle with the A.O. restricted the disallowance to 10% of the expenditure claimed, partly allowing the assessee's relevant grounds before him. So that, aggrieved, the assessee is in second appeal.
5. No improvement in its case stood made by the assessee before us, with in fact, even no arguments in respect of this ground being raised before us. Under the circumstances, we consider the disallowance as sustained by the first appellate authority as reasonable, and uphold the same. We decide accordingly.
6. In the result, the assessee's appeal is dismissed.
IT : Where assessee, a charitable trust, running orphanages, old age homes, centres for rehabilitation of mentally ill women etc., earned business income from running a women's hostel and guest house, said activity being in nature of 'carrying on an object of general public utility' was hit by proviso to section 2(15)
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[2014] 41 taxmann.com 142 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Young Women's Christian Association of Madras
v.
Joint Director of Income-tax (OSD)(Exemption) - II, Chennai*
DR. O. K. NARAYANAN, VICE-PRESIDENT
AND VIKAS AWASTHY, JUDICIAL MEMBER
AND VIKAS AWASTHY, JUDICIAL MEMBER
IT APPEAL NO. 823 (MDS.) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
OCTOBER 30, 2013
Section 2(15) read with section 11, of the Income-tax Act, 1961 - Charitable purpose [Income from running hostel/guest house] - Assessment year 2009-10 - Assessee-society was registered under section 12AA - Main activities carried out by assessee were running orphanages, old age homes, centres for rehabilitation of mentally ill women, providing vocational training to girls from slums, etc. - In course of assessment, Assessing Officer, noted that dominant part of income of assessee was from running of a Working Women's Hostel (WWH) and an International Guest House (IGH) - He, thus, held that assessee was an institution 'carrying on advancement of any other object of general public utility' and, in view of proviso to section 2(15), income from business of WWH and IGH would not be entitled for exemption under section 11 - Assessment order was confirmed in first appeal - Whether since it was undisputed that assessee was running Working Women's Hostel and International Guest House for business purpose only, Assessing Officer was justified in denying exemption of income by applying proviso to section 2(15) to assessee's case - Held, yes - Whether even otherwise, since running of business in form of IGH and WWH could not be regarded as business incidental to carrying on of main objective of assessee-trust, protection of section 11(4A) was also not available to assessee - Held, yes - Whether in view of above, assessee's claim for exemption of income was rightly rejected - Held, yes [Paras 12 and 15] [In favour of revenue]
FACTS
| ■ | The assessee was a society registered under the provisions of Societies Registration Act, 1860. It was having registration under section 12AA. | |
| ■ | The main activities carried out by assessee were running orphanages, old age homes, centres for rehabilitation of mentally ill women, providing vocational training to girls from slums, etc. | |
| ■ | The dominant part of income of assessee was from running of a Working Women's Hostel (WWH) and an International Guest House (IGH) | |
| ■ | During assessment proceedings, the Assessing Officer held that the assessee was an institution 'carrying on advancement of any other object of general public utility' and therefore, in view of proviso to section 2(15) income arising from business of WWH and IGH would not be entitled for exemption under section 11. | |
| ■ | The assessment order was confirmed in first appeal. | |
| ■ | On second appeal: |
HELD
| ■ | Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slums, etc. cannot be considered as activities of medical relief or education or relief of the poor. | |
| ■ | It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief. | |
| ■ | The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on 'advancement of any other object of general public utility'. When that is the case, the assessee is hit by the proviso given under section 2(15). | |
| ■ | The proviso reads that 'advancement of any other object of general public utility' shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. | |
| ■ | Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women's Hostel. [Para 12] | |
| ■ | Alternatively, one has to look into section 11(4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or institution in respect of such business. [Para 13] | |
| ■ | In the present case, there is no dispute on the fact that the assessee is carrying on the business of running an International Guest House (IGH) and Working Women's Hostel (WWH). The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of IGH and WWH is a business incidental to the attainment of the objectives of the trust or not. | |
| ■ | By any stretch of imagination, it is not possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-trust. "Incidental" means offshoot of the main activities; inherent by-product of principal activities. | |
| ■ | Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities. [Para 14] | |
| ■ | In the present case, even if activities of the assessee were stated to be relief of poor, medical relief and education, it was not possible to conclude that running of business in the form of IGH and WWH were business incidental to the carrying on of main objective of the assessee-trust. Therefore, the assessee is not protected by the provision stated in section 11(4A), either. [Para 15] | |
| ■ | In the facts and circumstances of the case, the orders of the lower authorities are just and proper and sustainable in law. [Para 16] | |
| ■ | In the result, appeal of the assessee is dismissed. [Para 17] |
Smt. Pushya Sitaraman for the Appellant. T.N. Betgiri for the Respondent.
ORDER
Dr. O.K. Narayanan, Vice-President - This appeal is filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-XII at Chennai, dated 28.1.2013 and arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961.
2. The assessee, Young Women's Christian Association (YWCA), is a society registered under the provisions of Societies Registration Act, 1860. The assessee is having registration under Section 12AA of the Income-tax Act, 1961. By that way, the assessee is a charitable institution.
3. Major part of the income of the assessee arises out of interest on deposits, subscriptions and donations. Equally dominant part of income is from running of a Working Women's Hostel (WWH) and an International Guest House (IGH) in Madras.
4. On the activity side, the assessee is spending its revenue on different programmes in helping out differently abled people in the society. The assessee is running destitute homes, orphanages and facilities for handicapped women and children and care homes for senior citizens, etc. According to the assessee, the activities such as running orphanages, old age homes, centres for rehabilitation of mentally ill women, day care of elderly, assistance to destitute women, rural development projects for relief to disadvantaged women and children, vocational training to girls from slums, etc. would clearly fall within the scope of "relief of the poor". The assessee also runs a free nursery school for poor children and a community college for school drop outs and poor students registered with Indira Gandhi National Open University.
5. The assessee also states that the running of WWH and IGH are made on business line and the surplus arising out of running those institutions are also used for its charitable activities.
6. In the course of assessment proceedings, the Assessing Officer found that the major receipts of the assessee were by way of business receipts from IGH and WWH. The Assessing Officer felt that therefore, the proviso added to Section 2(15) would apply to the assessee. This proposal was made before the assessee.
7. The assessee explained that the income of the assessee is mainly generated from exploiting properties owned by YWCA. If at all any incidental services generated income by way of providing food and shelter services, these activities would squarely fall within the provisions of Section 11(4A). After hearing the assessee in detail, the Assessing Officer held that the assessee was an institution "carrying on advancement of any other object of general public utility" and therefore, income arising out of the carrying on of business of WWH and IGH would not be entitled for exemption under Section 11. Accordingly, he excluded that part of income arising out of IGH and WWH from the relief pack available under Section 11. He granted relief to the remaining income. This assessment order has been confirmed in first appeal. Therefore, the second appeal was filed by the assessee before us.
8. The detailed grounds raised by the assessee in the present appeal read as below:-
"2. The CIT(A) erred in treating the activities of the appellant as non charitable, and assessing the same as AOP, falling to see that the activities of the appellant are substantially in the fields of education, medical relief or relief to the poor. The CIT(A) has also erroneously claimed that the appellant's activities are in the nature of general public utility.
3. The CIT(A) failed to see that the objects as narrated in the memorandum of the society predate the Income Tax Act, and the charitable activities have been carried on since 1905, and a well-established obligation has come to rest upon the appellant to engaged in education, medical relief and relief to the poor.
4. The CIT(A) has disregarded the fact that registration under Section 12A(a) of the Act, has been granted to the appellant in 1974 on the basis of the objects and activities of the society, and since the objects have not been amended thereafter it is not open to the assessing officer, or the CIT(A) to treat the objects as non charitable. Director of Income Tax (Exemption) has never suggested to amend the objects while granting continuation of 80G approval which was done once in every three years.
5. The CIT(A) has presumed that the source of revenues for an organization are synonymous with its activities, failing to see that it is the nature of expenditure which determines whether the association is a charity or not. In the appellant's case, even if 85% of revenues are earned from business, the expenditure is all on charitable activities.
6 The CIT(A) should have realized that the non-revenue generating activities of the appellant uphold the spirit and substance of the objectives framed in its Articles of Association, and have continued for over a century.
7. The CIT(A), has, arbitrarily and selectively, considered isolated activities of the appellant, such as typing institute, or tailoring classes, without viewing these activities in the larger context of the fact that these activities provided relief to poor, destitute women; or paying attention to any of the other activities pertaining to education, relief of the poor, and medical relief.
8. The CIT(A) has not considered the plea of the appellant, that in the event that the Working Women's hostel and international guest house are to be treated as commercial establishments, run on the principles of profit, the fact that it is incidental and ancillary to the objects of the appellant and separate accounts are maintained for the same as required under Section 11(4A) should be noted, and that the income from this business which is permitted u/s. 11(4A) is wholly used to finance the charitable activities only."
9. We heard Smt. Pushya Sitaraman, the learned Senior Advocate along with Ms. J. Sree Vidya, Advocate, appearing for the assessee and Shri T.N. Betgiri, the learned Joint Commissioner of Income Tax, appearing for the Revenue. We heard them in detail and had an extensive discussion in the open court, at the time of hearing, on the scope of Section 2(15), especially, in the light of proviso added thereto and the impact of Section 11(4A) of the Income-tax Act, 1961.
10. The learned senior counsel explained the scope of Section 2(15) "charitable purpose". "Charitable purpose" includes relief of the poor, education, medical relief, etc. According to the learned senior counsel, the activities carried on by the assessee fall under the category "relief of the poor", "education", "medical relief". She further explained that the rider provided in the proviso that "advancement of any other object of general public utility" shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, will not apply to the activities carried on by the assessee. The said restriction is applicable only to that activity which falls under the "advancement of any other object of general public utility". She, therefore, explained that running of the business of WWH and IGH will not fetter the claim of the assessee for relief under Section 11. The assessee's case should be hit by the proviso only if the assessee is carrying on "the activities of advancement of any other object of general public utility". The activities carried on by the assessee are not "advancement of any other object of general public utility"; the activities are specific activities covering relief of the poor, education and medical relief. She therefore explained that proviso to Section 2(15) will not apply to the assessee.
11. She also explained that Section 11(4A) is still alive and active in the statute book. The said sub-section provides that a charitable institution may carry on business, which is incidental of carrying on of its main objectives and in such cases, there is no embargo against the assessee for claiming relief available under Section 11. She explained that running of IGH and WWH are incidental to the main activities carried on by the assessee and therefore, by virtue of Section 11(4A) also, the assessee is entitled for the benefit of relief under Section 11 for the entire income generated in the hands of the assessee in the previous year relevant to the assessment year under appeal.
12. We considered the case in detail. Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slums, etc. cannot be considered as activities of medical relief or education or relief of the poor. It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of Relief of the poor; Education or Medical relief. The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on "advancement of any other object of general public utility". When that is the case, the assessee is hit by the proviso given under Section 2(15). The proviso reads that "advancement of any other object of general public utility" shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. Therefore, we find that the case of the assessee is hit by proviso to Section 2(15) and the assessee is not entitled for the benefit of Section 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women's Hostel.
13. Alternatively, we have to look into Section 11(4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee or as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.
14. In the present case, there is no dispute on the fact that the assessee is carrying on the business of running an International Guest House (IGH) and Working Women's Hostel (WWH). Assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of IGH and WWH is a business incidental to the attainment of the objectives of the trust or not. By any stretch of imagination, it is not possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-Trust. "Incidental" means offshoot of the main activities; inherent by-product of principal activities. Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities.
15. In the present case, even if the activities of the assessee are stated to be relief of the poor, medical relief and education, it is not at all possible to hold that running of the business in the form of IGH and WWH are business incidental to the carrying on of main objective of the assessee-Trust. Therefore, the assessee is not protected by the provision stated in Section 11(4A), either.
16. In the facts and circumstances of the case of the case, we find that the orders of the lower authorities are just and proper and sustainable in law.
17. In the result, appeal of the assessee is dismissed.
SUNIL*In favour of revenue.
IT: Proviso inserted to section 113 by Finance Act, 2002 with effect from 1-6-2002, is merely clarificatory in nature and, therefore, in case of block assessment, surcharge is leviable even prior to aforesaid amendment
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[2014] 41 taxmann.com 150 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax (Central), Kanpur
v.
Krishna Kumar Gupta*
UMA NATH SINGH AND DR. SATISH CHANDRA, JJ.
IT APPEAL NO. 204 OF 2006†
APRIL 10, 2013
Section 113 of the Income-tax Act, 1961 - Block assessment in search cases - Tax in case of [Insertion of proviso to section 113] - Block period 1-4-1989 to 9-2-2000 - Whether proviso inserted to section 113 by Finance Act, 2002 with effect from 1-6-2002, is merely clarificatory in nature and, therefore, in case of block assessment, surcharge is leviable even prior to aforesaid amendment - Held, yes [Para 5] [In favour of revenue]
CASES REFERRED TO
CIT (Central) v. Sampat Kumar Gupta [I.T. Appeal No. 8 of 2008] (para 4) and CIT v. Suresh N. Gupta [2008] 297 ITR 322/166 Taxman 313 (SC) (para 5).
P. Agarwal and D.D. Chopra for the Petitioner.
ORDER
1. We have heard learned counsel for parties and perused the pleadings of Income Tax Appeal.
2. This Income Tax appeal has been preferred against the appellate order dated 21.04.2006 passed by the Income Tax Appellate Tribunal, Lucknow Bench in a Bunch of Appeals namely ITA Nos.699/Luc/2002 (block period 01.04.1989 to 09.02.2000); 700/Luc/2002 (block period 01.04.1989 to 09.02.2000); 701/Luc/2002 (block period 01.04.1989 to 09.02.2000); 702/Luc/2002 (block period 01.04.1989 to 09.02.2000); and 703/Luc/2002 (block period 01.04.1989 to 09.02.2000), whereby the appeals of department were partly allowed for statistical purposes. The operative portion of the order on reproduction reads as :—
"We have carefully considered the submissions of the learned representatives of the parties and have perused the records of the case. The assessee had surrendered the entire investment in the pawned business, which included the reinvestment of interest income earned by the assessee from this business. It is not disputed that in the cases of other members of this group, the income was assessed on cash basis of accounting in consonance with the general prevailing practice in the market and, therefore, there was no reason to estimate the interest on accrual basis in the case of the assessee, particularly when no papers were seized suggesting that the income had accrued on mercantile basis.
In the result, this ground is rejected.
In the result, all the appeals of the Department are partly allowed for statistical purposes."
The instant appeal raises the following substantial questions of law:
| "1. | Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in law in setting aside the issue regarding the levy of surcharge to the file of the Assessing Officer, without appreciating that the proviso to Section 113 inserted by the Finance Act, 2002 is only clarificatory in nature and the Finance of the relevant year clearly provided for levy of surchage on Income Tax calculated as per the provisions of Section 113 of the Act. | |
| 2. | Whether on the facts and circumstances of the case, the Hon'ble Tribunal was justified in upholding the order of the CIT(A), who deleted the addition of Rs.1,06,460/- made on account of undisclosed income in respect of the Assessment Years 1995-96 and 1996-97 as the respondent had failed to furnish the returns before the expiry of due dates, without appreciating the provisions of Section 158BB(1) (ca) according to which the income is to be taken as Nil for any previous year failing in the block period, where the due date for filing of return of income has expired and no return of income has been filed. | |
| 3. | Whether on the facts and circumstances of the case, the Hon'ble Tribunal was justified in upholding the order of the CIT(A), who deleted the addition of Rs.1,06,460/- made on account of undisclosed income in respect of Assessment Years 1995-96 and 1996-97 as the respondent had failed to furnish the returns before the expiry of due dates, without appreciating that the respondent had failed to discharge the burden of proving to the satisfaction of the assessing officer that any undisclosed income has already been disclosed in any return of income filed by the respondent before the commencement of search." |
3. The first and second questions as hereinabove, are the only substantial questions of law, whereas the third one appears to be supplementary to the second.
4. During the course of hearing, learned counsel for revenue Sri D.D. Chopra pointed out a judgment of a Coordinate Bench of this Court of which one of us (Dr. Satish Chandra, J) was a member in Income Tax Appeal No.8 of 2008 (CIT (Central) Kanpur v. Sampat Kumar Gupta),whereby the surcharge @ 10% as levied by the department was found to be correct and thus, it was upheld.
5. Further, the Court also held that the substantial question no. 1 was already covered by a judgment of Hon'ble the Apex Court in CIT v. Suresh N. Gupta [2008] 297 ITR 322/166 Taxman 313.The ratio of the said judgment appears to be that in case of block assessment, even prior to amendment made in Section 113 of the Act w.e.f. 01.06.2002, surcharge was leviable and further it has been held that the amendment made w.e.f. 01.06.2002 was only clarificatory in nature. Accordingly, the impugned order of Tribunal is hereby set aside and the order of the A.O. pertaining to the surcharge is restored. Thus, the answer to question no.1 is in favour of revenue.
6. Now coming to second substantial question of law, as the tax effect is below Rs.4.0 lakh, the appeal would obviously not be maintainable in view of Board's Circular dated 24.10.2005 as well as under Section 268-A of the Income Tax Act. So, this question requires no answer.
Accordingly, this appeal filed by revenue stands party allowed.
SUNIL*In favour of revenue.
†Arising out of order of Tribunal in IT Appeal Nos. 699 to 702 of 2002, dated 21-4-2006.
Recovery before expiry of statutory period for filing appeal is breach of statutory provisions – HC
The impugned communications dated 22 January 2014 and 23 January 2014 issued by Respondent no.3 Assistant Commissioner of Service Tax insisting that the Petitioner should pay the amounts adjudicated upon by order dated 27 December 2013 is contrary to the provisions of the Finance Act which provides for a period of three months to file an appeal to the Tribunal. In this case, the impugned communications are issued without waiting for the statutory period of three months provided to enable the filing of an appeal and stay application to the Tribunal is over. This is contrary to the CBEC circular dated 1 January 2013 issued by CBEC. The impugned communications, to say the least, is high handed. The statute has advisedly provided a period of three months to an assessee to file an appeal before the appellate authority and also obtain a stay. This is with a view to enable the assessee to seek proper advice and considered opinion on the adjudication order before taking a decision and then challenging the adjudication order in appeal proceedings.
In case, the Revenue is allowed to adopt coercive measures and/or if the assessee is required to pay tax determined immediately, it would lead to injustice to an assessee, as his opportunity to obtain a stay from the appellate authority would stand foreclosed. Moreover, the inherent right of an appellate authority to stay the order being appealed against would be rendered futile. In fact, this Court in Mahindra & Mahindra Limited Vs. Union of India and others (1959-ELT-505) had directed the Revenue to return the amounts recovered by encashing the bank guarantee of the assess as it was done before the expiry of three months to file an appeal.
The officers of Respondent Revenue would do well to realize that their job is much more than merely collecting the tax. They are officers of the State, administering the Finance Act, 1994 and fairness in approach to the tax payers and acting in accordance with the Rule of Law is a sine-qua-non in discharge of all its functions. In the circumstances, we hold that the impugned communications dated 22 January 2014 and 23 January 2014 are not only in defiance of the CBEC circular dated 1 January 2013 but also in breach of the statutory provisions which gives a period of three months to enable the aggrieved party to file an appeal before the appellate authority.
Recommended Read :-
HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.1014 OF 2014
Tata Teleservices (Maharashtra Limited Petitioner
versus
The Ministry of Finance, Department of Revenue and others Respondents
CORAM : MOHIT S. SHAH, C.J. AND
M.S.SANKLECHA, J.
DATE : 29 January 2014
PC :
1. By this petition under Article 226 of the Constitution of India, the Petitioner assails the communications dated 22 January 2014 and 23 January 2014 issued by Respondent no.3 Assistant Commissioner of Service Tax. By the impugned communications dated 22 January 2014 and 23 January 2014, the Assistant Commissioner of Service Tax has called upon the Petitioner to reverse CENVAT credit of Rs. 22.28 crores and also pay the applicable interest and penalty, as confirmed by the order dated 27 December 2013 of the Commissioner of Service Tax. The order dated 27 December 2013 was served upon the Petitioner on 2 January 2014.
2. At the request of the counsel for the parties, this petition is taken up for final disposal at the time of admission.
3. Under the Finance Act, 1994 read with Central Excise Act, 1944, the Petitioner has a statutory period of three months available to file an appeal along with stay application before Customs, Excise and Service Tax (Appellate) Tribunal (`Tribunal') from the date of communication of the order passed by the Commissioner of Service Tax. Notwithstanding the above position, on 22 January 2014, the Assistant Commissioner of Service Tax called upon the Petitioner to comply with the order dated 27 December 2013 within two days, failing which he threatened to take coercive action to recover the dues.
4. In response, the Petitioner, by letter dated 24 January 2014, informed the Assistant Commissioner of Service Tax that they are in receipt of the order in original dated 27 December 2013 and they are in process of preferring an appeal and a stay application to the Tribunal. The Petitioner also brought to the notice of the Assistant Commissioner a circular dated 1 January 2013 issued by the Central Board of Excise and Customs, Ministry of Finance (Department of Revenue), Government of India (`CBEC'). Attention of the Assistant Commissioner was specifically invited to Entry no.4 of paragraph 2, which stipulates that in a situation where no appeal is filed against an order-in-original issued by the Commissioner, the recovery shall be initiated only after expiry of statutory period of 90 days. This is so far the reason that the period of three months is provided for filing an appeal to the Tribunal, from the date of communication of order passed by Commissioner of Service Tax.
5. In spite of the above, on 27 January 2014, the Petitioner was served with communication dated 23 July 2014 of the Assistant Commissioner of Service Tax calling upon the Petitioner to reverse the excess CENVAT credit along with applicable interest and penalty within two days, failing which coercive proceedings for recovery was threatened.
6. This petition challenges the two communications dated 22 January 2014 and 23 January 2014 issued by the Assistant Commissioner of Service Tax.
7. Mr.Prasad Paranjape, the learned counsel for the Petitioner states that the action of the Respondent Revenue in seeking to recover the service tax as confirmed by order dated 27 December 2013 even where the statutory period of three months to file an appeal against the order of Commissioner of Service Tax has not yet expired, is bad in law and without jurisdiction. It is submitted that the action of the Assistant Commissioner of Service Tax in issuing notice is not only contrary to the statute but also in breach of circular dated 1 January 2013 issued by CBEC, which prohibits any coercive action till the period of filing the appeal has expired. It is submitted that the demand made on the Petitioners by the Revenue authorities is premature inasmuch as the Petitioner has a right to file an appeal within a period of three months. It is also submitted that the Petitioner is in the process of filing an appeal with the appellate authority against the order of the adjudicating authority.
8. As against the above, Mr.Jetly, learned counsel for Revenue submits that the Petitioner has not yet filed any appeal against the order dated 27 December 2013 of the Commissioner of Service Tax. It is submitted that in stead of filing an appeal to the Tribunal, the Petitioner has moved this petition seeking to stop the Revenue from collecting its legitimate dues. Therefore, it is submitted that no interference with the demand made by letters dated 22 January 2014 and 23 January 2014 order dated 27 December 2013 is called for.
9. We have considered the rival submissions. The impugned communications dated 22 January 2014 and 23 January 2014 issued by Respondent no.3 Assistant Commissioner of Service Tax insisting that the Petitioner should pay the amounts adjudicated upon by order dated 27 December 2013 is contrary to the provisions of the Finance Act which provides for a period of three months to file an appeal to the Tribunal. In this case, the impugned communications are issued without waiting for the statutory period of three months provided to enable the filing of an appeal and stay application to the Tribunal is over. This is contrary to the circular dated 1 January 2013 issued by CBEC. The impugned communications, to say the least, is high handed. The statute has advisedly provided a period of three months to an assessee to file an appeal before the appellate authority and also obtain a stay. This is with a view to enable the assessee to seek proper advice and considered opinion on the adjudication order before taking a decision and then challenging the adjudication order in appeal proceedings.
10. In case, the Revenue is allowed to adopt coercive measures and/or if the assessee is required to pay tax determined immediately, it would lead to injustice to an assessee, as his opportunity to obtain a stay from the appellate authority would stand foreclosed. Moreover, the inherent right of an appellate authority to stay the order being appealed against would be rendered futile. In fact, this Court in Mahindra & Mahindra Limited Vs. Union of India and others (1959-ELT-505) had directed the Revenue to return the amounts recovered by encashing the bank guarantee of the assess as it was done before the expiry of three months to file an appeal.
11. The officers of Respondent Revenue would do well to realize that their job is much more than merely collecting the tax. They are officers of the State, administering the Finance Act, 1994 and fairness in approach to the tax payers and acting in accordance with the Rule of Law is a sine-qua-non in discharge of all its functions. In the circumstances, we hold that the impugned communications dated 22 January 2014 and 23 January 2014 are not only in defiance of the CBEC circular dated 1 January 2013 but also in breach of the statutory provisions which gives a period of three months to enable the aggrieved party to file an appeal before the appellate authority.
12. We accordingly pass following order :
(i) The impugned communications dated 22 January 2014 and 23 January 2014 issued by the Assistant Commissioner of Service Tax are quashed and set aside;
(ii) The Revenue authorities are restrained from adopting any coercive proceedings to implement the order-in-original dated 27 December 2013 of the Commissioner of Service Tax till the statutory period of three months from the date of communication of the adjudication order expires;
(iii) In the event the Petitioner files an appeal and a stay application within the statutory period before the Tribunal, then the Revenue authorities shall not adopt any coercive procedure for recovery of tax dues in terms of the adjudication order dated 27 December 2013, till the disposal of stay application by the Tribunal;
13. The petition is disposed of in above terms. There shall be no order as to costs.
Regulation of pay on imposition of a penalty under CCS (CCA) Rules, 196
No.6/3/2013-Estt (Pay-I)
Ministry of Personnel, Public Grievances and Pensions
Department of Personnel & Training
North Block, New Delhi
Dated the 6th February, 2014
OFFICE MEMORANDUM
Subject: Regulation of pay on imposition of a penalty under CCS (CCA) Rules, 1965.
The undersigned is directed to say that the following penalties prescribed in the Rule 11 of CCS (CCA) Rules, 1965, have a bearing on the pay of the officer:
11. Penalties
Minor Penalties –
(iii a) reduction to a lower stage in the time-scale of pay by one stage for a period not exceeding three years, without cumulative effect and not adversely affecting his pension.
(iv) withholding of increments of pay;
Major Penalties –
(v) save as provided for in clause (iii) (a), reduction to a lower stage in the time- scale of pay for a specified period, with further directions as to whether or not the Government servant will earn increments of pay during the period of such reduction and whether on the expiry of such period, the reduction Will or will not have the effect of postponing the future increments of his pay
(vi) reduction to lower time-scale of pay, grade, post or Service for a period to be specified in the order of penalty, which shall be a bar to the promotion of the Government servant during such specified period to the time-scale of pay, grade, post or Service from which he was reduced, with direction as to whether or not, on promotion on the expiry of the said specified period –
(a) the period of reduction to time-scale of pay, grade, post or service shall operate to postpone future increments of his pay, and if so, to what extent; and
(b) the Government servant shall regain his original seniority in the higher time scale of pay , grade, post or service;
2. Consequent upon implementation of the recommendations of 6 th CPC under the CCS (RP) Rules, 2008 pay scale of a post/grade for below HAG level means the Pay Band and Grade Pay specified for that post. Under the CCS (RP) Rules, 2008 a Pay Band may cover Government servants in more than one Grade Pay or posts in the hierarchy. As per Rule 9 of the CCS (Revised Pay) Rules, 2008, the rate of increment in the revised pay structure is 3% of the sum of the pay in the Pay Band arid Grade Pay applicable, which is to be rounded off to the next multiple of 10. Further, as per Rule 10 of the CCS (Revised Pay) Rules, 2008, there is now a uniform date of increment, that is, l st July of the year.
3. The mode of implementation of these penalties has been clarified to individual Ministries/Departments wherever references have been received. It is now proposed to issue detailed guidelines on the issue. The regulation of pay on imposition of these penalties is in the subsequent paras:
A. Reduction to a lower stage of pay by one stage (Rule 11( iii ) all )
On imposition of a penalty under this Rule, the pay would be fixed at the next lower stage in the Pay Band. In other words, in case of reduction by one stage, the revised pay would be the pay drawn in the Pay Band at the stage before the last increment. Grade Pay attached to the post would remain unchanged. The pay will be fixed by reversing the mode of allowing increments given in Rule 9 of the CCS (RP) Rules, 2008. The formula would be:-
Reduced Pay In Pay Band = {(Pay in Pay Band+ Grade Pay) x 100/103} less (Grade Pay) (rounded off to next 10)
Pay would be Pay in Pay Band as above + Grade Pay
B. Withholding of increment {Rule 11(iv)}
As the uniform date of increment now is 1st July, on imposition of a penalty of withholding of increment, the increment(s) due on the 1st of July falling after the date of imposition of the penalty would be withheld. In case where penalty of withholding of more than one increment is imposed, increments due on 1st of July in the subsequent years would similarly be withheld. The increment would be restored at the end of the period for whichthe penalty is imposed.
This also applies to cases where the penalty is imposed for part of a year. For instance, if the penalty of withholding of the increment for six months is imposed on a Government servant in April 2013, then the increment falling due on 1.7.2013 will be withheld for a period of six months, that is, till 31.12.2013. The increment would be released w.e.f. 1.1.2014. In this case the next increment falling due on 1.7.2014 will also be allowed.
C. Reduction to a lower stage in the time-scale of pay for a specified period Rule 11(v)} The process of imposition of penalty of reduction by one stage under Rule 11(iii a) explained above shall be repeated for every additional stage of reduction by taking the pay arrived at notionally as pay for the second reduction, and so on. Grade Pay shall remain unchanged.
NOTE 1: It is not permissible to impose a penalty under this rule if the pay after imposition of the penalty would fall below the minimum of the Pay Band attached to the post.
NOTE 2: A Pay Band may cover Government servants in different Grade Pays or holding posts at several levels in the hierarchy. It needs to be kept in mind that reduction to lower pay scale or grade is a distinct penalty, under Rule 11(vi).Therefore, while imposing a penalty of reduction to a lower stage in the time-scale of pay under Rule 11(v) of the CCS (CCA) Rules, 1965, Disciplinary Authorities should weigh all factors before deciding upon the quantum of penalty, i.e., the number of stages by which the pay is to be reduced.
D. Reduction to lower time-scale of pay under Rule 11(vi) As a result of imposition of a penalty of reduction to lower time-scale of pay, the pay of the Government servant would be reduced to the stage of pay he /she would have drawn had he/she continued in the lower post for the period of penalty. The mode of fixation of pay in this case is similar to reversing the mode of fixation of pay on promotion. Therefore, both pay in Pay Band and Grade Pay would be reduced.
However, Disciplinary Authority has the power, in terms of FR 28, to indicate the pay which the Government servant on whom a penalty of reduction in rank has been imposed, would draw. The Government servant will be entitled to the Grade Pay of the post to which he has been reduced. Thus, the power of the Disciplinary Authority under FR 28 is limited to indicating the pay in the Pay Band applicable to the lower rank/post.
In some cases imposition of a penalty under Rule 11(vi) may also involve a change in Pay Band. For instance a Government servant holding a post in PB-2 with Grade pay of Rs.4200/- may be reduced to a post in PB-1 with Grade Pay of Rs.2800/-
It may also be noted that a Government servant cannot be reduced in rank to a post not held earlier by him in the cadre. For example, an LDC who qualifies as Assistant as a Direct Recruit and is later promoted as Section Officer cannot be reduced to the rank of LDC but only to that of an Assistant.
4. Some illustrations on pay fixation in above types of cases are annexed.
sd/-
(Mukesh Chaturvedi)
Deputy Secretary to the Government of India
56(2)(vii)(b): Controversies Arising After Amendment By Finance Act 2013
Dr. Raj K. Agarwal & Dr. Rakesh Gupta
S. 56(2)(vii)(b): Controversies Arising After Amendment By FA 2013
DR. (CA) RAJ K. AGARWAL & DR. RAKESH GUPTA, ADVOCATE
S. 56(2)(vii)(b), as substituted by the Finance Act 2013, provides that if immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee's hands. The authors have carefully studied this provision and raised several thought-proving questions as to its implications in the hands of the transferor and the transferee
Finance Act, 2013 has substituted clause (b) of section 56(2)(vii) w.e.f. 1.4.2014 providing, inter alia, that where an individual or Hindu Undivided Family receives, in any previous year, from any person or persons any immovable property-
(i) Without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration
shall be chargeable to income tax under the head "Income from Other Sources".
In case assessee being Individual or HUF has acquired the immovable property as trading asset, the enhanced value of such asset cannot be accounted for in the books of accounts by the assessee, as no such provision corresponding to section 49(4) has been brought under the head 'Profit & gains of business or profession'
Prior to the above substitution, the provision of clause (b) was introduced u/s 56(2)(vii) w.e.f 1st Oct, 2009 laying down that in a case when any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds Rs. 50000/-, the stamp duty value of such property was taxable in the hands of the transferee individual or HUF under this section as "Income from other sources". Finance Act, 2013 has thus extended the scope of this section, inter alia, covering the cases when any immovable property is received by an individual or HUF for inadequate consideration.
1. Transferor of the property covered u/s 50C/43CA, Individual/HUF Transferee covered by new clause (b) of section 56(2)(vii)
As per the provision of section 50C, which was introduced under the Income Tax Act by Finance Act 2002 w.e.f. 1.04.2003, if land or building is transferred for a value less than the stamp duty value or circle rate of the property and the property is in the nature of capital asset, the difference is taxed in the hands of the transferor as deemed Capital Gain. Finance Act, 2013 has, by way of introduction of new section 43CA on the lines of section 50C, has sought to cover such immovable property in the nature of trading asset also. Both sections 50C and 43CA are applicable to seller/transferor of such immovable property. The amendment u/s 56(2)(vii)(b) has however sought to cover the buyer/ transferee of such immovable property on the lines of section 50C/ 43CA.
The underlying assumption in both the situations seems to be that the actual consideration passed on the transfer of immovable property can not be less than circle rate/ Stamp duty Value and in case the apparent consideration shown in the transaction is less than the stamp duty value, the deeming fiction as envisaged u/s 50C/43CA or u/s 56(2)(vii)(b) qua transferor & transferee shall come into force.
Finance Act, 2009 had introduced similar fiction qua the transferee individual or HUF u/s 56(2) but the same was withdrawn by Finance Act, 2010 with retrospective effect. No worthwhile explanation as to the rationale behind withdrawal of such provision earlier and now reintroducing the same by Finance Act, 2013 has come forward from the side of Government. Memorandum explaining the provisions of Finance Act, 2013 is silent on this aspect.
2. Section 56(2)(vii)(b) applicable in the case of Individual & HUF only
It is important to note that provision of section 56(2)(vii) applicable in case of transferee of immovable property covers only Individual or HUF, whereas provisions of section 50C/43CA applicable to the transferor of the property cover all the assessees. It implies that if the transferee of property is a person other than individual or HUF i.e. a Company, Firm, LLP etc., provision of section 56(2)(vii) shall not be applicable. Thus, if an immovable property is purchased by a person other than an individual or HUF for a consideration which is less than Stamp Duty Value / Circle Rate, there will not be any implication or attraction of the provision of this section. There is however nothing explicit as to why only individual and HUF have been brought into the ambit of this section and as to why other persons have been left out. The only broad rationale one can gesticulate & comprehend is that the origin of the provision of section 56(2)(vii) relates to the introduction of the concept of gift/ deemed gift into the income Tax Act after the abolition of Gift Tax Act and since the gift tax used to affect largely to individual and HUF, the applicability of this provision has also been restricted to individual and HUF only.
3. Cost of acquisition to the buyer?
A question arises as to what would be the cost of acquisition to the buyer/ transferee in a case when he has paid tax under this section on the excess of stamp duty valuation over the actual consideration paid by him.
The legislature has provided sub-section (4) to section 49 prescribing cost of acquisition with reference to certain modes of acquisition. It states that where the capital gain arises from the transfer of a property, the value of which has been subject to income tax under clause (vii) or clause (viia) of sub section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia).
It means that in case the buyer of the property has acquired the property as capital asset, the legislature has prescribed the provision for cost step-up available to the buyer/ transferee for the purpose of calculating capital gain at a later date when such property is sold / transferred by such person. Provision such as sub-section (4) to section 49 would mean that cost step-up shall be available to the person only for the purpose of calculating capital gain when such property is transferred at a later date as capital asset. Since provision of section 49(4) cannot be extended to section 32, assessee cannot account for such asset at higher value in the books of accounts and cannot claim depreciation on the enhanced value of the asset.
Further, in case assessee being Individual or HUF has acquired the immovable property as trading asset, the enhanced value of such asset cannot be accounted for in the books of accounts by the assessee, as no such provision corresponding to section 49(4) has been brought under the head 'Profit & gains of business or profession.' It would mean that if an Individual or HUF being in the business of real estate, buys the land or building at less than stamp duty value and therefore being subject to rigor of newly inserted clause (b) of section 56(2)(vii), pays tax on the difference of stamp duty value and the actual consideration yet such individual or HUF would not be able to take advantage of the cost step up despite the fact such individual or HUF has paid the tax with reference to stamp duty value.
4. Whether omission or legislative intent?
Such amount is deemed to be income of the Individual or HUF assessee as provided under this section viz. section 56(2)(vii)(b). If an analogy & comparison of this situation with the deeming provision of section 69 for unexplained investments and section 69C for unexplained expenditure is made, it seems that the legislature has intended with a conscious mind, to not to prescribe the cost step up in case of trading asset on the lines of section 49(4)
As discussed above, the benefit of cost step-up has been granted by the legislature for a situation where the asset is a capital asset for the purpose of calculating capital gains on its subsequent sales but the benefit of the cost step-up has not been granted to an Individual or HUF when the asset is acquired by them as trading asset. In case the asset acquired is in the nature of trading asset, the deduction shall be allowed for an amount being the actual consideration paid by the assessee even when tax has been paid by him on enhanced value in accordance with the provision of section 56(2)(vii).
A question may arise as to whether this is a lapse on the part of the legislature and a provision of cost step up for trading asset corresponding to provision of section 49(4) has missed to be introduced in the statute or such omission is deliberate omission.
As discussed earlier, the underlying assumption behind section 56(2)(vii) seems to be that the actual consideration for a property cannot be less than its circle rate/ stamp duty value and in case the apparent consideration paid is less than the stamp duty value, the difference amount appears to have been paid in cash out side the books of accounts by the transferee. Such amount is deemed to be income of the Individual or HUF assessee as provided under this section viz. section 56(2)(vii)(b). If an analogy & comparison of this situation with the deeming provision of section 69 for unexplained investments and section 69C for unexplained expenditure is made, it seems that the legislature has intended with a conscious mind, to not to prescribe the cost step up in case of trading asset on the lines of section 49(4).
This is so because under the proviso to section 69C, the unexplained expenditure which is deemed to be the income of the assessee u/s 69C is not allowed as a deduction under any head of income. While in the case of unexplained investments u/s 69, there is no such restrictive provision, meaning thereby that if unexplained investment is deemed to be the income of the assessee u/s 69, such investment is allowed as deduction as cost of acquisition of the asset. It implies that the legislative intent is not to allow deemed income in the nature of revenue expenditure as deduction but to allow deemed income in the nature of capital expenditure as deduction. It seems that the same principle and analogy has been embedded in the case of provision of deemed income u/s 56(2)(vii).
However, this controversy is of limited applicability as the provision of section 56(2)(vii) is applicable only to individual and HUF and the cases when individual/HUF acquire immovable property as trading asset are not very common. Generally, immovable property as trading asset are acquired by the business entities such as firm/companies and provisions of section 56(2)(vii) are not applicable on such persons.
As a measure of tax planning, one may thus opt to do business of real estate in the form of business entities other than proprietorship.
DTC to be put on the website of the ministry for public discussion
Direct Taxes Code (DTC) to be put on the website of the ministry for public discussion
Direct Taxes Code (DTC) will be put on the website of the Ministry of Finance for a public discussion without partisanship or acrimony. This was stated by the Finance Minister, Shri P. Chidambaram while presenting Interim Budget 2014-15 in Parliament here today. He said that the Code can serve us for at least the next 20 years. The Finance Minister appealed to all political parties to resolve to pass the GST Laws and the Direct Taxes Code in 2014-15.
Source- PIB
GOODS AND SERVICE TAX REPORTS (GSTR) HIGHLIGHTS
F Failure to comply with mandatory procedure prescribed in notification, rejection of claim for rebate, proper : Vee Excel Drugs and Pharmaceuticals P. Ltd. v. Union of India (All) P. 466
F Deposit of short-paid duty before issuance of show-cause notice not to absolve assessee of liability to penalty : Commissioner of Central Excise v. Supreme Industries Ltd. (Mad) P. 476
F Interest on belated payment of duty automatic : Commissioner of Central Excise v. Supreme Industries Ltd. (Mad) P. 476
F Advance licences can be utilised against earlier imports in terms of paragraph 65 of Import Export Policy : U. K. Paint Industries v. Commissioner of Customs (Delhi) P. 482
F Where goods provisionally released subject to bank gurantee and show-cause notice issued within extended period of limitation, bank gurarntee to remain till finalisation of case : Nishant Enterprises v. Union of India (All) P. 498
F Central Government empowered to increase rate of duty in respect of goods falling under First Schedule irrespective of "nil" or "free" rate of duty : Century Flour Mills Ltd. v. Union of India (Mad) P. 502
F Where Appellate Tribunal finally disposing of issue by confirming orders of Collector (Appeals), claim for interest arises on only disposal of appeals by Appellate Tribunal and not prior to that : Shakun Overseas Ltd. P. Ltd. v. Commissioner of Customs (Appeals) (Mad) P. 510
F Where Tribunal's order waiving pre-deposit of interest and penalty subject to verification of payment of entire tax recalled, assessee to be granted opportunity to establish that entire tax amount paid : Thermax Instrumentation Ltd. v. Commissioner of Central Excise and Customs (Bom) P. 524
F Manufacturer exporting exempted final products can claim refund of Cenvat paid on inputs, execution of bond not required where goods exempted : Jolly Board Ltd. v. Commissioner of Central Excise (Trib.-Mum) P. 529
F Where assessee not discharging onus to prove that full incidence of duty not passed on to buyer, doctrine of unjust enrichment applicable : Commissioner of Customs (Imports) v. Forever Living Health Nutrition and Beauty Care Products P. Ltd. (Trib.-Mum) P. 533
F Mere absence of one function such as "deposit of cash/cheque" would not be decisive to ascertain whether imported goods was automated teller machine or currency dispensing machine for purpose of extending exemption : AGS Transact Technologies Ltd. v. Commissioner of Customs (Imports) (Trib.-Mum) P. 544
F Whether assessee entitled to cross-examination of expert panel dependent on facts and to be decided by Appellate Tribunal : Patel Engineering Ltd. v. Commissioner of Customs (Exports) (Trib.-Mum) P. 552
F Denial of exemption to assessee for violating conditions of licence by importing machinery more than ten years old, proper : Patel Engineering Ltd. v. Commissioner of Customs (Exports) (Trib.-Mum) P. 552
F Where misdeclaration by importer and not by Indian office of foreign supplier, penalty set aside : Patel Engineering Ltd. v. Commissioner of Customs (Exports) (Trib.-Mum) P. 552
| COMPANY LAW INSTITUTE OF INDIA PVT. LTD. No. 2, Vaithyaram Street, T.Nagar, Chennai - 600017. Phone: (044) 24350752 - 55 Fax: (044) 24322015 info@cliofindia.com |
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Service Tax - Budget 2014 changes
February 17, 2014
By Pritam Mahure, CA
INTERIM Budget 2014 has proposed few changes with respect to Service Tax. These changes are discussed in the following paragraphs.
A. The curious case of 'rice' and service tax
The Finance Act 1994 exempts storage or warehousing of 'agricultural produce'. In this context, question had arisen as to whether 'rice' is an 'agricultural produce' or not?
In this regard, the Hon'ble Finance Minister had vide letter dated 9 November 2013 [See DDT 2275 ] clarified that 'paddy' is an 'agricultural produce' but 'rice' is not since it is subject to processing (de-husking etc.) and it will not qualify as 'agricultural produce' and thus its storage, warehousing etc. will be liable to service tax.
Now, as a relief, vide Notification No. 4/2014-ST dated 17 February 2014, the Finance Ministry has exempted storage or warehousing, loading, unloading, packing of 'rice' from service tax.
However, this Notification is half-hearted as the exemption provided will be applicable for period from 17 February 2014 onwards (i.e. prospective), thus implying that the Government considers this service was taxable prior to 17 February 2014.
This leads to a paradox as the Government thinks the storage, warehousing etc. of 'rice' as exempt with effect from 17 February 2014 onwards but taxable prior to 17 February 2014.
Though the interpretation of the Finance Ministry that 'rice' is not an 'agricultural produce' is itself doubtful still the warehousing industry may face notices asking them to pay service tax for the period prior to 17 February 2014.
In our view, it is of utmost importance that the aforesaid services are exempted retrospectively by a section 11C notification.
B. Rice is 'foodstuff'
The TRU vide Circular 177/3/2014 dated 17 February 2014 has clarified that transportation of rice by rail, vessel or Goods Transport Agency will be exempted as 'rice' qualifies as a 'foodstuff'.
It is also clarified by TRU that 'milling of paddy into rice' is already exempt as it is covered as sr. no. 30 (a) of Notification No. 25/2012-ST.
This being a clarificatory circular should have retrospective effect.
C. Exemption from service tax to Cord blood banks
Umbilical cord blood banking is practice of preserving for future use the blood that remains in the umbilical cord at the time of birth. Herein, the cord blood is collected, preserved and used (by child or his relative). Accordingly the patient is charged for collection, preservation, processing etc. of the cord blood.
In this context, there was ambiguity regarding applicability of service tax on the charges collected by such cord blood banks i.e. whether these services should be treated as 'healthcare services' (and thus exempt from service tax) or storage services (and thus liable to service tax)
The Ministry of Health and Family Welfare also had requested the Finance Ministry that services provided by cord blood banks are also 'healthcare services' and should be thus exempt from service tax.
Now, as a relief, vide Notification No. 4/2014-ST dated 17 February 2014, the Finance Ministry has proposed to exempted services provided by cord blood banks pertaining to of collection, preservation, processing, testing etc. from service tax. However, this notification is also prospective i.e. applicable for period from 17 February 2014 onwards.
Thus, the ambiguity/litigation regarding period prior to 17 February 2014 will continue to be pain for the Cord Blood Bank industry unless the benevolent government extends retrospective benefits.
Budget Notification providing Exemption from Custom Duty on various goods
Notification No. 05/2014-Customs
New Delhi, the 17th February, 2014
G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 12/2012-Customs, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 185(E), dated the 17th March, 2012, namely:-
In the said notification,-
(A) in the Table,-
(i) after serial number 16 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
| (1) | (2) | (3) | (4) | (5) | (6) |
| "16A | 0511 99 99 | Human Embryo | Nil | - | 1A"; |
(ii) against serial number 27, in column (2), for the word and figures "or 0808 20 00", the figures and word "0808 30 00 or 0808 40 00" shall be substituted;
(iii) against serial number 51, for the entries occurring in column (4) against clauses (A), (B) and (C) of item I of column (3), the entry "7.5%" shall respectively be substituted;
(iv) after serial number 138 and the entries relating thereto, the following serial numbers and entries shall be inserted, namely:-
| (1) | (2) | (3) | (4) | (5) | (6) |
| "138A | 2711 11 00, 2711 21 00 | Liquefied Natural Gas (LNG) imported for consumption in the C2-C3 Plant of M/s Oil and Natural Gas Corporation Limited located in the Dahej Special Economic Zone (hereinafter referred to as the SEZ unit) for the purposes of authorised operations in the SEZ unit. | Nil | Nil | 8A |
| 138B | 2711 11 00, 2711 21 00 | The remnant Liquefied Natural Gas (LNG) or Natural Gas (NG) cleared into the Domestic Tariff Area (DTA), after completion of the authorised operations carried out by the C2-C3 Plant of M/s Oil and Natural Gas Corporation Limited, located in the Dahej Special Economic Zone (hereinafter referred to as the SEZ unit): Provided that no exemption shall be available if exemption has been claimed on the quantity of LNG/NG other than the quantity which has been consumed for the authorised operation in the SEZ unit. | Nil | Nil | -"; |
(v) against serial number 187, in column (2), the entries "3823 11 11, 3823 11 12 , 3823 11 19" shall be omitted;
(vi) after serial number 187 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
| (1) | (2) | (3) | (4) | (5) | (6) | |
| "187A | 3823 11 11, 3823 11 12, 3823 11 19 | All goods | 7.5% | - | -"; | |
(vii) against serial number 230, for the entry in column (4), the entry "7.5%" shall be substituted;
(viii) after serial number 368 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
| (1) | (2) | (3) | (4) | (5) | (6) |
| "368A | 84 or any other Chapter | Goods specified in List 16A required for construction of roads | Nil | - | 9"; |
(ix) after serial number 394 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
| (1) | (2) | (3) | (4) | (5) | (6) |
| "394A | 84 | The following goods to be imported by or on behalf of Bank Note Paper Mill India Private Limited (BNPMIPL) namely:- (i) plant or machinery or equipment, related spares and consumables imported by or on behalf of BNPMIPL, for setting up of a Bank Note Paper Mill project to manufacture Cylinder Mould Vat Made Watermarked Banknote (CWBN) paper and other security paper at Mysore, Karnataka; and (ii) Plant or machinery or equipment, related spares and consumables for online inspection of pulp. | 5% | Nil | -"; |
(B) after the Table, in the proviso,-
(i) in clause (a), for the figures, letters and words "1st day of April, 2014", the figures, letters and words "1st day of October, 2014" shall be substituted;
(ii) after clause (i) and before the Explanation, the following clause shall be inserted, namely:-
"(j) the goods specified against serial no. 394A of the said Table on or after the 1st day of January, 2015";
(C) in the ANNEXURE,
(i) after condition number 1, the following condition shall be inserted, namely:-
| "1A | If the importer furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, that the human embryo shall not be used for commercial purpose"; |
(ii) after condition number 8, the following condition shall be inserted, namely:-
| "8A | If in respect of the LNG for which exemption is claimed,- (a) the importer indicates in the Bill of Entry, the quantity of LNG for which the exemption is claimed; and (b) the importer produces a certificate from the jurisdictional Specified Officer of the SEZ unit certifying that the quantity of LNG for which exemption is being claimed has actually been consumed in terms of equivalent quantity by the SEZ unit for the purposes of authorised operations during the preceding month."; |
(iii) in condition number 93, in the second column relating to Conditions, for the words "within a period of thirty six months", the words " within a period of sixty months" shall be substituted;
(iv) in List 16,-
(a) items number (1), (2),(6),(16) and (20) and entries relating thereto shall be omitted;
(b) for item number (21) and the entry relating thereto, the following item and entry shall be substituted, namely:-
"(21) Tunnel Excavation and Lining Equipments";
(v) after List 16 and the entries relating thereto, the following List and entries shall be inserted, namely:-
"List 16A (See S.No. 368A of the Table)
(1) Hot mix plant batch type with electronic controls and bag type filter arrangements more than 120 T/hour capacity,
(2) Electronic paver finisher (with sensor device) for laying bituminous pavement 7m size and above,
(3) Kerb laying machine,
(4) Mobile concrete pump placer of 90/120 cu m/hr capacity,
(5) Skid steer loaders,
(6) Drilling jumbos, Loaders, Excavators, Shortcrete machine and 3 stage crushers.".
[F.No. 334/3/2014-TRU]
(Akshay Joshi)
Under Secretary to the Government of India
Note: The principal notification No. 12/2012-Customs, dated the 17th March, 2012, was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 185(E), dated the 17th March, 2012 and last amended vide notification No. 04/2014-Customs, dated the 3rd February, 2014, published vide number G.S.R. 76 (E), dated the 3rd February, 2014.
Amendment of DTAA with United Kingdom of Great Britain and Northern Ireland
NOTIFICATION NO. 10/2014, DATED 10-2-2014
Whereas, the Protocol (hereinafter referred to as the said Protocol) amending the convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital which was signed at London on the 30′ October, 2012.
2. And whereas, the date of entry into force of the said protocol amending the Convention is the 27th day of December, 2013, being the date of later of the notifications of completion of the procedures as required by the respective laws for entry into force of the said Protocol amending the Convention, in accordance with the provisions of Article X of the said Protocol.
3. Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that all the provisions of said Protocol as set out in the Annexure hereto, shall be given effect to in the Union of India with effect from the 27th day of December, 2013.
ANNEXURE
PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS
The Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland,
Desiring to amend the Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains signed at New Delhi on 25 January 1993 (hereinafter referred to as "the Convention"),
Have agreed as follows:
ARTICLE I
Sub-paragraph (f) of paragraph 1 of Article 3 shall be deleted and replaced by the following:
"(f) the term "person" includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States;"
ARTICLE II
Paragraph 2 of Article 3 shall be deleted. Paragraph 3 shall not be renumbered.
ARTICLE III
Paragraph 1 of Article 4 (Fiscal domicile) shall be deleted and replaced by the following:
| "1. | For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, provided, however, that: |
| (a) | this term does not include any person who is liable to tax in that State in respect only of income from sources in that State; and | |
| (b) | in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries " |
ARTICLE IV
Article 11 (Dividends) of the Convention shall be deleted and replaced by the following:
"ARTICLE 11
Dividends
| 1. | Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. | |
| 2. | However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed: |
| (a) | 15 per cent of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax; | |
| (b) | 10 per cent of the gross amount of the dividends, in all other cases. |
| The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. | ||
| 3. | The term "dividends" as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as any other item which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. | |
| 4. | The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 (Business profits) or Article 15 (Independent personal services), as may be the case, shall apply. | |
| 5. | Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company's undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State. | |
| 6. | No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment." |
ARTICLE V
Article 25 (Partnerships) of the Convention shall be deleted and the subsequent articles shall not be renumbered.
ARTICLE VI
Article 28 (Exchange of information) of the Convention shall be deleted and replaced by the following Article:
"ARTICLE 28
Exchange of information
| 1. | The competent authorities of the Contracting States shall exchange such information (including documents or certified copies of the documents) as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws of the Contracting States concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention. The exchange of information is not restricted by Articles 1 and 2 of this Convention. | |
| 2. | Any information received under paragraph 1 of this Article by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to, the taxes referred to in paragraph 1 of this Article, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use. | |
| 3. | In no case shall the provisions of paragraphs 1 and 2 of this Article be construed so as to impose on a Contracting State the obligation: |
| (a) | to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; | |
| (b) | to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; | |
| (c) | to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy. |
| 4. | If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 of this Article but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information. | |
| 5. | In no case shall the provisions of paragraph 3 of this Article be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person." |
ARTICLE VII
A new Article 28A (Tax Examination Abroad) will be inserted after Article 28 (Exchange of Information) as follows:
"ARTICLE 28A
Tax Examinations Abroad
| 1. | At the request of the competent authority of a Contracting State (the "requesting State"), the competent authority of the other Contracting State (the "requested State") may allow representatives of the competent authority of the requesting State to enter its territory to interview individuals and examine records with the prior written consent of the persons concerned. The competent authority of the requesting State shall notify the competent authority of the requested State of the time and place of the meeting with the individuals concerned. | |
| 2. | At the request of the competent authority of the requesting State, the competent authority of the requested State may allow representatives of the competent authority of the requesting State to be present at the appropriate part of a tax examination in the territory of the requested State. | |
| 3. | If the request referred to in paragraph 2 of this Article is acceded to, the competent authority of the requested State conducting the examination shall, as soon as possible, notify the competent authority of the requesting State about the time and place of the examination, the authority or official designated to carry out the examination and the procedures and conditions required by the requested State for the conduct of the examination. All decisions with respect to the conduct of the tax examination shall be made by the requested State conducting the examination." |
ARTICLE VIII
A new Article 28B (Assistance in the Collection of Taxes) will be inserted after new Article 28A (inserted by Article VII of this Amending Protocol) as follows:
"ARTICLE 28B
Assistance in the Collection of Taxes
| 1. | The Contracting States shall lend assistance to each other in the collection of revenue claims in respect of taxes covered by the Convention. This assistance is not restricted by Article 1. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of this Article. | |
| 2. | The term "revenue claim" as used in this Article means an amount owed in respect of taxes covered by this Convention, insofar as the taxation thereunder is not contrary to this Agreement or any other instrument to which the Contracting States are parties, as well as interest, administrative penalties and costs of collection or conservancy related to such amount. | |
| 3. | When a revenue claim of a Contracting State is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of collection by the competent authority of the other Contracting State. That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State. | |
| 4. | When a revenue claim of a Contracting State is a claim in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other Contracting State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection. | |
| 5. | When a Contracting State may, under its law, take interim measures of conservancy by freezing of assets before a revenue claim is raised against a person, the competent authority of the other Contracting State, if requested by the competent authority of the first mentioned State, shall take measures for freezing the assets of that person in that Contracting State in accordance with the provisions of its law. | |
| 6. | Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 shall not, in that State, have any priority applicable to that revenue claim under the laws of the other Contracting State. | |
| 7. | Proceedings with respect to the existence, validity or the amount of a revenue claim of a Contracting State shall not be brought before the courts or administrative bodies of the other Contracting State. | |
| 8. | Where, at any time after a request has been made by a Contracting State under paragraph 3 or 4 and before the other Contracting State has collected and remitted the relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases to be: |
| (a) | in the case of a request under paragraph 3, a revenue claim of the first-mentioned State that is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, or | |
| (b) | in the case of a request under paragraph 4, a revenue claim of the first-mentioned State in respect of which that State may, under its laws, take measures of conservancy with a view to ensure its collection the competent authority of the first-mentioned State shall promptly notify the competent authority of the other State of that fact and, at the option of the other State, the first-mentioned State shall either suspend or withdraw its request. |
| 9. | In no case shall the provisions of this Article be construed so as to impose on a Contracting State the obligation; |
| (a) | to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; | |
| (b) | to carry out measures which would be contrary to public policy; | |
| (c) | to provide assistance if the other Contracting State has not pursued all reasonable measures of collection or conservancy, as the case may be, available under its laws or administrative practice; | |
| (d) | to provide assistance in those cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the other Contracting State." |
ARTICLE IX
A new Article 28C shall be inserted after new Article 28B (inserted by Article VIII of this Amending Protocol) as follows:
"ARTICLE 28C
Limitation of Benefits
| 1. | Benefits of this Convention shall not be available to a resident of a Contracting State, or with respect to any transaction undertaken by such a resident, if the main purpose or one of the main purposes of the creation or existence of such a resident or of the transaction undertaken by him, was to obtain benefits under this Convention. | |
| 2. | Where by reason of this Article a resident of a Contracting State is denied the benefits of this Convention in the other Contracting State, the competent authority of that other Contracting State shall notify the competent authority of the first-mentioned Contracting State." |
ARTICLE X
| 1. | Each of the Contracting States shall notify the other, through diplomatic channels, of the completion of the procedures required by its law for the bringing into force of this Protocol. This Protocol shall enter into force on the date of the later of these notifications and shall thereupon have effect: |
| (a) | in both States in the case of taxes withheld at source, in respect of amounts paid on or after the date this Protocol enters into force, | |
| (b) | in India, in respect of taxes levied for fiscal years beginning on or after the date this Protocol enters into force; | |
| (c) | in the United Kingdom: |
| (i) | in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which this Protocol enters into force; | |
| (ii) | in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which this Protocol enters into force; | |
| (iii) | in respect of petroleum revenue tax, for any chargeable period beginning on or after 1st January in the calendar year next following that in which this Protocol enters into force. |
| 2. | Notwithstanding the provisions of paragraph 1 of this Article, the provisions of Articles VI, VII & VIII of this Protocol shall apply in respect of any matter referred to in these Articles even if such matters pre-date the entry into force of this Protocol or the effective date of any of its provisions. |
In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Protocol
Done on this 30th day of October 2012, in London on two original copies each in the English and Hindi languages, both texts being equally authentic. In case of divergence between the two texts, the English text shall be the operative one.
WINDING UP BY TRIBUNAL (Companies Act, 2013)
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Proper winding up of a company is certainly more important than its incorporation. The ghost of a company should not haunt after attaining or discarding objects of the company.
MODES OF WINDING – UP (SECTION 270):
The winding up of a company may be either –
- by the Tribunal; or
- Voluntary.
CIRCUMSTANCES FOR WINDING UP BY TRIBUNAL (SECTION 271):
A company may be wound up by the Tribunal on a petition filed under Section 272 of the Act.
The company may be wound up by Tribunal –
- If the company is unable to pay its debts;
- If the company has resolved by special resolution that the company be wound up by the Tribunal;
- If the company has acted against the interests of the sovereignty and integrity of India, its security of the State, friendly relations with foreign States, public order, decency or morality;
- If the Tribunal has ordered the winding up of the company under Chapter XIX i.e. in case of a sick company;
- If, on application by the Registrar or the Government, the Tribunal is of the opinion that the affairs of the company has been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up;
- If the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or
- If the Tribunal is of the opinion that it is just and equitable to wind up the company.
Unable to Pay Debt (sub – section 2 of Section 271):
A company shall be deemed to be unable to pay its debts –
a) If the company has to pay the sum within twenty – one days after the receipt of demand or to provide adequate security or re – structure or compound the debt to the reasonable satisfaction of the creditor. The demand may be served:
i. A creditor by assignment or otherwise,
ii. to whom company is indebted for an amount exceeding one lakh rupees then due,
iii. by causing it to be delivered at its registered officer, by registered post or otherwise,
iv. a demand requiring the company to pay the amount so due.
b) If any execution or other process issued on a decree or order of any court or tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part; or
c) If it is proved to the satisfaction of the Tribunal that the company is unable to pay its debt, and the Tribunal has taken into account the contingent and prospective liabilities of the company while determining this.
PETITION FOR WINDING UP (SECTION 272):
A petition to the Tribunal for the binding up of a company shall be presented by –
a) The company;
b) Any creditor or creditors, including any contingent or prospective creditor or creditors;
c) Any contributory or contributories;
d) All or any of the person in above clauses (a), (b) and (c) together;
e) The Registrar;
f) Any person authorised by the Central Government in that behalf; or
g) In case the company has acted against the interests of the sovereignty and integrity of India, its security of the State, friendly relations with foreign States, public order, decency or morality , by the Central Government or State Government.
A secured creditor, debenture holder and debenture trustee shall be deemed to be creditor for this Section.
A contributory shall be entitled to present a petition for winding up of a company, whether –
i. He hold fully paid – up shares, or
ii. The company have no asserts at all
iii. The company have no surplus assets left for distribution among shareholders.
The Shares in respect of which, a person is contributory or contributories were—
i. originally allotted to them, or
ii. have been held by him and registered in his name for at least six months during the eighteen months immediately before commencement of the winding up, or
iii. have devolved on him through the death of a former holder.
The Registrar shall not be entitle to present a petition for winding up on the grounds specified in clauses (b), (d) or (g) of sub – section of Section 271. the Registrar shall not present a petition on the ground that the company is unable to pay its debts unless it appears to him either from the financial condition of the company as disclosed in its balance sheet or from the report of an inspector appointed under section 210 that the company is unable to pay its debts. The Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition. The Central Government shall not accord its sanction unless the company has been given a reasonable opportunity of making representations.
A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied by a statement of affairs in such form and in such manner as may be prescribed.
Before a petition for winding up of a company presented by a contingent or prospective creditor is admitted, the leave of the Tribunal shall be obtained for the admission of the petition and such leave shall not be granted, unless in the opinion of the Tribunal there is a prima facie case for the winding up of the company and until such security for costs has been given as the Tribunal thinks reasonable.
A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition.
please continue to page 2
WINDING UP BY TRIBUNAL (Companies Act, 2013)
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POWERS OF TRIBUNAL (SECTION 273):
The Tribunal, on receipt of a petition for winding up, may pass any of the following orders, namely—
- dismiss it, with or without costs;
- make any interim order as it think fit;
- appoint a provisional liquidator of the company till the making of a winding up order;
- make an order for the winding up of the company with or without cost; or
- any other order as it think fit.
The Tribunal shall make the order within ninety days from the date of presentation of the petition.
Before appointing a provisional liquidator, the Tribunal shall give notice to the company and afford a reasonable opportunity to it to make its representations. However, for special reasons to be recorded in writing, the Tribunal may dispense with such notice.
The Tribunal shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged for an amount equal to or in excess of those assets, or that the company has no assets.
Where a petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy.
DIRECTIONS FOR FILING STATEMENT OF AFFAIRS (SECTION 274):
Where a petition for winding up is filed before the Tribunal by any person other than the company, the Tribunal shall, if satisfied that a prima facie case for winding up of the company is made out, by an order direct the company to file its objections along with a statement of its affairs within thirty days of the order.
The Tribunal may allow a further period of thirty days in a situation of contingency or special circumstances.
The Tribunal may direct the petitioner to deposit such security for costs as it may consider reasonable as a precondition to issue directions to the company.
A company, which fails to file the statement of affairs, shall forfeit the right to oppose the petition and such directors and officers of the company as found responsible for such non-compliance, shall be liable for punishment.
The directors and other officers of the company, in respect of which an order for winding up is passed by the Tribunal, shall submit at the cost of the company, the books of account of the company completed and audited up to the date of the order to liquidator within a period of thirty days of such order.
If any director or officer of the company contravenes the provisions of this section, the director or the officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both. The complaint may be filed in this behalf before the Special Court by Registrar, provisional liquidator, Company Liquidator or any person authorised by the Tribunal.
We will discuss other provisions related to winding up in future posts.
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IT : Penalty under section 272B is linked to person, who is responsible to deduct TDS and not with number of defaults regarding quotation of PAN in TDS return
peanty u/s 272B■■■
[2014] 41 taxmann.com 438 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'B'
Assistant Commissioner of Income-tax, Circle -49 (1), New Delhi
v.
DHTC Logistics Ltd.*
S.V. MEHROTRA, ACCOUNTANT MEMBER
AND KULBHARAT, JUDICIAL MEMBER
AND KULBHARAT, JUDICIAL MEMBER
IT APPEAL NOS. 675, 676 & 677 (DELHI) OF 2012
[ASSESSMENT YEARS 2005-06 TO 2007-08]
[ASSESSMENT YEARS 2005-06 TO 2007-08]
SEPTEMBER 14, 2012
Section 272B of the Income-tax Act, 1961 - Penalty - For failure to comply with section 139A (Incorrect /missing PAN in TDS return) - Assessment years 2005-06 to 2007-08 - Assessing Officer imposed penalty under section 272B on deduct of Rs. 30,70,60,000 i.e., at rate of Rs. 10,000 for missing/incorrect PAN of 30706 deductees - Commissioner (Appeals) restricted said addition to Rs. 30,000 - Whether in view of clarification issued by CBDT that penalty of Rs. 10,000 is linked to person and not with number of defaults, there was no infirmity in Commissioner (Appeals)'s order - Held, yes [Para 6] [In favour of assessee]
Circulars and Notifications : CBDT letter No. 275/24/2007-IT(B), dated 5-8-2008
FACTS
| ■ | The Assessing Officer imposed penalty under section 272B of Rs. 30,70,60,000 i.e. @ Rs. 10,000 for missing/incorrect PAN of 30706 deductees in TDS returns. | |
| ■ | The Commissioner (Appeals) restricted the penalty to 30,000 following clarification issued by CBDTvide letter No. 275/24/2007-IT(B). | |
| ■ | On second appeal: |
HELD
| ■ | The Commissioner (Appeals) has restricted penalty to the tune of Rs. 30,000 following the clarification embodied in the CBDT letter dated 5-8-2008. This fact is not disputed by the revenue that CBDT has issued a clarification whereby it has been clarified that penalty under section 272B of Rs. 10,000 is linked to the person and not with the number of defaults. [Para 6] | |
| ■ | Hence, there was no infirmity in the orders of Commissioner (Appeals). [Para 7] |
S. Krishna for the Appellant. Rakesh K. Sehgal for the Respondent.
ORDER
Kulbharat, Judicial Member - These three appeals of the assessee are directed against the order of Ld. CIT(A)-XXX, New Delhi dated 17.11.2011 for the AYs 2005-06 to 2007-08.
2. All these appeals are arising out of common order and raised identical grounds of appeal. Hence, these are heard together and are being disposed off by a consolidated order.
3. The revenue has raised the identical grounds of appeal in all the three appeals which reads as under:—
| "(1). | In deleting the penalty of Rs. 30,70,30,000/- levied u/s 272B of the IT Act by the A.O Cir. 49(1) holding that the penalty is per person (appellant) and not per PAN. | |
| (2). | In directing the A.O to collect the penalty demand of Rs. 30,000/- u/s 272B of the IT Act as per per person (appellant) per year. | |
| (3). | In appreciating the fact that the Section 139(5B) is to be read in conjunction with Section 272B, if these two sections are read together, the intend of the legislation becomes apparent that the penalty is to be levied per PAN in the TDS return and not per person." |
The facts are identical in all these appeals, hence the facts of ITA No.675/Del/2012 are being taken as a lead case.
4. The facts in brief are that the Assessing Officer issued a show cause notice for levying penalty u/s 272B r.w.s 139A(5B) in respect of missing PAN of deductee in the TDS return. The assessee in respect of thereto made a detailed reply. However, the Assessing Officer did not accept the explanation offered by the Counsel for the assessee and imposed a penalty of Rs. 30,70,60,000/- i.e @ Rs. 10,000/- for missing/incorrect PAN of 30706 deductees. The assessee feeling aggrieved by the order of the Assessing Officer preferred an appeal to Ld. CIT(A) who after considering the submissions reduced the penalty to Rs. 30,000/-. Against this order, the revenue has filed the instant appeals.
5. Ld. CIT DR strongly relied upon the order of the Assessing Officer and submitted that section 272B of the Act is to be read in conjunction with section 139A(5B) of the Act. He submitted that non-mentioning of the PAN, made the deductor liable for penalty u/s 272B and such penalty is leviable on each default. On the contrary, Ld. AR of the assessee submitted that the tax at source is deductible u/s 194C of the Act in respect of the payment made. He submitted that section 194C(6) envisages that no tax is deductible in the event i.e PAN is furnished. He submitted that in this case the PAN was not made available by the deductee to the deductor assessee company. He submitted that even otherwise also in terms of Board's letter dated 05.08.2008 No. 275/24/2007-IT(B), the penalty u/s 272B is not leviable in respect of default. He submitted that it has been clarified therein that the penalty is linked to the person and not with the number of defaults in the PAN quoting in the e-TDS return. He also relied on the decision of the Hon'ble ITAT, Banglore Bench, rendered in ITA NO. 907,908 & 909 (Ind.) 2008 wherein it has been observed that there is no mechanism at the end of the assessee deductor to compel deductee to provide PAN.
6. We have heard the rival submissions perused material available on record. Ld. CIT(A) has restricted penalty to the tune of Rs. 30,000/- in all these appeal following the clarification embodied in the CBDT letter dated 05.08.2008. Since this fact is not disputed by the revenue that CBDT has issued a clarification whereby it has been clarified penalty u/s 272B of Rs. 10,000/- is linked to the person and not with the number of defaults.
7. Hence, we do not find any infirmity into orders of Ld. CIT(A), this ground of the appeal is rejected since the facts of the grounds are identical in all the three appeals i.e ITA No. 675, 676 & 677/Del/2012.
8. In the result, all these three appeals of the revenue are dismissed.
Regards,
Pawan Singla , LLB
M. No. 9825829075
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| The International Auditing and Assurance Standards Board (IAASB) today released its new publication, A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality. Through this Framework, the IAASB aims to raise awareness of the key elements of audit quality, encourage key stakeholders to challenge themselves to do more to increase audit quality in their particular environments, and facilitate greater dialogue between key stakeholders on the topic. "Audit quality is, and will continue to be, an area of principal attention by the IAASB and others. This new Framework contributes to further progress on the topic by making clear that, while responsibility for performing quality audits of financial statements rests with auditors, audit quality is best achieved in an environment where there is support from and appropriate interactions among participants in the financial reporting supply chain," said Prof. Arnold Schilder, IAASB chairman. The Framework describes in a holistic manner the different input, process, and output factors relevant to audit quality at the engagement, firm, and national levels. It also demonstrates the importance of appropriate interactions among stakeholders, and how they may facilitate improvement to audit quality, as well as perceptions of audit quality. Further, the Framework demonstrates the importance of various contextual factors, such as laws and regulations, the litigation environment, corporate governance, and the financial reporting framework—collectively, factors that have the potential to impact the nature and quality of financial reporting and, directly or indirectly, audit quality. "Our discussions on the Framework have been informed by many sources, including the regulatory community, international ethics and accounting education standard setters, the IAASB's Consultative Advisory Group, and the public," added James Gunn, IAASB technical director. "Our hope is to see continued dialogue on the topic, and that active use of the Framework by various stakeholders will result in positive actions in the public interest to achieve a continual improvement to audit quality." The IAASB will continue to take steps in 2014 and beyond to further promote dialogue on audit quality and encourage organizations to use the Framework to help them improve audit quality. To access the publication, and for additional information, visit the "Focus on Audit Quality" section of the IAASB's website. About the IAASB The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). About IFAC IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 179 members and associates in 130 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce. | |||
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