I AM SORRY TO STATE THAT MORE THAN 3 MONTHS I WAS TIED UP IN SOCIAL WORK IN INDI. I COULD NOT ATTEND GROUPS PROPERLY.
C A SHAH D J
USA
Section 179 – Clarification of the phrase "tax due" for the purposes of recovery
Clarification of the phrase "tax due" for the purposes of recovery in certain cases
1 Section 179 of the Income-tax Act provides that where the tax due from a private company cannot be recovered from such company, then the director (who was the director of such company during the previous year to which non-recovery relates) shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. This provision is intended to recover outstanding demand under the Income-tax Act of a private company from the directors of such company in certain cases. However, some courts have interpreted the phrase 'tax due', used in section 179, does not include penalty, interest and other sum payable under the Income-tax Act.
2 In view of the above, it has been clarified that for the purposes of the said section 179, the expression "tax due" includes penalty, interest or any other sum payable under the Income-tax Act. Amendment on the similar lines for clarifying the expression 'tax due' has also been made to the provisions of section 167C of the Income-tax Act.
3 Applicability: - These amendments take effect from 1st June, 2013.
IT : Where assessee, a co-operative society engaged in business of banking, claimed deduction under section 80P(2) and Assessing Officer disallowed claim of deduction and also levied penalty under section 271(1)(c) upon assessee on plea that it had intentionally claimed inadmissible deduction to reduce taxable income, since claim for deduction had been a matter of bona fide mistake, levy of penalty was not justified
■■■
[2014] 41 taxmann.com 11 (Rajasthan)
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax, Udaipur
v.
Chittorgarh Kendriya Sahakari Bank Ltd.*
DINESH MAHESHWARI AND P.K. LOHRA, JJ.
D. B. IT APPEAL NO. 77 OF 2013†
OCTOBER 17, 2013
Section 271(1)(c), read with section 80P, of the Income-tax Act, 1961 - Penalty - For concealment of income [Disallowance of claim, effect of] - Assessment year 2007-08 - Assessee, a co-operative society, was engaged in business of banking - In original return of income filed for assessment year 2007-08, it claimed deduction of Rs. 50,000 under section 80P(2)(c)(ii) - Subsequently it filed revised return and in said return in addition to claim of deduction under section 80P(2)(c)(ii) amounting to Rs. 50,000, it also claimed further deduction of Rs. 3.07 crores under section 80P(2)(d) - However, on being informed by Assessing Officer about amendment in section 80P, it filed second revised return seeking to withdraw claim of above deduction - Assessing Officer found second revised return not a valid return - He further disallowed both claims of deduction under section 80P(2)(c)(ii) and 80P(2)(d) made in first revised return and completed assessment - He also levied penalty under section 271(1)(c) upon assessee by holding that assessee had intentionally claimed inadmissible deduction under section 80P(2) to reduce taxable income - By virtue of insertion of sub-section (4) in section 80P by Finance Act, 2006 with effect from 1-4-2007 provisions of section 80P were made inapplicable in relation to any co-operative bank - Whether claim for deduction under section 80P(2) in assessment year in question had been a matter of bona fide mistake and could not have been taken to be a case of concealment of particulars of income or furnishing of inaccurate particulars of income - Held, yes - Whether, therefore, penalty levied upon assessee was not justified - Held, yes [Para 10] [In favour of assessee]
FACTS
| ■ | The assessee, a co-operative society, was engaged in the business of banking and providing credit facilities to its members and public in general. It had earlier been claiming and was being allowed deduction under section 80P(2) for being eligible therefor. In the original return of income filed for the assessment year 2007-08, it claimed deduction of Rs. 50,000 under section 80P(2)(c)(ii). Subsequently it filed revised return and in the said return in addition to the claim of deduction under section 80P(2)(c)(ii) amounting to Rs. 50,000, it also claimed further deduction of Rs. 3.07 crores under section 80P(2)(d). However, on being informed by the Assessing Officer about amendment in section 80P, it filed second revised return on 29-12-2009 seeking to withdraw the claim of above deduction. | |
| ■ | The Assessing Officer found the second revised return not a valid return. He further disallowed both the claims of deduction under section 80P(2)(c)(ii) and 80P(2)(d) made in the first revised return and completed the assessment at the total income declared in the original return. | |
| ■ | The Assessing Officer also levied the penalty under section 271(1)(c) upon the assessee by holding that the assessee had intentionally claimed inadmissible deduction under section 80P(2) to reduce the taxable income. | |
| ■ | On appeal, the Commissioner (Appeals) held that the claim of deduction by the assessee had not been that of concealment of income or furnishing of inaccurate particulars. The explanation filed by the assessee for claim of deduction under section 80P and its withdrawal by way of filing the second revised return was bona fide and did not fall in the category of concealment of income or furnishing of inaccurate particulars of income. He, therefore, cancelled the penalty levied upon the assessee. | |
| ■ | On second appeal, the Tribunal upheld the order of the Commissioner (Appeals). | |
| ■ | On appeal to High Court: |
HELD
| ■ | The assessee is a co-operative bank and had been entitled to the deduction under section 80P(2) before the year in question and had been allowed such deduction. It is no doubt true that in the original return for the year in question, the assessee claimed deduction of Rs. 50,000 under section 80P(2)(c)(ii) and in the first revised return besides the above, it also claimed deduction of Rs. 3.07 crores under section 80P(2)(d). However, with the amendment in section 80P and insertion of sub-section (4) from 1-4-2007, the assessee was not entitled to such deduction. [Para 9] | |
| ■ | The assessee, a banking institution and a registered co-operative society, of course, ought to have been remained vigilant while filing its return or revised return, but it remains a fact that earlier the deduction in question under section 80P(2) was being allowed to the assessee, for being a co-operative society engaged in the business of banking and providing credit facilities. It was by virtue of insertion of sub-section (4) by the Finance Act, 2006 with effect from 1-4-2007 that the provisions of section 80P were made inapplicable in relation to any co-operative bank other than the primary agriculture credit society or primary co-operative agriculture and rural development bank. Apparently the claim for the deduction in the assessment year 2007-08 had been a matter of bona fide mistake and could not have been taken to be a case of concealment of particulars of income or furnishing of inaccurate particulars of income. In fact, when confronted with the legal position, the assessee filed second revised return,albeit belatedly, withdrawing such claim of deduction. [Para 10] | |
| ■ | The appellate authorities have rightly taken into consideration that on being confronted with the legal position, the assessee attempted to correct the mistake by filing second revised return. In the totality of circumstances of the case, the appellate authorities cannot be faulted in not finding it to be a case of making a wilfully wrong claim by furnishing inaccurate particulars. There is nothing of error or infirmity in the approach on the part of the appellate authorities leading to any substantial question of law. [Para 12] |
CASE REVIEW
CIT v. Reliance Petro Products (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 11) followed.
CASES REFERRED TO
CIT v. Reliance Petro Products (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 11).
K.K. Bissa for the Appellant.
JUDGMENT
By the Court - Having heard the learned counsel for the appellant and having perused the material placed on record, we are satisfied that no substantial question of law is involved in this appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 ['the Act'] against the order dated 17.12.2012 passed in ITA No.387/JU/2011 by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ['the ITAT'] for the assessment year 2007-08.
2. The sum and substance of the matter could be noticed in the following: The assessee is a co-operative society, engaged in the business of banking and providing credit facilities to its members and public in general. The assessee had earlier been claiming, and was being allowed, deduction under Section 80P(2) of the Act for being eligible therefor. The assessee also claimed the similar deduction for the assessment year 2007-08, which has not been allowed by the Assessing Officer ['the AO'] due to change in law, whereby the assessee was rendered ineligible for this deduction.
3. It appears that the assessee filed its original return for the assessment year 2007-08 on 30.10.2007, declaring total income at Rs.3,90,26,699 while claiming deduction of Rs.50,000 under Section 80P(2)(c)(ii). Subsequently, a revised return was filed by the assessee on 13.12.2007, declaring income of Rs.82,88,771. In this revised return, in addition to the claim of deduction under Section 80P(2)(c)(ii) amounting to Rs.50,000, the assessee also claimed further deduction of Rs.3,07,37,988 under section 80P(2)(d) of the Act. However, on being informed by the AO after scrutiny about amendment of section 80P, the assessee filed re-revised return on 29.12.2009, seeking to withdraw the claim of above deduction. The AO found the re-revised return not a valid one; and completed the assessment on total income of Rs.3,90,76,700, disallowing both the claims of deduction under Section 80P(2)(c)(ii)) and 80P(2)(d) made in the first revised return. During the assessment proceedings, penalty notice was also issued with reference to such claims of deduction, requiring the assessee to show cause as to why penalty under Section 271(1)(c) should not be imposed on it for alleged concealment of particulars of income/furnishing of inaccurate particulars of income.
4. The assessee submitted that in essence, it was a technical error, which occurred due to amendment of the provisions of Section 80P of the Act; and the mistake was sought to be rectified in the re-revised return. The assessee also submitted that the penalty could be levied under Section 271(1)(c) only in a case of deliberate concealment of particulars of income or deliberate furnishing of inaccurate particulars, which had not been the case here. The AO, however, rejected the contentions of the assessee and held that the assessee had intentionally claimed inadmissible deductions under Section 80P(2) to reduce the taxable income; and proceeded to impose the penalty under Section 271(1)(c) of the Act to the tune of Rs.93,70,460.
5. In the appeal preferred by the assessee, the learned Commissioner of Income Tax (Appeals), Udaipur ['the CIT(A)'] was convinced that the claim of deduction by the assessee had not been that of concealment of income or furnishing of inaccurate particulars; and in the given fact situation, penalty under Section 271(1)(c) was not attracted. The CIT(A) found the case of the assessee bona fide and, accordingly, set aside the order imposing penalty by his order dated 12.09.2011 while observing, inter alia, as under:—
"3.3.3. The making a claim of deduction under the law and its disallowance cannot be treated either as concealment of income or furnishing inaccurate particulars of income as held by the Honourable Supreme Court in the case of CIT v. Reliance Petro Products (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 in context of disallowance of the claim regarding interest on loan taken by the assessee which was disallowed under section 14A of the Act. It has been held that merely because the assessee claimed deduction of interest expenditure which has not been accepted by the Revenue, penalty under section 271(1)(c) is not attracted and mere making the claim which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Similarly, the Honourable High Court of Gujarat in the case of CIT v.Manibhai & Bros. (supra) it has been held that if an assessee wrongly claims some deduction under a bona fide mistake, he cannot be considered liable for penalty. In the present case, the appellant has claimed deduction under section 80P which was surrendered by filing the revised return as soon as the A.O. confronted to the amendment made in section 80P(4) according to which such deduction is not allowable in the case of the appellant.
In view of above discussion, it is held that the explanation filed for claim of deduction under section 80P and its withdrawal by way of filing the revised return was bona fide and does not fall in the category of concealment or furnishing inaccurate particulars of income. Accordingly, the penalty of Rs.93,70,500 levied under section 271(1)(c) is cancelled."
6. The order aforesaid was questioned by the Revenue in ITA No.387/JU/2011 before the ITAT. The ITAT agreed with the observations and findings of the CIT(A) and dismissed the appeal by its impugned order dated 17.12.2012 while observing, inter alia, as under:—
"6. Reverting to the facts of the case and after considering the rival submissions, we have found that this is not a fit case for levying penalty as in this case neither the assessee has concealed the particulars of income nor has furnished inaccurate particulars of income. This is simply a case of bona fide mistake which has occurred due to change of law applicable in this year. The assessee had been claiming and was being allowed similar claims of deductions in earlier assessment years also. After giving our thoughtful consideration to the facts of this case vis-a-vis the legal position narrated above, we are of the considered opinion that when a wrong claim is made under some bona fide mistake, that cannot be a ground for imposition of penalty u/s 271(1)(c) of the Act. The assessee has been making similar claim and the same were being allowed in earlier assessment years. Due to sudden change in law, this claim was not allowed and the assessee also corrected its mistake by filing a revised return, it is not a case of wilful wrong claim. Therefore, we do not find any mistake in the order of the ld.CIT(A) and confirm the deletion of impugned penalty. The appeal of the revenue deserves to be dismissed. We, dismiss the same."
7. The Revenue seeks to question the order so passed by ITAT with the submissions that in the original return, no claim for deduction was made but it was made by filing the revised return and, thereafter, when confronted, the assessee attempted to file a belated re-revised return. Thus, according to the Revenue, the finding of ITAT that it were a case of bona fide mistake, is not justified. It is contended that the attempt of the assessee to reduce the taxable income by claiming inadmissible deduction tantamount to furnishing of inaccurate particulars of income and the AO had rightly imposed the penalty in this case.
8. In our view, the submissions of the Revenue fall short of making out a substantial question of law worth consideration.
9. The assessee is a Co-operative Bank and had been entitled to the deduction under Section 80P(2) of the Act before the year in question and had been allowed such deduction. It is no doubt true that in the original return for the year in question, the assessee claimed deduction of Rs.50,000 under Section 80P(2)(c)(ii) of the Act and in the revised return dated 13.12.2007, besides the above, the assessee also claimed deduction of Rs.3,07,37,988 under Section 80P(2)(d) of the Act. However, with the amendment in Section 80P and insertion of Sub-section (4) from 01.04.2007, assessee was, admittedly, not entitled to such deductions.
10. The assessee, a banking institution and a registered co-operative society, of course, ought to have been remained vigilant while filing its return or revised return but, it remains a fact that earlier, the deduction in question under Section 80P(2) was being allowed to the assessee, for being a co-operative society engaged in the business of banking and providing credit facilities. It was by virtue of insertion of Sub-section (4) by Finance Act, 2006 with effect from 01.04.2007 that the provisions of Section 80P were made inapplicable in relation to any Co-operative Bank other than the Primary Agriculture Credit Society or Primary Co-operative Agriculture and Rural Development Bank. Apparently, the claim for this deduction in the assessment year 2007-08 had been a matter of bona fide mistake and could not have been taken to be a case of concealment of particulars of income or furnishing of inaccurate particulars of income. In fact, when confronted with the legal position, the assessee filed re-revised return, albeit belatedly, withdrawing such claim of deduction.
11. The Appellate Authorities i.e., CIT(A) and ITAT have, in our view, rightly examined the matter with reference to the decision in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 wherein, the Hon'ble Supreme Court has, inter alia, held as under:—
"....A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to inaccurate particulars."
12. The Appellate Authorities have also rightly taken into consideration that on being confronted with the legal position, the assessee attempted to correct the mistake by filing re-revised return. In the totality of circumstances of this case, the Appellate Authorities cannot be faulted in not finding it to be a case of making a wilfully wrong claim by furnishing inaccurate particulars. We find nothing of error or infirmity in the approach on the part of the Appellate Authorities leading to any substantial question of law.
13. Accordingly and in view of the above, the appeal stands dismissed.
S.K.J.*In favour of assessee.
†Appeal arising out of order of Tribunal in IT Appeal No. 387/Ju/2011, dated 17-12-2012.
CST & VAT : Activity of skillfully fabricating of gold by goldsmiths to make ornaments as per designs given by supplier of gold amounts to 'manufacture' but mere hand polishing, packing or fixing threads to made-up ornaments would not amount to manufacture
■■■
[2014] 41 taxmann.com 286 (Delhi)
HIGH COURT OF DELHI
Nand Kishore Megh Raj Jewellers
v.
Commissioner of Sales Tax*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
SALES TAX REFERENCE NO. 1 OF 2012†
SEPTEMBER 11, 2013
I. Section 4, read with section 2(h), of the Delhi Sales Tax Act, 1975 - Charge/levy - Sales Tax/VAT - Assessment years 1995-96 and 1997-98 - Assessee, a dealer of gold and silver ornaments in Delhi, purchased gold/bullion/biscuits against statutory forms without payment of any tax for use in manufacture - Said raw material viz. gold was sent to firms/persons of Uttar Pradesh/Kerala/Tamil Nadu for making jewellery - Department argued that raw material viz. gold was not used for manufacture in Delhi i.e., manufacture took place outside Delhi, provisions of section 4(2)(a)(v) were violated and, therefore, as per third proviso to section 4(2)(a), purchases were includible in taxable turnover of assessee - Assessee argued that finishing, polishing and accessories were attached to ornaments in Delhi i.e., manufacture took place in Delhi only and thereafter, goods were exported to various countries - HELD : As per section 4(2)(a)(v), where a registered dealer purchases goods without payment of sales tax, on furnishing a declaration that goods were for purpose of manufacture in Delhi and manufactured goods would be sold in Delhi or sold in course of inter-State sale from Delhi or in course of export, but there was violation of said declaration, then price of goods so purchased would be included in turnover of purchasing dealer - Thus, purchased goods must be used as raw material for manufacturing in Delhi and should not be transferred outside Delhi for manufacturing activities - In this case, raw material viz. gold was transferred out of Delhi to State of Uttar Pradesh/Tamil Nadu for manufacture of ornaments; thus, manufacturing activity was carried out outside Delhi and gold was skillfully fabricated by goldsmiths as per designs given by assessee - All lower authorities had not believed assessee's claim that finishing, polishing and attaching of accessories was carried out at Delhi, which was a finding of fact - Moreover, assessee had not produced any material or evidence to show what activity was undertaken in Delhi and whether it amounted to "manufacture" and not mere activity of polishing or fixing threads etc. - No details of manufacturing units, goldsmith employed by them and nature and character of said activities were indicated/stated - Mere hand polishing, packing or fixing threads to ornaments in Delhi would not amount to manufacture in Delhi - Since assessee had sent purchased gold for making gold ornaments outside Delhi i.e., no manufacture took place in Delhi, assessee had violated declaration furnished at time of purchase of gold and, accordingly, said gold was to be included in taxable turnover of assessee [Paras 12 to 15] [In favour of revenue]
II. Section 2(h) of the Delhi Sales Tax Act, 1975 read with section 2(f) of the Central Excise Act, 1944 - Manufacture - General Meaning - Where raw material viz. gold was skillfully fabricated by goldsmiths as per designs given by assessee to make ornaments, said activity amounts to manufacture - A new and different product, with considerable value addition, known and identified as a different commodity came into existence - But, mere hand polishing, packing or fixing threads to ornaments would not amount to manufacture - Every shopkeeper when he puts goods on display or sells his products does polish and clean goods or can make small modification, but this does not amount to manufacture [Paras 12 to 14] [In favour of revenue]
CASE REVIEW
| ■ | Seagull Laboratories (I) (P.) Ltd. v. Delhi Administration [1991] 81 STC 90 (Delhi) (paras 12 ,13) followed. |
CASES REFERRED TO
Seagull Laboratories (I) (P.) Ltd. v. Delhi Administration [1991] 81 STC 90 (Delhi) (para 12).
Rajesh Mahna and Ramanand Roy for the Petitioner. A.K. Babbar for the Respondent.
ORDER
Sanjiv Khanna, J. - Appellate Tribunal Value Added Tax, Delhi by their order dated 3rd January, 2012, have referred the following three questions under Section 45(1) of the Delhi Sales Tax Act, 1975:—
| "1. | Whether on the facts and circumstances of the case Tribunal was justified in holding that the appellants contravened the third proviso to Section 4(2)(a) even if part of the manufacturing process is carried out outside Delhi and then these goods have been received back in Delhi and the process of finishing howsoever insignificant but have been finally manufactured in Delhi where the finishing is done and the manufacturing process is completed in Delhi to make the goods marketable and goods are sold from Delhi in the course of Export out of India. | |
| 2. | Whether the Tribunal in the facts and circumstances was correct and justified in ignoring the fact that manufacturing could be in number of processes and each process may be in itself be a process of manufacturing and till such time the last process is performed the goods remain in the "process of manufacturing" which is not in contravention to the requirement of Section 4(2)(a) of Delhi Sales Tax Act and the only requirement of law is that the goods should be manufactured in Delhi. Law being silent on part-manufacturing, whether Tribunal could still invoke the 3rd proviso in such case. | |
| 3. | Whether on facts and circumstances of the case the conclusion of the Tribunal is just and right in construing that movement of raw material outside Delhi is permissible only for the "process not amounting to manufacture" as per rule 4 of Rules framed under Delhi Sales Tax Act, 1975 even if one process of manufacturing is partly done outside Delhi and remaining process is completed in Delhi and confirming the findings of the STO that petitioner is deemed to have violated the provisions of Section 4(2)(a) and so the dealer was liable to be taxed on the purchases." |
The questions arise from Appeal No. 307/STT/03-04 for Assessment Year 1995-96 and Appeal No. 308/STT/03-04 for Assessment Year 1997-98.
2. The petitioner Nand Kishore Megh Raj Jewellers are registered dealers and engaged in sale of gold and silver ornaments. In the assessment proceedings for the two years, it was noticed that the petitioner had purchased standard gold/bullion/biscuits against statutory forms and these were sent to M/s Surender Kumar Vijay Kumar, Meerut, Uttar Pradesh and M/s Emrold Jewellers, Coimbatore, Kerala for making jewellery according to specific designs provided by the petitioner.
3. Question arose whether the said purchases made by the petitioner against statutory form, i.e., form No. ST-1 should be added to the turnover of the petitioner in view of violation of Section 4(2)(a)(v) of the Act.
4. Adjudicating Authority held that as the goods were manufactured outside Delhi, there was violation of third proviso to Section 4(2)(a)(v) of the Act and, therefore, the purchase value of the said goods should be included in the taxable turnover. Before the adjudicating authority, the petitioner had written a letter dated 7th May, 1999 accepting that the purchased raw material on which no tax was paid on strength of the statutory forms was sent to M/s Surender Kumar Vijay Kumar, Meerut for job work as per specific designs and the goods were received in form of 22 Carat gold ornaments. It was stated that finishing, polishing and accessories were attached in Delhi in order to give the product a self life and thereafter the goods were exported to various countries.
5. Adjudicating Authority on examination of facts came to the conclusion that standard gold was sent to Meerut/Coimbatore for conversion into ornaments as per specific designs. Ornaments were fabricated/manufactured and thereafter the petitioner received new goods in form of 22 Carat gold ornaments. The raw material, i.e., standard gold/bullion/biscuits was subjected to manufacture and change outside Delhi. The standard gold was of 24 Carat and the gold sent outside Delhi had undergone a change and transformation in form and converted into ornaments. He observed that gold jewellery and ornaments came into existence after the workers had worked at Meerut and Coimbatore. Purity of gold had undergone a change. He rejected the contention of the petitioner that polishing or attaching accessories etc. would amount to manufacture. Adjudicating Authority referred to the invoices, which were produced before him and wherein it was recorded that the goods dispatched were new gold ornaments. Adjudicating Authority has recorded that the invoices received gave description of the item received/issued, purity of material, gross weight, net weight, purpose for which the gold was issued/received and labour charges were mentioned. He has recorded that the goods received by the petitioner were new ornaments and were in themselves saleable commodities.
6. Similar findings have been reiterated for the Assessment Year 1997-98.
7. The aforesaid findings were upheld by the first appellate authority, i.e., Assistant Commissioner. He had observed that the petitioner had purchased standard gold/biscuits/bullion against ST-1 forms on the specific stipulation that manufacturing shall be carried out in Delhi, but the gold purchased was taken out of Delhi and was converted into ornaments at Meerut, Coimbatore, etc. After the ornaments were manufactured, they were received back by the petitioner at Delhi. Assistant Commissioner referred to the vouchers and observed there was no doubt that manufacturing of gold ornaments was done outside Delhi. This was in violation of Section 4(2)(a)(v) of the Act, which in clear terms stipulated that the goods cannot be transferred out of Delhi for manufacture and had to be utilised or consumed in Delhi. He affirmed the order passed by the Adjudicating Authority.
8. The petitioner did not succeed in the appeal before the tribunal, which has accepted the findings recorded by the tax authorities. Before the tribunal, the petitioner had contended that the word "manufacture" has been defined in Section 2(h) of the Act and would include polishing and other allied works carried out, including finishing work. It was accordingly submitted that the ultimate and final manufacturing activity was undertaken at Delhi and, therefore, there was no violation of Section 4(2)(a)(v). The tribunal, however, did not agree and held there was violation of the declaration made by the petitioner when they submitted ST-1 form.
9. Learned counsel for the petitioner has drawn our attention to Section 2(h) of the Act, which reads as under:—
'2.(h) "manufacture", with its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods, but does not include any such process or mode of manufacture as may be prescribed;'
10. It is accordingly submitted that finishing or polishing or attaching accessories to ornaments or otherwise processing or treating the ornaments amounts to manufacture. In other words, the contention raised is that even after the gold ornaments were received from Meerut/Coimbatore, manufacturing activity was undertaken in Delhi and, therefore, there is no violation of Section 4(2)(a)(v) of the Act.
11. We have considered the said contention but are unable to agree with the petitioner. Section 4(2)(a)(v) of the Act reads as thus:—
'4. Rate of tax
(2) For the purposes of this Act, "taxable turnover" means that part of a dealer's turnover during the prescribed period in any year which remains after deducting therefrom:
(a) his turnover during that period on-
| ** | ** | ** |
(v) sale to a registered dealer—
(A) of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for use by him as raw materials in the manufacture in Delhi of any goods, other than goods specified in the Third Schedule or news papers,—
| 1. | for sale by him inside Delhi; or | |
| 2. | for sale by him in the course of inter-State trade or commerce, being a sale occasioning, or effected by transfer of documents of title of such goods during the movement of such goods from Delhi; or | |
| 3. | for sale by him in the course of export outside India being a sale occasioning the movements of such goods from Delhi, or a sale affected by transfer of documents of title to such goods effected during the movement of such goods from Delhi, to a place outside India and after the goods have crossed the customs frontiers of India; or |
(B) of goods of the class or classes specified in the certificate of the registration of such dealers as being intend for resale by him in Delhi, or for sale by him in the course of inter-state trade or commerce or in the course of export outside India in the manner specified in sub-item (2) or sub-item (3) of item (A), as the case may be; and
(C) of containers or other materials, used for the packing of goods, of the class or classes specified in the certificate of registration of such dealer, other than goods specified in the Third Schedule, intended for sale or resale;
(vi) such other sales as are exempt from payment of tax under section 66 or as may be prescribed :
PROVIDED that no deduction in respect of any sale referred to in sub-clause (iv) shall be allowed unless the goods, in respect of which deduction is claimed, are proved to have been sold by the dealer within a period of twelve months from the date of his registration and the claim for such deduction is included in the return required to be furnished by the dealer in respect of the said sale:
PROVIDED FURTHER that no deduction in respect of any sale referred to in sub-clause (iv) shall be allowed unless a true declaration duly filled and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars in the prescribed form obtainable from the prescribed authority is furnished in the prescribed manner and within the prescribed time, by the dealer who sells the goods:
PROVIDED ALSO that where any goods are purchased by a registered dealer for any of the purposes mentioned in sub-clause (v), but are not so utilised by him, the price of the goods so purchased shall be allowed to be deducted from the turnover of the selling dealer but shall be included in the taxable turnover of the purchasing dealer; and
(b) the tax collected by the dealer under this Act as such and shown separately in cash memoranda or bills, as the case may be.'
12. In the present case, we are concerned with sub-clause (A) to Section 4(2)(a)(v). It is accepted that the goods in question are not covered by Third Schedule or newspapers. Sub-clause (A) was considered by the Delhi High Court in Seagull Laboratories (I.) (P.) Ltd. v. Delhi Administration[1991] 81 STC 90. Effect of Section 4(2)(a)(v) of the Act was elucidated, observing that where a registered dealer purchases goods without payment of sales tax, on furnishing a declaration that the goods were for the purpose of manufacture and manufactured goods would be sold in Delhi or sold in course of intra-State sale or in course of export, but there was violation of the said declaration, then the price of the goods so purchased would be included in the turnover of the purchasing dealer. The third proviso had been inserted to the Section in order to penalise mis-utilization of the declaration form. By furnishing the declaration form, the purchasing dealer gave an undertaking to the seller and in turn to the Government of Delhi to the effect that raw material purchased by him would be used for manufacture in Delhi and goods would be subjected to sale in Delhi, in course of intra-State trade or in course of export outside India. Movement of such goods from Delhi should be occasioned by the sale and not for/by any other purpose. Therefore, when a purchasing dealer did not adhere to the declaration, which he had furnished, the State was wrongfully deprived of revenue i.e. sales tax. Accordingly, the turnover of the purchasing dealer would include the goods covered by the mis-declaration. The taxable event was mis-utilisation of the declaration form, which took place when the goods were transferred for manufacturing outside Delhi. But for the declaration form, the purchasing dealer was liable to pay sales tax at the time of the purchase made by him. Thus, the taxable event and the tax, which was due and payable but not paid in view of the declaration, became payable as there was mis-utilisation and false or wrong declaration.
13. Learned counsel for the petitioner tried to distinguish the said decision and submitted that in Seagull Laboratories (I) (P.) Ltd. (supra) there was transfer of goods on consignment basis and there was no sale. That is one aspect of the matter, but the decision in the case of Seagull Laboratories (I.) (P.) Ltd. (supra) primarily relates to interpretation of Section 4(2)(a)(v) of the Act. In fact, the constitutional validity of the said Section was challenged. Sub-clause (A) to Section 4(2)(a)(v) comes into operation when there is violation of the condition/declaration that the goods purchased under statutory form were raw material for manufacture of goods in Delhi. In other words, the goods should be used as raw material for manufacturing in Delhi and should not be transferred outside Delhi for manufacturing activities. In the present case, the goods, i.e., standard gold were transferred out of Delhi to Meerut, State of Uttar Pradesh and Coimbatore, State of Tamil Nadu. The reason for the said transfer was manufacture of ornaments. Thus, manufacturing activity was carried out and the standard gold was converted into ornaments. 24 Carat gold became 22 Carat gold, when the ornaments were skilfully fabricated by the goldsmiths as per the designs given by the petitioner. A new and different product, with considerable value addition, known and identified as a different commodity came into existence. The petitioner before the Assessing Officer had accepted that they had provided specific designs and had received back the gold in form of 22 Carat gold ornaments.
14. Learned counsel for the petitioner emphasised that the petitioner had carried out finishing, polishing and had attached accessories at Delhi. The said contention of the petitioner has been rejected by all the authorities, including the tribunal. The petitioner has not been believed. Firstly, the said finding is a finding of fact. Before us, the petitioner has not placed on record any material or evidence to show nature and what activity undertaken in Delhi and whether it amounted to "manufacture" and not mere activity of polishing or fixing threads etc. It is not the case of the petitioner that they had a manufacturing unit in Delhi. No details of goldsmith employed by them and the nature and the character of the said activities have been indicated/stated. Mere hand polishing, packing or fixing threads to ornaments in Delhi would not amount to manufacture. Every shopkeeper when he puts the goods on display or sells his products does polish and clean the goods or can make small modification, but this does not amount to manufacture. The finding recorded by the tribunal and the lower authorities is that the petitioner had received back new gold ornaments. The raw material purchased should not have left Delhi for manufacturing. Violation of the declaration took place when the raw material i.e. the gold was taken from Delhi to Uttar Pradesh and Tamil Nadu.
15. In view of the aforesaid discussion, we answer the questions of law mentioned above against the petitioner and it is held that there was violation of Section 4(2)(a)(v) of the Act. There was violation of the undertaking/declaration as the goods were sent for manufacture outside Delhi.
Reference is disposed of. No costs.
VINEET Service Tax : Support services provided to a foreign company by way of identification of prospective customers in India amounts to 'export of service' and is not liable to service tax
■■■
[2014] 41 taxmann.com 288 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
Gecas Services (I) (P.) Ltd.
v.
Commissioner of Service Tax, New Delhi*
JUSTICE G. RAGHURAM, PRESIDENT
AND SAHAB SINGH, TECHNICAL MEMBER
AND SAHAB SINGH, TECHNICAL MEMBER
STAY ORDER NO. 57499 / 2013 (PB)
APPLICATION NO. ST/STAY/1968 OF 2012
APPEAL NO. ST /781 OF 2012
APPLICATION NO. ST/STAY/1968 OF 2012
APPEAL NO. ST /781 OF 2012
APRIL 23, 2013
Rule 3 of the Export of Services Rules, 2005 - Export - Services - Stay order - Assessee provided 'support services of business or commerce' by way of identification of prospective customers in India to GECAS, Ireland - Assessee received consideration in convertible foreign exchange and did not pay service tax thereon claiming it to be export - Department argued that since all activities were performed in India and all prospective clients were located in India, services were used and consumed in India and, accordingly, not exported - HELD : It had not been alleged that assessee had not provided services to GECAS, Ireland but had provided services to prospective clients in India - It was also not alleged that any part of remuneration was received by manufacturers of Indian products or any of said prospective customers of GECAS, Ireland - Services were provided to Irish Company GECAS, Ireland, which, prima faice, amounted to export of service under Export of Services Rules and not liable to any service tax - Pre-deposit was waived accordingly [Paras 4 and 5] [In favour of assessee]
CASE REVIEW
Paul Merchants Ltd. v. CCE [2013] 38 STT 702/30 taxmann.com 23 (New Delhi - Cestat) (TM); Nokia India (P.) Ltd. v. CST [Stay Order No. 57259 of 2013, dated 8-4-2013] and Vodafone Essar Cellular Ltd. v. CCE [2013] 39 STT 777/33 taxmann.com 358 (Mum - Cestat) (para 4)followed.
CASES REFERRED TO
Paul Merchants Ltd. v. CCE [2013] 38 STT 702/30 taxmann.com 23 (New Delhi - Cestat) (TM) (para 4), Nokia India (P.) Ltd. v. CST [Stay Order No. 57259 of 2013, dated 8-4-2013] (para 4) and Vodafone Essar Cellular Ltd. v. CCE [2013] 39 STT 777/33 taxmann.com 358 (Mum - Cestat)(para 4).
Sujit Ghosh and Sidhartha Tandon for the Appellant. Govind Dixit for the Respondent.
ORDER
Justice G. Raghuram, President - The application for stay is in the context of an adjudication order dated 15th March, 2012, passed by the Commissioner of Service Tax, Delhi, confirming the demand of service tax, interest and penalty. The petitioner/appellant is a provider of 'Support Services of Business or Commerce' and 'Manpower Recruitment or Supply Agency Services' as defined under section 65(105)(zzzq) read with section 65(104c) and section 65(105)(k) read with Section 65(68), respectively of Finance Act, 1994.
2. By show cause notices dated 22-4-2010 and 30-10-2010, the petitioner was alleged to have failed to remit service tax for the period 2006-07 to 2009-10 (covered by the two show cause notices mentioned above); to be disentitled to credit on transactions on which money was received in foreign currency; and disentitled to immunity to service tax under Export of Services Rules, 2005. After a due process the adjudicating authority passed the impugned order. The conclusions in the adjudication order read :
| (a) | Services provided by the assessees are 'Support Services of Business or Commerce, for the business of M/s. GECAS, Ireland in India; and | |
| (b) | However, services were used in India as all the activities were performed in India and all the prospective clients are located in India. Since the identification of prospective customers is to be made in India only, the services have been used and consumed in India. |
3. On the above analysis the adjudication concluded that the petitioner is disentitled for the benefit of exemption from liability to tax under Export of Services Rules, 2005.
4. The petitioner relied on the judgment of a Larger Bench of this Tribunal in Paul Merchants Ltd. v. CCE [2013] 38 STT 702/30 taxmann.com 23 (New Delhi - Cestat) wherein the Tribunal per majority held that export of service is to be determined strictly with reference to provisions of Export of Services Rules, 2005; that money transfer service (in the context of Paul Merchants), is deemed to be provided from overseas company to the clients who approached the overseas company or their agents, for remitting money from friends/relatives in India and such service is 'business auxiliary service'. As the services were provided to the overseas respondent, during the period in dispute it is classifiable as 'Business Auxiliary Services' and had been exported in terms of provisions of Export of Services Rules, 2005, and hence, no tax is liable ruled this Tribunal. The ratio of the Third Member in Paul Merchants Ltd. (supra) is applicable to the facts in the present case, as the services were provided by the petitioner to the overseas company M/s. GECAS, Ireland. From the facts and circumstances of the present case, it prima facie appears that it is not the case of the Revenue that any of the enumerated services were provided by the petitioner/assessee not to GECAS, Ireland but to those prospective customers or manufactures of products in India, nor is it the case of Revenue that any part of the remuneration is received by manufacturers of Indian products or prospective customers of GECAS, Ireland. The several services are provided by the assessee to the Irish company (as noticed in the adjudication order). Prima facie, services provided to the Irish company, fall within provisions of Export of Services Rules, 2005, and therefore are exempt from the charge to service tax, as held in the case of Paul Merchants Ltd. (supra). Similar view is reiterated in Nokia India (P.) Ltd. v. CST [Stay Order No. 57259 of 2013] vide interim order dated 8-4-2013. In another case the Mumbai Bench of this Tribunal vide Final Order dated 12-3-2013 in Vodafone Essar Cellular Ltd. v. CCE[2013] 39 STT 777/33 taxmann.com 358 (Mum. - Cestat), reiterates the same principle and had followed the decision in Paul Merchants Ltd. (supra).
5. On the aforesaid analysis, the appellants is seen to have a strong prima facie case, the services provided falls within provisions of Export of Services Rules, 2005, and are exempt from service tax. We are therefore inclined to grant total waiver of pre-deposit and stay operation of the impugned adjudication order, pending disposal of appeal. Accordingly, stay application is allowed.
VINEET Service Tax : Diesel received free of cost from service recipient and used for running of machinery used in mining activity is not includible in value of minding services
■■■
[2014] 41 taxmann.com 292 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
Dholu Construction & Projects Ltd.
v.
Commissioner of Central Excise, Jaipur-II*
MS. ARCHANA WADHWA, JUDICIAL MEMBER
AND SAHAB SINGH, TECHNICAL MEMBER
AND SAHAB SINGH, TECHNICAL MEMBER
STAY ORDER NO. 55794/2013 (PB)
APPLICATION NO. ST/STAY/1548 OF 2013
APPEAL NO. ST/634/2012
APPLICATION NO. ST/STAY/1548 OF 2013
APPEAL NO. ST/634/2012
JANUARY 23, 2013
I. Section 67, read with section 65(105)(zzzy), of the Finance Act, 1994 - Valuation of taxable services - Inclusion of free supplies - Stay order - Assessee, a provider of mining services, had, while providing mining services, received diesel, free of cost, from service recipient, which was used for running of machinery used in mining - Department sought inclusion of value of diesel in value of minding services provided - HELD : In view of judgment in Inox Air Products Ltd. v. CCE & C[2012] 36 STT 231/24 taxmann.com 114 (Bom.), value of diesel supplied free by service recipient could not be included in value of mining services [Para 2] [In favour of assessee]
II. Section 86 of the Finance Act, 1994 read with section 35C of the Central Excise Act, 1944 and section 129B of the Customs Act, 1962 - Appeals - Orders of - Appellate Tribunal - It is ratio of law laid down by High Court, which has to be followed; goods supplied or services undertaken in that particular case are irrelevant - Stay order of Tribunal passed prior to judgment of High Court and which is contrary to judgment of High Court is not be followed [Paras 2 to 5] [In favour of assessee]
EDITOR'S NOTE
The readers may note that the issue of law has been answered in favour of assessee by the Larger Bench of the Tribunal in Bhayana Builders (P.) Ltd.v. CST [2013] 38 taxmann.com 221 (New Delhi - Cestat) (LB) and also by Delhi High Court in GD Builders v. Union of India [2013] 42 GST 595/40 taxmann.com 415.
Therefore, in absence of any specific provision of law in this behalf, free supplies of materials by service recipient cannot be included in value of taxable services.
CASE REVIEW
Inox Air Products Ltd. v. CCE & C [2012] 36 STT 231/24 taxmann.com 114 (Bom.) (para 2) and Cycle Line Infratech (P.) Ltd. v. dated 19-2-2012 (para 3) relied on.
VPR Mining Infrastructure (P.) Ltd. v. CCE [2011] 32 STT 1/11 taxmann.com 110 (Bang. - Cestat) (para 5) distinguished.
CASES REFERRED TO
Inox Air Products Ltd. v. CCE & C [2012] 36 STT 231/24 taxmann.com 114 (Bom.) (para 2) and VPR Mining Infrastructure (P.) Ltd. v. CCE[2011] 32 STT 1/11 taxmann.com 110 (Bang. - Cestat) (para 5).
B.L. Narasimhan for the Appellant. Pramod Kumar for the Respondent.
ORDER
Ms. Archana Wadhwa, Judicial Member - Demand stand confirmed against the applicant on the ground that while providing mining services, they have procured the diesel from the service recipient, which stand used by them for running of machinery used further for the purpose of mining and, as such, value of the same has to be added in the assessable value of the service.
2. After hearing both the sides we find that the issue prima facie stand covered by the Hon'ble Bombay High Court decision in the case of Inox Air Products Ltd. v. CCE&C [2012] 36 STT 231/24 taxmann.com 114. However learned DR submits that the services involved in that case were deficient being maintenance and repair services and the free supply items were electricity whereas the services involved in the present case is mining service and the free supply material is diesel. We do not appreciate the above differentiation projected by the learned DR inasmuch as it is the ratio of law, which has to be followed and not the goods supplied or the services undertaken are relevant.
3. Apart from above, we also note that the Hon'ble Delhi High Court in respect of construction services has granted stays in respect of identical issues of inclusion of free supplied items by the service recipient, in the assessable value of the services provided by the assessees. Reference in this regard is made to Hon'ble Delhi High Court order in the case of Cycle Line Infratech (P.) Ltd. dated 19-2-2012.
4. Inasmuch as issue is prima facie covered in favour of the assessee, we find no justification in directing to deposit them any part of the demand and penalty. We dispense with the condition of pre-deposit during pendency of the appeal and allow the stay petition.
5. At this stage, learned DR submits that his reliance on the Tribunal Bangalore decision in the case of VPR Mining Infrastructure (P.) Ltd. v. CCE[2011] 32 STT 1/11 taxmann.com 110 (Bang. - Cestat) may be noted. We find that apart from the fact that the said decision is a stay order, whereas Bombay High Court's decision is a final order, we also note that the said decision of Bangalore Bench is prior to Delhi High Court's decision, which was issued in February 2012 and as such Bangalore Bench did not have the occasion to consider the said decision of Delhi and Bombay High Court.
VINEETList of Special Resolutions under the Companies Act, 2013
CS Akhilesh Kumar Jha| Sl. No | Sections | Details | Effective |
| 1 | 5 | Alteration of Article of Association for mentioning the Provisions of "Entrenchment", in case of private company all members must be agreed for such amendment and in case of Public Company, the special resolution is just required. | Not effective |
| 2 | 12 | Change of Registered office from one local limit of any city, town and village to other local limit of any city, town and village. | Not effective |
| 3 | 13 | To alter Memorandum of Association of the Company | Not effective |
| 4 | 14 | To alter of Article of Association of the Company | Not effective |
| 5 | 27 | To vary in the terms of contract or objects in prospectus | Not effective |
| 6 | 41 | To issue GDR (Global Depository Receipt) in any foreign country. | Not effective |
| 7 | 48 | To vary in the terms of Shareholders' rights | Not effective |
| 8 | 54 | To issue Sweat Equity Shares | Not effective |
| 9 | 62 | v To issue further shares to employees of the company under the schema of employee stock option and issue to other persons. v To issue debenture or raising loan. | Not effective |
| 10 | 66 | To reduce Share Capital | Not effective |
| 11 | 68 | To Buy Back of shares | Not effective |
| 12 | 71 | To issue of Debenture | Not effective |
| 13 | 94 | The company may keep registers; return etc. on that place of office, where the 1/10th Members is residing and whose names have been entered in the Register of Members. | Not effective |
| 14 | 140 | Auditor, who is appointed under section 139 of the Act, may remove before the expiry of his term. | Not effective |
| 15 | 149 (1) | Company may appoint more than 15 directors after passing of special resolution. | Not effective |
| 16 | 149 (10) | An Independent Director shall be appointed for a period of 5 years and he shall be eligible for re-appointment for further period passing of special resolution. | Not effective |
| 17 | 165 | The members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors. | Not effective |
| 18 | 180 | The Board may exercise power as mentioned in Section 180 1 (a), (b), (c) and (d) after passing of special resolution. | 12.09.2012 |
| 19 | 186 | Special Resolution is required for giving any loan or guarantee or providing any security or acquisition by way of subscription, purchases or otherwise the security of anybody corporate, when the limits are exceeded as mentioned under section 186 (2) of the Act. | Not effective |
| 20 | 188 | Entering contract with related party (ies) subject to the limit as may be prescribed. | Not effective |
| 21 | 196 | Appointment of Managing Director, Whole Time Director or Manger after attaining of the age of 70 years | Not effective |
| 22 | 197 | The remuneration shall be paid to director under this section. It shall be determined accordance with the provisions of Article of Association, or resolution or if article authorized special resolution. | Not effective |
| 23 | 210 | Special Resolution is required to pass as intimation that the affairs of the company must be investigated. | Not effective |
| 24 | 212 | Special Resolution is required to pass as intimation that the affairs of the company must be investigated. | Not effective |
| 25 | 226 | For voluntary winding up (under investigation) | Not effective |
| 26 | 248 | Striking off the name of the Company | Not effective |
| 27 | 262 | Approval for scheme of merger and amalgamation of sick company | Not effective |
| 28 | 271 | Wound up by the Tribunal | Not effective |
| 29 | 304 | Voluntary Winding Up | Not effective |
| 30 | 314 | The Company Liquidator call general meeting for the purpose of obtaining the sanction of the company by ordinary resolution or by special resolution | Not effective |
| 31 | 319 | v Power of company liquidator to accept shares etc as consideration for sale of property of the company. v The company liquidator purchases the members interest. The purchases money must be determined by a special resolution. | Not effective |
| 32 | 321 | Arrangement when binding on company and creditors | Not effective |
| 33 | 343 | Company Liquidator to exercise certain powers subject to sanction of a Special Resolution and prior approval of the Tribunal. | Not effective |
| 34 | 347 | When affairs of the company have been completely wound up and it is about to be dissolved its books and papers and those of the company liquidator may be disposed is such manner as company by special resolution with the prior approval of the creditors direct, in case of voluntary winding up. | Not effective |
| 35 | 371 | Adoption of Table F in Schedule I | Not effective |
| 36 | 55, Schedule I, II (8) of Article of Association of the Company | Terms and Conditions related to issue of redemption shall be determined by way of passing of Special Resolution. | Not effective |
| 37 | Schedule I, II (38) of Article of Association of the Company | Reduction of share capital, capital redemption reserve account or share premium account | Not effective |
Mere execution of development agreement not amounts to transfer
The Commissioner of Income Tax (Appeals) so also the learned Tribunal upon perusal of the agreement in question found that the possession as contemplated in Section 53A of the Transfer of Property Act was in fact not handed over by the assessee to the developer. It has further been found that the agreement only permitted the development to be carried out by the said developer. It has been found that the entire control over the property was in fact with the assesee inasmuch as the licence to construct the property was also in the name of the assessee and the occupancy certificate was also given to the assessee. It was therefore found that the execution of the agreement could not amount to transfer as contemplated under Section 53A of the Transfer of Property Act.
HIGH COURT OF BOMBAY AT GOA
TAX APPEALS NO.11 & 12 OF 2013
TAX APPEAL NO.11 OF 2013, TAX APPEAL NO.12 OF 2013
The Commissioner of Income Tax,
V/s
Shri Sadia Shaikh
DATE : 2nd DECEMBER, 2013
ORAL ORDER: (Per B.R. GAVAI, J.)
The appeal challenges the order passed by the learned Income tax Appellate Tribunal, Panaji dated 16th January, 2013, thereby disposing the appeals filed by the appellant/Revenue challenging the order passed by the Commissioner of Income Tax (Appeals) dated 30th July, 2012 for the assessment year 2003 -04.
2. Heard Mrs. A. Dessai, the learned Counsel for the appellant and Shri A.N.S. Nadkarni, learned Senior Counsel appearing for the respondents.
3. Mrs. A. Dessai, the learned Standing Counsel submits that the following substantial question of law arises for consideration in the present appeals:
In the facts and circumstances of the case, whether the Hon'ble ITAT was justified in Law in upholding the Order of the Commissioner of Income Tax (Appeals) in which the CIT (A) held that the provisions of Section 2(47)(v) are not applicable for the assessment year and thereby deleted the addition of Rs.1,52,60,908/- made under the head, 'short term capital gain'.
4. It is the contention of the appellant/Revenue that a development agreement was entered into by the Assessee on 5th October, 2002 with M/s. Landscape Developers for development of residential project namely Castle Rock and Cabo. It is further the case of the appellant that a similar development agreement was made with said M/s. Landscape Developers for sale and development of land admeasuring 16,140 sq. metres at Panaji.
5. Mrs. A. Dessai, the learned Standing Counsel submits that since the possession was handed over by the assessee to the said M/s. Landscape Developers during the said assessment year, it was a transfer within the meaning of sub-section 24 clause 5 of Section 2 of the Income Tax Act read with Section 53A of the Transfer of Property Act. As such, the Assessing Officer has rightly found that the assessee was liable to pay income by way of short term capital by the said amount.
6. The Commissioner of Income Tax (Appeals) so also the learned Tribunal upon perusal of the agreement in question found that the possession as contemplated in Section 53A of the Transfer of Property Act was in fact not handed over by the assessee to the developer. It has further been found that the agreement only permitted the development to be carried out by the said developer. It has been found that the entire control over the property was in fact with the assesee inasmuch as the licence to construct the property was also in the name of the assessee and the occupancy certificate was also given to the assessee. It was therefore found that the execution of the agreement could not amount to transfer as contemplated under Section 53A of the Transfer of Property Act. It was further found that the agreement dated 5th October, 2002 was specifically modified by sub-clause 2 of the agreement dated 1 9th July, 2004 and 5th March, 2008. It was further found that the assessee was liable to pay the capital gain as per the last agreement i.e. for assessment year 2008-09.
7. It can thus be seen that Commissioner of Income Tax (Appeals) as well as the learned Tribunal upon basis of the factual material placed before it and upon interpretation of the agreement entered between the assessee and the developer has found that the assessee was liable to pay capital gain in the year 2008-09, inasmuch as there was no possession handed over to the developer under Section 53A of the Transfer of Property Act in the assessment year 2003-04. It can thus be seen that finding recorded are upon appreciation of material led before the Commissioner of Income Tax (Appeals) and the Tribunal and upon consideration of the documents placed for its consideration. The said question therefore cannot be said to be a question of law, leave aside, the substantial question of law. The appeals are therefore found to be without merit and as such, stand dismissed.
Coercive steps for recovery cannot be initiated till time to prefer an appeal exhausts
It is not in dispute that the original authority passed the assessment order on 30.12.2013, as against which, further appeal lies to the Income Tax Appellate Tribunal under Section 253 of the Act and the time for moving the Tribunal is 60 days from the date of receipt of a copy of the order. As the appellate remedy is available to the petitioner, it could be accepted and the authority may thereafter proceed with the matter. However, in the absence of any legal impediment, the respondents have intimated recovery proceedings against the petitioner, when there is reasonable time for him to prefer an appeal.
In view of the above, respondents are directed to not to take any coercive steps for recovery against the petitioner, till the appeal time is exhausted. Thereafter, the respondents are at liberty to act in accordance with law for recovery of the amount as per the order of the appellate authority.
HIGH COURT OF JUDICATURE AT MADRAS
W.P.No.373 of 2014
Dishnet Wireless Limited
vs.
1. The Assistant Commissioner of Income Tax
2. The Deputy Commissioner of Income Tax
3. The Commissioner of Income Tax (Appeals)-VII
DATED: 07.01.2014
CORAM: THE HONOURABLE MR. JUSTICE V. DHANAPALAN
Writ Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of certiorarified mandamus calling for the records of the 1st respondent comprised in the impugned demand notice of the 1st respondent bearing Ref.ACIT/TDS.CIR. I. /DISHNET/201 3- 14 dated 02.01.2014 and to quash the same as wholly arbitrary, illegal and ultra vires the provisions of the Income Tax Act, 1961 and to consequently forbear the respondents from taking any coercive steps towards recovery of the alleged liability pursuant to the order bearing Ref.ITA No.330- 339/13-14 dated 30.12.2013 till the expiry of the period of limitation for filing an appeal against the said order under the provisions of the Income Tax Act, 1961.
For Petitioner : Mr.Sathish Parasaran
For Respondents : Mr.T.Pramod Kumar Chopda (I.T.)
O R D E R
By consent of the learned counsel on either side, this Writ Petition is taken up for final disposal at the stage of admission itself.
2. Heard Mr.Satish Parasaran, learned counsel for the petitioner and Mr.T.Pramod Kumar Chopda, learned counsel appearing for the respondents.
3. Challenging the impugned demand notice of the 1st respondent vide Ref.ACIT/TDS.CIR. I. /DISHNET/201 3-14 dated 02.01.2014, seeking to quash the same and for a consequential direction to forbear the respondents from taking any coercive steps towards recovery of the alleged liability pursuant to the order bearing Ref.ITA No.330-339/13-14 dated 30.12.2013 till the expiry of the period of limitation for filing an appeal against the said order under the provisions of the Income Tax Act, 1961, the petitioner has come up with this Writ Petition.
4. In the impugned order, it is stated that the appeal application filed by the petitioner/assessee with the Commissioner of Income Tax (Appeals)-VII, has been disposed of on 30.12.201 3, with a direction to the petitioner to pay the outstanding amount of Rs.46,18,15,768/- immediately and produce the relevant challan, either personally or through their authorised representative, so that they may be given due credit for the same. Apprehending that there may be coercive action for recovering that amount, the petitioner is before this Court.
5. Learned counsel for the petitioner pointed out that though the time limit of 60 days to prefer an appeal from the date of passing of the impugned order, i.e. from 30.12.2013 is available to the petitioner, without waiting for the same, the respondents have hastily proceeded to sent a reminder to the petitioner on 02.01.2014 informing him of the immediate payment of the outstanding amount. Therefore, the impugned order cannot be allowed to stand against the petitioner.
6. Refuting the said submission, learned counsel appearing for the Revenue would submit that when the original authority has passed the order, it is not incumbent on the Revenue authorities to keep the matter pending till the petitioner moves the Appellate forum. Therefore, mere intimation to the petitioner to pay the outstanding amount cannot be questioned in law.
7. It is not in dispute that the original authority passed the assessment order on 30.12.2013, as against which, further appeal lies to the Income Tax Appellate Tribunal under Section 253 of the Act and the time for moving the Tribunal is 60 days from the date of receipt of a copy of the order. As the appellate remedy is available to the petitioner, it could be accepted and the authority may thereafter proceed with the matter. However, in the absence of any legal impediment, the respondents have intimated recovery proceedings against the petitioner, when there is reasonable time for him to prefer an appeal.
8. In view of the above, respondents are directed to not to take any coercive steps for recovery against the petitioner, till the appeal time is exhausted. Thereafter, the respondents are at liberty to act in accordance with law for recovery of the amount as per the order of the appellate authority.
With the above direction, this Writ Petition is disposed of. No costs. Consequently, connected M.P.Nos.1 to 3 are closed.
IT : Revised return of income to be considered as application for condonation which consequently results in refund of legitimate taxes
• The application of petitioner for condonation of delay under section 119(2)(b) was denied by adopting a very hyper technical view that it was made beyond 6 years from the date of the end of the assessment year 2004-05. In the instant case the revised return of income filed on 8 September, 2011 would be considered as application for condonation of delay and tax refund would be granted.
■■■
[2014] 41 taxmann.com 508 (Bombay)
HIGH COURT OF BOMBAY
Devdas Rama Mangalore
v.
Commissioner of Income-tax -26
MOHIT S. SHAH, C.J. AND M.S. SANKLECHA, J.
WRIT PETITION NO. 2422 OF 2013
JANUARY 15, 2014
N.R. Nargolkar and Nandan Vaidya for the Petitioner. Arvind Pinto for the Respondent.
ORDER
PC : - Rule, returnable forthwith. By consent and at the request of the Counsel, the petition is taken up for final disposal.
2. This petition filed by a Senior Citizen challenges the order dated 4 February 2013 of the respondent revenue in dismissing the application for condonation of delay under Secrtion119(2)(b) of the Income Tax Act, 1961 ("the Act") for claiming refund of tax paid. This application was filed by the petitioner seeking refund of tax deducted at source (TDS) by Reserve Bank of India (RBI) on the payment made to him in the year 2004 when he opted for the Optional Early Retirement Scheme (Scheme)
3. The RBI while making the payment to the petitioner under the Scheme had deducted as tax at source an amount of Rs.1,64,117/-. However, in his return of income for assessment year 2004-05 filed on 15 October 2004 the petitioner did not claim any refund of tax as TDS paid by RBI on his behalf nor was the credit on tax utilized to discharge tax payable on any other income.
4. It was only on 8 May 2009 that the Central Board of Direct Taxes (CBDT) issued a Circular clarifying that the employees of RBI who had opted for early retirement scheme during the year 2004-05 would be entitled for benefit of exemption under section 10(10C) of the Act. The Supreme Court also in Chandra Ranganathan and ors. vs. Commissioner of Income Tax 326 ITR 49 held that the amounts received by retiring employees of Reserve Bank of India opting for the scheme are eligible for exemption under section 10(10C) of the Act. In view of the above the petitioner filed a revised return of income on 8 September 2011 claiming benefit of exemption available to the Scheme under section 10(10C) of the Act which consequently would result in refund of Rs.1.64 lacs paid by RBI as TDS. However, there was no response to the above revised return of income from the respondent-revenue.
5. The petitioner in the mean time also filed an application with the Commissioner of Income Tax under section 119(2) (b) of the Act seeking condonation of delay in filing his application for refund in the form of revised return of income for assessment year 2004-05. The respondent revenue by the impugned order dismissed the application under section 119(2)(b) of the Act on the ground that in view of Instruction No.13 of 2006 dated 22 December 2006 by the CBDT an application claiming refund cannot be entertained if the same is filed beyond the period of 6 years from the end of the assessment year from which the application is made. In the affidavit in reply dated 19 November 2013 the Commissioner of Income Tax states that he bound by the above instructions issued by the CBDT and consquently the claim for refund cannot be considered.
6. It is not disputed by the respondent revenue that on merits the petitioner is entitled to the benefit of refund of TDS as the payment received under the scheme is exempted under section 10(10C) of the Act. The decision of the Apex Court in the matter of Chandra Ranganathan and ors. (supra) concludes the issue. This is also the view of the revenue as clarified in CBDT Circular dated 8 May 2003. The application under section 119(2)(b) of the Act is being denied by adopting a very hyper technical view that the application for condonation of delay was made beyond 6 years from the date of the end of the assessment year 2004-05. In this case the revised return of income filed on 08 September 2011 should itself be considered as application for condonation of delay under section 119(2)(b) of the Act and refund granted.
7. It is to be noted that the respondent revenue does not dispute the claim of the petitioner for refund on merits but the same is being denied only on hyper technical view of limitation. It will be noted that on 8 May 2009 the CBDT issued a circular clarifying and reviewing its earlier decision to declare that the employees of RBI who opted for early retirement scheme under the Scheme will be entitled to the benefit of section 10(10C) of the Act. Soon after the issue of circular dated 8 May 2009 by the CBDT and the decision of the Apex Court in Chandra Ranganathan (supra) the petitioner filed a revised return of income on 08 September 2013 seeking refund of TDS paid on his behalf by RBI.
8. In the above view, we allow the petition and direct respondent-revenue to grant refund due to the petitioner.
9. The petition is allowed in the above terms. No order as to costs.
Regards,
Pawan Singla , LLB
M. No. 9825829075Audit under Service Tax only by Chartered Accountants - not by officers of Department: HC
TIOL-DDT 2283 30.01.2014
Thursday
'AUDIT' is a very misunderstood word. For a long time, I used to believe that audit is in the exclusive domain of a qualified auditor like a Chartered Accountant. Then I saw officers of the Central Excise Department who did not know the difference between credit and debit 'auditing' the accounts of mega corporate entities. But 'Audit' remains a terror word among assessees and the visit of the Audit party either from the Central Excise Department or from the CAG, is not exactly welcomed by the assessee.
In recent times, writs have been filed in High Courts challenging the power of the CAG to visit the premises of the assessees and the High Courts of Calcutta, Delhi and Karnataka have given favourable interim orders. Within the mortal limits of modesty, I would claim to be a pioneer of sorts on this issue, as I am the first person to raise this issue in an article in ELT more than 10 years ago - Can/should CAG's Audit visit factories for Excise Audit?. I had jocularly mentioned that an "Accountant General" is an accountant getting the salary of a General. The CAG was so angry that I almost lost my job.
According to a recent judgement of the Lucknow Bench of the Allahabad High Court, the Service Tax officers have no power to audit the assessees and Audit can be done only by Chartered Accountants and in the case of PSUs by the CAG.
Here is the Bomb!
Will Department close down its Audit wing? No more Audit by Departmental Officers; they can only collect documents - Bonanza for CAs?
THE entire case in the High Court ran on a wrong assumption. Some assessees challenged the vires of Rule 5A(2) of the Service Tax Rules, 1994 inter alia on the ground that the provision of Rule 5(A)(2) are contrary to the provision of Section 72A of the Finance Act 1994.
As per Section 72A of the Act, the Commissioner can order Special Audit of the accounts of the assessee, by a chartered accountant or a cost accountant.
As per Rule 5A(2) of the Service Tax Rules, 1994, the assessee is required to produce certain records to the 'Audit Party' deputed by the Commissioner or CAG. Obviously the 'Audit' by the Commissioner's party or the CAG is not the same as the 'Special Audit' by the Chartered Accountant ordered by the Commissioner under Section 72A. This important aspect was lost sight of in the arguments before the High Court.
In the field, what happens is - the assessees are audited by the audit parties of the Commissioner as well as the CAG - these auditors visit the premises of the assessees, raise audit objections, which result in issue of Show Cause Notices and that is how our litigation industry is born and thriving. Every visit by an audit party invariably results in a Show Cause Notice, which would travel at least up to the Tribunal.
Whenever the Commissioner has any special love for an assessee, he would direct the assessee to get his books audited by a chartered accountant or a cost accountant and this may also lead to Show Cause Notices. But there is hardly any nexus between Service Tax officers and chartered accountants - so audits by chartered accountants on the orders of the Commissioner are rare and far in between.
Back to the case: In the High Court, the Department committed a blunder, nay virtually a hara-kiri.
The Additional Solicitor General of India who appeared for the Department on the strength of a written note submitted that:
++ The purpose of Sub-Rule (2) of Rule 5A is to get the account audited by an Auditor deputed by the Commissioner.++ In case, it is undertaking of Government of India, then Comptroller and Auditor General of India was authorized to conduct the audit.++ The purpose of impugned notice is to collect the information from the petitioners-assessees to assess the correct tax and if the Commissioner is satisfied, then he may appoint a Chartered Accountant for the purpose of audit.++ The audit will not be done by any officer or on his behalf. The audit will be performed by a qualified Chartered Accountant.
As you know all the above submissions are patently wrong.
1. The 'auditor' deputed by the Commissioner is a departmental officer - usually from Inspector to Assistant Commissioner.2.There is absolutely no rule or procedure that a Government undertaking is audited by the CAG. The CAG's Audit party also audits the private assessees.3. The purpose of the notice to produce the records under Rule 5A(2) is not to collect documents to be handed over to a chartered accountant for doing the audit. No Service Tax officer would collect documents and hand them over to a chartered accountant to do audit. Even as per Section 72A, the Commissioner does not collect documents and hand them over to a CA for audit - he directs the assessee to get his accounts audited by a nominated chartered accountant.4. The Department's audit will be done by the officers of the department ONLY and not by a chartered accountant. This audit is popularly known as EA 2000 with elaborate procedures and instructions on conducting the audit, prescribed in Audit Manual.
It is not known under what circumstances and under whose instructions, the learned Additional Solicitor General of India made such a blatantly incorrect submission before the High Court. It seems he had a written note - was this note prepared /approved by the Department?
Based on the ASG's submissions, the High Court concluded that:
In case of private assessee, the Commissioner will refer the matter to an officer to collect the material or Chartered Accountant for the purpose of audit. Thus, for the purpose of audit, the material can be collected either by the officer authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant.
The High Court specifically mentioned that, "During the course of arguments, learned Additional Solicitor General of India has assured that the audit will be performed by a qualified Chartered Accountant and as per accounting standard. After the audit report, the assessee will get the copy of the report, as per law."
In the light of the above statement of the ASG, the High Court dismissed the writ petition.
ICAI seeks inputs on Tax Administrative issues
As the members may be aware, the Government has set up a Tax Administration Reform Commission with a view to review the application of Tax Policies and Tax Laws in India in the context of global best practices. The Commission works as an advisory body to the Ministry of Finance and recommends measures for reforms required in Tax Administration to enhance its effectiveness and efficiency. The Commission has identified the following four points in its Terms of Reference to be included in its first report, which is to be submitted to Government within six months:
a. To review the existing organizational structure and recommend appropriate enhancements with special reference to deployment of workforce commensurate with functional requirements, capacity building, vigilance administration, responsibility and accountability of human resources, key performances indicators, staff assessment, grading and promotion systems, and structures to promote quality decision-making at high policy level.
b. To review the existing business processes of tax administration including the use of information and communication technology and recommend measures best suited to the Indian context.
c. To review the existing mechanism of dispute resolution, time involved for resolution, and compliance cost and recommends measures for strengthening the process. This includes domestic and international taxation.
d. To review existing mechanism and recommend measures for improved taxpayer services and taxpayers education programme. This includes mechanism for grievance redressal, simplified and timely disbursal of duty drawback, export incentives, rectification procedures and refunds.
The Direct Taxes Committee, Committee on International Taxation and Indirect Taxes Committee of ICAI have endeavoured to provide inputs/suggestions to Tax Administrative Reform Commission on the tax administration issues as mentioned above relating to:
a) Direct Taxes (Including International Taxation)
b) Indirect Taxes
Members are requested to submit their suggestions by 5th February, 2014 by clicking on the link below:
https://docs.google.com/forms/d/1D8y-m-sCxUDvfw-w-awnGlcL_F_j32G4UKaM8KAbnHY/viewform
It is pertinent to mention that the focus of the Commission is on tax administration reform and NOT on the general tax policy and legislation, thus you are requested to confine your suggestions to the same.
India signs DTAA with Republic of Fiji
India and the Republic of Fiji Sign Double Taxation Avoidance Agreement (DTAA) for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Government of Republic of Fiji for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income. The Agreement was signed here today by Shri P. Chidambaram, Union Minister of Finance on behalf of the Government of India and by Mr. Aiyaz Sayed-Khaiyum, Attorney General and Minister of Justice, Anti-Corruption, Public Enterprises, Communications, Civil Aviation, Tourism, Industry and Trade, on behalf of the Government of Republic of Fiji.
Speaking on the occasion, the Finance Minister Shri P. Chidambaram said that the need for the DTAA between the two countries was felt and negotiations were completed in 2011. He said that the Agreement will provide tax stability to the residents of India and Fiji and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Fiji. The Finance Minister further said that the Agreement incorporates provisions for an effective exchange of information and assistance in collection of taxes between tax authorities of the two countries including exchange of banking information.
The DTAA provides that business profits will be taxable in the source State if the activities of an enterprise constitute a permanent establishment in the source state. Profits derived by an enterprise from the operation of aircraft in international traffic shall be taxable in the country of place of effective management of the enterprise. Dividends, interest, royalty income and fees for technical or professional services will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed the prescribed limit for such dividends, interest, royalties and fees for technical services. Capital gains from the sale of shares will be taxable in the country of source. The Agreement also incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed of only by the residents of the two countries and to prevent any abuse of treaty.
S. 54F Deduction not allowable if assessee owns more than ne residential house on the date of transfer
Exemption u/s. 54F has been granted to the assessee with a view to encourage construction of one residential house. The construction/purchase of a house other than one residential house is not covered by section 54F of the Act. The concession provided u/s. 54F w.e.f. 1.4.2001 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house. Therefore, it is clear that emphasis has been given on owning more than one residential house by any assessee. The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, are not eligible for the concession provided u/s. 54F of the Act. Even if other residential house may be either owned by the assessee wholly or partially. Therefore, the concession has been given only to encourage that any assessee should have his own residential house. In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act. The proviso to section 54F of the Act clearly provides that no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house.
INCOME TAX APPELLATE TRIBUNAL, HYDERABAD
ITA No. 557/Hyd/2012 – Assessment year 2008-09
The ITO Vs. Ms. Apsara Bhavana Sai
Date of pronouncement: 13.09.2013
ORDER
PER CHANDRA POOJARI, AM:
This appeal is directed against the order of the CIT(A)-IV, Hyderabad dated 31.01.2012 for assessment year 2008-09.
2. The Revenue raised the following grounds of appeal:
1. The CIT(A) erred on both facts and law.
2. The CIT(A) erred in allowing exemption u/s. 54F to the assessee though the owned more than one residential houses as on the date of transfer.
3. Brief facts of the case are that the assessee is housewife, having income from 'house property'. In her return of income, filed for the A.Y. 2008-09 on 26.3.2009, she had declared an income of Rs. 24,325/ -. However, it was observed that in the computation of total income, the assessee had shown having received Long Term Capital gains of Rs. 1,37,02,475/- on sale of shares. Out of the same, Rs. 1,12,28,000/- were claimed as exempt u/s. 54F (CGS), while Rs. 25,00,000/- u/s. 54EC (REC). Evidence and details in respect of the said investments were filed by the assessee. During the course of assessment proceedings, it was observed that the assessee had shown income from 'House property' in her e-return, in respect of the following properties:
(i) Property at 204, Meenakshi Royal Court, Road No. 11,Banjara Hills, Hyderabad.
(ii) Property at 301, My Home Navadeep, Madhapur,Hyderabad.
4. From the above, the Assessing Officer noted that the assessee owned more than 2 houses. He noted that as per the provisions of sec. 54F, exemption is not available where the assessee owns more than 1 residential house, other than the new asset, on the date of transfer of original asset. It was noted that the date of transfer of shares in the case of the assessee was between April, 2007 to November, 2007. As on the date of transfer of shares, however, the assessee owned more than one house. The Assessing Officer, therefore, required the assessee to explain as to why her claim of exemption u/s. 54F should not be disallowed.
5. In response, the assessee furnished a copy of the Gift Deed dated 2.4.2007 in respect of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, stating that the same had been gifted to Sri B. Siddhardh, aged 11 years, a minor represented by Sri B. Jaya Kumar. The Assessing Officer noted that as per the provisions of sec. 27, any person, who transfers, otherwise than for adequate consideration, any house to a minor child, shall be deemed to be the owner of the house property so transferred. He further noted that the Gift Deed was not registered and the gift had been claimed as given to the assessee's son only, who was a minor. Accordingly, the Assessing Officer concluded that such gift deed was furnished only with an intention to show that she had transferred the impugned property to her minor son before the transfer of shares.
6. In view of the above facts, the Assessing Officer required the assessee to explain as to why the claim of exemption should not be disallowed, as the assessee was owning more than one house as on the date of transfer. Vide letter dated 16.12.2010 it was submitted by the assessee that sec. 27 defines a owner of a house in the context of computing income from house property under the head "Income from House Property", within the provisions of sec. 22 to 26. It was averred that the assessee had got the Gift Deed notarized, which duly conveyed the transfer and is therefore a legal transfer.
7. Alternatively, the assessee claimed that the house at "My Home Navadeep" is a joint property, held by the assessee jointly with her husband. The assessee relied on the decision in the case of ITO vs. Rasiklal N. Satra (100 TTJ 1039), holding that share in a house per se is not a single ownership. Accordingly, it was claimed that the assessee was eligible for exemption u/s. 54. On a consideration of the contentions of the assessee, the Assessing Officer opined that as per sec. 123 of the Transfer of Property Act, unless a gift of property is registered and stamped, and further attested by two witnesses, it is invalid. He noted that a Gift Deed which is not registered does not pass on any title of ownership in favour of the 'donee'. Therefore, in the process of a valid gift, the following steps are involved:
(i) Execution of the Gift deed
(ii) Donee's acceptance of the gift
(iii) Payment of adequate stamp duty and registration of the property
(iv) Handing over of possession of the property
(v) Mutation of the property in Municipal records by thedonee ID his name.
8. The Assessing Officer noted that in the assessee~s case there was no execution of the Gift deed, payment of stamp duty and registration of the property. Besides, possession of the property had also not been handed over to the minor son. In addition to this, the computation of total income showed that the property was self occupied and was in possession of the assessee only. The Assessing Officer verified from the web site of the Greater Hyderabad Municipality Corporation also and found that the assessee had been shown as owner thereof, having tax dues of Rs. 8358/- as on April, 2010, even though the same was claimed as gifted to her son. The Assessing Officer noted that the effect of non registration of documents is that the same cannot be adopted or received as evidence of any transaction affecting such property. Accordingly, the Assessing Officer concluded that the so called gift is not a valid gift and therefore, it does not exist in the eyes of law. He noted that the assessee had transferred the shares of Nandan Bio Matrix on 2.4.2007 itself, the date on which the aforesaid gift deed was claimed as executed. On verification of the Stamp Vendor book, he further found that 24 stamp papers had been purchased by one Sri Srinivas for Nandan Bio Matrix Ltd., V. Bhaskara Rao, V. Jaya Kumar, M. Phaneesh, Ch. Jadav and V. Sujata, on 14.3.2005 for business purpose. He opined that the left over stamp paper was used by the assessee to show that the gift deed had been executed on 2.4.2007 itself. Accordingly, concluding that the assessee had resorted to devious device of gifting the property to her minor son for claiming exemption u/s. 54F and avoid payment of taxes on long term capital gain arising from sale of shares, even though she continued to be owner of the property. The claim of exemption u/s. 54F of the Act was denied.
9. The Assessing Officer further noted that as per the provisions of sec. 27 of the IT Act, the transfer of property to a minor son shall not be regarded as a transfer and the assessee shall be deemed to be the owner of the property. He, therefore, concluded that in effect the assessee shall be deemed to be the owner of the said property, even if it was transferred to the minor son of the assessee.
10. With regard to the alternative claim of Joint ownership of the property at "My Home Navadeep", the Assessing Officer noted that in the case of Dr. P.K. Vasanthi Rangarajan vs. DCIT, in ITA No. 1753/Mds/2004 dated 25-7-2005 the Chennai ITAT had held that when the assessee is owning the part of a residential property, though not fully, it amounts to owning any residential property as envisaged in sec. 54F before amendment and the assessee becomes disqualified for exemption under sec. 54F. The Assessing Officer noted that as per the said decision partial ownership in the property amounts to full ownership and hence the assessee is not eligible for exemption u/s. 54F of the Act.
11. The Assessing Officer further noted that since the assessee was holding the "My Home Navadeep" property jointly with her husband, she had full rights over the same and it could not be said that she was not owning that property. It was also noted that as per the letter of the assessee, the entire rental receipt of Rs. 2,55,400/ – for the year had been considered in the return or income of the assessee only, while her husband had not shown any rental income from the said property.
12. The Assessing Officer further noted that in the case of CIT Vs. Chandanben Madanlal (245 ITR 182) (Guj), it was held that purchase of a share in the residential house is equivalent to purchase of residential house for the purpose of sec. 54. Accordingly, he opined that in view of the said decision also, share in a residential property is equivalent to one house. Accordingly, concluding that the assessee was owning more than 2 houses as on the date of transfer of shares, the Assessing Officer held that the assessee was not eligible for exemption u/s. 54F of the Act. Against this, the assessee went in appeal before the CIT(A).
13. Before the CIT(A) the assessee reiterated that a share in the joint property should be regarded as a share only and not as a single individual ownership. It was averred that the Assessing Officer did not consider the legal position standing as on date. It was contended that the assessee~s case is clearly covered by the decisions, such as those in ITO vs. Rasiklal Satra (supra) and in Seth Banarsi Dass Gupta vs. CIT (81 ITR 170) (All), SB Sugar Mills Ltd. vs. CIT (166 ITR 783) (SC). It was averred that as per the judgement of the Apex Court, a co-owner means a person entitled to a share in the property but cannot be recognised as the single owner. The decisions in the cases of Shivnarayan Chowdary vs. CIT (108 ITR 104) (Luck.) and in CIT vs. P. Aravinder Reddy (120 ITR 46) were also cited.
14. The assessee further contended that the decision of the Tribunal in the case of Rasikal N. Satra (supra) was not contested further, and therefore, shall be considered as final. She maintained that it has been established in the said case that part ownership of the house property could not be a disqualification for claiming exemption u/s. 54F, as joint ownership has not been considered as a single (numeric) ownership of a house property. Therefore, a joint ownership in a house should not be considered in counting the numeric strength of the house property as envisaged under the said provisions for claiming exemption u/s. 54F and should be excluded.
15. The assessee submitted that in the case of Seth Banarsi Das Gupta (supra), SB Sugar Mills Ltd. (supra) also a fractional share in an asset was not considered as coming within the ambit of single ownership. It was held that the test to determine a single owner is that "the ownership should be vested fully in one single name and not as joint owner or a fractional owner". The assessee submitted that that the share in a joint ownership in the property at "My Home Navadeep" should be excluded and not considered as disqualification for claiming exemption u/s. 54F of the Act.
16. The CIT(A) observed that as regards the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, it is the contention of the assessee that in view of the gift deed dated 2.4.2007, whereby the said property was gifted to the assessee's minor son, the assessee was no more the owner of the said property. It is also contended that the provisions of sec. 27 of the Act to the effect that any person, who transfers, otherwise than for adequate consideration, any house to a minor child, shall be deemed to be the owner of the house property so transferred, is relevant only in the context of computation of income from 'House property' and not for the purpose of deciding ownership in the context of Sec. 54F of the Act.
17. The CIT(A) further observed that the contentions of the assessee are unacceptable. Firstly, it is clear that the Gift deed dated 2.4.2007 is not a registered document, so as to have any legal sanctity. In the absence of registration of the gift and attestation thereof' by two witnesses, the rights of the owner cannot be considered as transferred in favour of the so-called 'donee'. Besides, it is seen that the so called "gift deed" is claimed as executed only on the date of transfer of shares of Nandan Bio Matrix by the assessee. It is also seen that while the assessee did not pay any stamp duty towards this nor she got the property registered later, even the stamp papers used by the assessee for the same were those purchased by the personnel of Nandan Bio Matrix Ltd. itself on 14.3.2005 for business purpose. Under the circumstances, it is clear that the entire arrangement of "Gift" is only an afterthought, put on record only with a view to show that the assessee was owning only one house as on the date of transfer of shares.
18. The CIT(A) observed with regard to the deeming fiction created by Sec. 27 of the Act, it is true that the same has been prescribed in the context of computation of income from house property, however, it is clear that the provisions of sec. 54F have been enacted with a view to give fillip to the Housing Sector only. Therefore, in order to decide the eligibility of an assessee for deduction u/s. 54F, the said provision is required to be applied, so as to ensure that the intended incentive is not misused. Accordingly, even if there had been a valid and registered gift deed, the assessee could not have been considered as not being the owner of the house so gifted, for the reason that in the instant case the gift was made to a minor child, without adequate consideration.
19. The CIT(A) observed that in the instant case, however, there was no valid gift at all. It is seen that the assessee not only continued to stay in the same premises but was also being shown as the owner of the property in the municipal records even till April, 2010. Besides, in the computation of total income, the property was shown as self occupied, showing that she was in possession of the said property. In view of the above facts, it is clear that the assessee continued to be the owner of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad.
20. As regards the property at 301, My Home Navdeep, Madhapur, Hyderabad, the CIT(A) observed that admittedly the same was jointly owned by the assessee with her husband. The question, therefore, is whether the part ownership of the assessee of the said flat could be considered as ownership of the flat. In this regard, it is seen that in the decision in the case of Dr. P.K. Vasanthi Rangarajan (supra), it has indeed been held that if an assessee owns part of a residential property, though not fully, it amounts to owning of a residential property as envisaged in sec. 54F before amendment, and the assessee becomes disqualified for exemption u/s. 54F. However, is also seen that the Tribunal Mumbai in the case of Rasiklal N. Satra (supra) have taken a view that ownership is different from absolute ownership. They have held that in the case of a residential unit, none of the co-owners can claim that he is the owner of the residential house. The Tribunal observed that ownership of a residential house means ownership to the exclusion of all others. In this regard they relied on the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta vs. CIT (166 ITR 783), holding that fractional ownership is not sufficient for claiming even fractional depreciation u/s. 32 of the Act. It was held that the word "own" would not include a case where a residential house is partly owned by one person or partly owned by other person(s). The Tribunal felt that after the aforesaid decision of the Supreme Court, the Legislature could have amended the provisions of sec. 54F to include part ownership. However, since the same is not done, it was to be held that the word "own" in sec. 54 F would include only the case where a residential house is fully and wholly owned by the assessee and not one owned by more than one person.
21. The CIT(A) observed that while it may be true that the said decision of the Tribunal Mumbai Benches in the case of Rasiklal N. Satra (supra) was not contested further, it is also seen that the Chennai Bench of the Tribunal in a recent decision in the case of ACIT Vs. K. Surendra Kumar in ITA No. 1324/Mds/2010 dated 12.8.2011 have followed the same decision. Going against the decision of their Co-ordinate Bench in the case of Dr. P.K. Vasanthi Rangarajan (supra), the Tribunal noted that the decision of the Supreme Court in the case of Seth Banarasi Dass Gupta (supra) had not been considered by them, whereas the same was considered in the decision in the case of Rasiklal N. Satra (supra) by the Tribunal Mumbai Benches. Since in the said case the assessee was only a part owner of the two residential properties, they held that he could not be said as owning a residential house as required for the purpose of benefit u/s. 54F of the Act.
22. The CIT(A) observed that as per the facts of the case of the present assessee, even though the assessee is still considered as the owner of the property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, she is undisputedly only a part owner of the property at 301, My Home Navadeep, Madhapur, Hyderabad. In the light of the decisions of the Tribunal Mumbai and Chennai Benches as discussed above, the assessee cannot be considered as owning the latter property, in exclusion of the joint owner, i.e., her husband, so as to be called the "owner" of flat No. 301, My Home Navdeep, Madhapur, Hyderabad for the purpose of sec. 54F of the Act. Under these circumstances, the assessee can be said as owning only one property as on the date of sale of shares, and therefore, is eligible for deduction u/s. 54F of Rs. 1,12,28,000/-. Accordingly, the CIT(A) decided the grounds raised by the assessee in her favour and directed the Assessing Officer to revise the computation of income. Against this, the Revenue is in appeal before us.
23. The learned DR submitted that the CIT(A) wrongly granted deduction u/s. 54F of the Act, though the assessee is owning more than one residential house. According to the learned DR the assessee has the following houses:
(i) 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad (gifted to minor son through an un¬registered gift deed).
(ii) 301, My Home Navdeep, Madhapur, Hyderabad (jointly owned with her husband).
24. Further, he submitted that the gift to the minor son through an unregistered gift deed is invalid. Being so, the title in the property has not been passed to the assessee~s minor son and the assessee is the absolute owner of that property. Further, the assessee being partial owner of the property at 301, My Home Navdeep, Madhapur, Hyderabad, considering the partial ownership and absolute ownership of the other house situated at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad, the assessee is owning more than one house and is not entitled for deduction u/s. 54F of the Act. Further, he submitted that even partial ownership is to be considered as full ownership in the property and she cannot granted deduction u/s. 54F of the Act. For this proposition, he relied on the following judgements:
i) CIT vs. Ravinder Kumar Arora (342 ITR 38) (Del) – In that case the assessee has purchased a new residential house along with his wife. The AO granted deduction u/s. 54F to the extent of 50% as per the assessee~s share in the property. On further appeal, the Tribunal as well as the High Court held that the assessee is entitled for full exemption u/s. 54F of the Act and the Assessing Officer was not justified in restricting the exemption to the extent of 50% of the amount invested in the new residential house.
ii) Mrs. Kamlesh Bansal vs. ITO (109 TTJ 417) wherein it is held that the assessee investing capital gain in construction of a residential house on the land owned by her husband and under agreement having 50% share therein was eligible for exemption u/s. 54F not-withstanding absence of registered deed in hear favour.
iii) Further, he relied on the judgement of Calcutta High Court in the case of Madgual Udyog vs. CIT (184 ITR 484). He also relied on the order of the Tribunal inthe case of DCIT vs. M/s. Greenko Energies Pvt. Ltd. in ITA Nos. 3-7/Hyd/13 dated 10.5.2013.
25. According to the DR even fractional or partial ownership of the immovable property disentitles the assessee for claiming deduction u/s. 54F of the Act. Finally, he submitted that even the fractional ownership of the property by the assessee at 301, My Home Navdeep, Madhapur, Hyderabad along with her husband and owning a property at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad is to be treated as assessee is owning more than one residential house and the assessee is entitled for deduction u/s. 54F of the Act.
26. On the other hand, the learned AR submitted that even if the gift deed made to assessee~s minor son in respect of property situated at 204, Meenakshi Royal Court, Road No. 11, Banjara Hills, Hyderabad is invalid, the partial ownership of the property situated at 301, My Home Navdeep, Madhapur, Hyderabad along with her husband cannot be construed as owning of residential house and it should be treated as owning only one residential house and the assessee is to be granted deduction u/s. 54F of the Act and the order of the CIT(A) is to be confirmed. The AR relied on the following judgements:
i) Seth Banarsi Das Gupta vs. CIT (supra) wherein the Apex Court held that depreciation on assets is to be granted only when the assessee is owner of the property and not in respect of a fractional ownership of the property.
ii) Mysore Minerals Ltd. vs. CIT (239 ITR 775) wherein the Apex Court held that any one in his possession of property in his own title exercising such dominion over the property as would enable the others being excluded therefrom and having right to use and occupy the property in his own right would be the owner of the building. According to the AR the fractional ownership cannot be construed as the assessee is owning second residential house. Being so, the assessee is entitled for deduction u/s. 54F of the Act.
iii) The AR also relied on the judgement of Supreme Court in the case of CIT vs. Vegetable Products Ltd. (88 ITR 192) for the proposition that when two views are possible, the view which favours the assessee is to be adopted.
27. In rejoinder, the learned DR submitted that the judgements relied on by the learned AR are relating to granting of deduction u/s. 32 and the language used therein is entirely different from section 54F of the Income-tax Act and these judgements are not applicable to the facts of the case.
28. We have heard both the parties and perused the material on record. Exemption u/s. 54F has been granted to the assessee with a view to encourage construction of one residential house. The construction/purchase of a house other than one residential house is not covered by section 54F of the Act. The concession provided u/s. 54F w.e.f. 1.4.200 1 would not be available in a case where the assessee already owns, on the date of transfer of the original assets, more than one residential house. Therefore, it is clear that emphasis has been given on owning more than one residential house by any assessee. The assessees, who already owns, on the date of transfer of the original asset, more than one residential house, are not eligible for the concession provided u/s. 54F of the Act. Even if other residential house may be either owned by the assessee wholly or partially. Therefore, the concession has been given only to encourage that any assessee should have his own residential house. In other words, when any assessee who owns more than one residential in his/her own title exercising such dominion over the residential house as would enable other being excluded therefrom and having right to use and occupy the said house and/or to enjoy its usufruct in his/her own right should be deemed to be the owner of the residential house for the purpose of section 54F of the Act. The proviso to section 54F of the Act clearly provides that no deduction shall be allowed if the assessee owns on the date of transfer of the residential asset more than one residential house.
29. This has been considered in the case of Smt. Bhavana Thanawala vs. ITO (15 SOT 377) (Mum). In the case of Ravinder K. Arora vs. ACIT (supra) it was held that even joint ownership of the property by the assessee along with his wife is construed as investment by the assessee and deduction u/s. 54F is allowable.
30. In the case of Smt. V.K.S. Bawa vs. ACIT (53 ITD 232) wherein it was held that when an assessee has become owner of a share (fractional) in property bequeathed to her by her mother, by the time the assessee purchased another property, she could not claim exemption u/s. 54F of the Act.
31. In the case of Ravinder Kumar Arora (supra) it was held that the assessee having invested the entire amount of long term capital gain in purchase of new residential house was entitled to exemption u/s. 54F in respect of the entire amount even though the new property was in the joint names of assessee and his wife.
32. In view of the foregoing discussion, if an assessee is jointly owning more than one property, then the assessee is not entitled for deduction u/s. 54F of the Act. Considering the totality of the facts of the case, we are inclined to reverse the order of the CIT(A). The ground taken by the Revenue is allowed.
33. In the result, appeal of the Revenue is allowed.
Order pronounced in the open court on 13th September, 2013.
FAQ for dealers requesting for CST Forms
FAQ for dealers requesting for CST Forms in Maharashtra
1. Where do I get the New Template of SOR?
Answer- To download the new SOR template, please visit http://www.mahavat.gov.in/Select: 'Downloads' And Click on 'Forms'. On the 'Electronic Forms' page, click on the New SOR Template.
2. May I require separate log in ID for availing services of eCST Forms?
Answer: – No, log in ID for all e-services is same.
3. My request for CST Forms is pending in old system. Can/should I apply again in new system for same requirement?
Answer: – Your old requests would simultaneously be processed by department. You are not required to apply again for same requirement. However, option is open to dealers. Since the expected delivery time would be lesser in new system the dealers may apply for same requirement in new system. Only the condition is that they need to apply for cancelation/withdrawal of old SOR before concerned CRO Officer.
4. Whether E-mail ID & Mobile numbers are mandatory in SOR?
Answer: – The mail id & mobile number of issuing dealer and mail id of accepting dealers are mandatory. The mobile no of accepting dealer is NOT mandatory. However, dealers may provide mobile no of accepting dealers to facilitate the seamless communication among all the stakeholders (issuing as well as accepting dealers) about CST Forms.
5. May I submit a single SOR requesting any CST Form for any period?
Answer: – A registered dealer can apply for any CST Form (Form C, F, H, E-1 & E2) of any Financial Year in a single SOR.
6. Can I apply multiple times for CST Forms for a same dealer for same period?
Answer: – You can apply only two times for CST Forms for the same receiving dealer for the same period.
7. Can I get the CST Forms if I am short filer, non-filler of Returns/Form-704 and/or have dues outstanding against me?
Answer: – No. You would be required to file Returns, Form 704 for the period of defaults you have made. You are also required to pay all outstanding dues, if any, available for recovery (Form 213, Assessment dues, Penalty dues).
8. How many times can I respond to defect memo?
Answer: – Only once.
9. How to submit digital CST Forms to our suppliers stationed outside the state?
Answer: – The Serial No of CST Form generated is communicated to Form Accepting dealers through autogenerated mail and autogenerated sms (if mail and mobile no of suppliers are disclosed in SOR). The Form accepting dealer can view and check the validity of CST Form at www.mahavat.gov.in. However, if accepting dealer demands the Form you may download the Forms through mahavat login and get it printed. Care need to be taken to validate the Digital Signature before printing the Form. You may sign, seal and send it to dealers as requested.
10. What type of software/technical specifications is/are needed for getting digital forms?
Answer: – Adobe Acrobat Reader-Version XI or above is required to view the digital Form and also to validate the Digital Signature.
11. How many times I take printout of digital forms?
Answer: – As per your requirements. These forms would be available in system for 8 years.
12. Is there any system for issuing dealer to view the forms?
Answer: – The issuing dealer can view the CST Forms after they log in at www.mahavat.gov.in. (View Download CST forms- Enter one of the search criteria like the Form Serial Number/TIN of Accepting Dealer/Transaction ID/Period etc).
13. Is there any system for accepting dealer to view the forms?
Answer- The accepting dealer can view the Forms at www.mahavat.gov.in . (Click on Download-then click on View of CST Forms- Enter the Form Serial Number)
14. After receiving the Forms it is noticed that we forgot to mention certain invoices in SOR itself and therefore, they are not appearing in Forms. What is the remedy available?
Answer:-You have 2 options- 1) You may cancel the corresponding already received Form and apply again as a whole considering the left out requirement, OR 2) You may apply for balance invoices only.
15. My return filling periodicity is six monthly. Can I apply for CST Forms before filling of Return?
Answer: – No, filing of Return before application for CST Forms is a mandatory requirement. In case dealer needs Forms quarterly or monthly then he should apply/request to Additional CST (VAT-2) for change of periodicity before the commencement of Financial Year.
16. How to apply for forms which are lost?
Answer: – There is no possibility of CST Forms being lost. The scenario would be applicable only in case of already issued Physical Forms. In this case, the dealer is required to upload a fresh SOR. In addition, he would be required to submit copy of complaint logged in police station, advertisement in local and English language newspaper and Form G, as prescribed under CST Act. In case of Form lost outside the state he has to submit NOC from Competent Authority of that State.
17. If any specific
In order to improve the service delivery of CST Forms new eCST Module is being released shortly for the use of trade. For details please visit www.mahavat.gov.in.
MVAT : Procedure for online issue and Application of CST e-declarations/certificate
8th floor, Vikrikar Bhavan, Mazgaon, Mumbai-400010.
CIRCULAR No.VAT/ -CR0/239/2014-15
Trade Cir. No. 4T of 2014, Mumbai:-Dt. 28.01.2014
Sub Procedure for submission of application for CST e-declarations/certificates and issuance of the same electronically.
Ref (1) Trade Circular No. 4T of 2006 dated 09/01/06.
(2) Trade Circular No. 10T of 2006 dated 29/03/06.
(3) Trade Circular No. 17T of 2006 dated 28/06/06.
(4) Trade Circular No. 1T of 2008 dated 25/01/08.
(5) Trade Circular No.15T of 2008 dated 19/04/08. (6) Trade Circular No. 2T of 2009 dated 23/01/2009.
The procedure for issuance of statutory declarations/forms under the Central Sales Tax Act, 1956 has been prescribed by the Trade Circulars referred above. At present, for obtaining declaration or certificates, the dealer submits/uploads application called SOR (Statement of Requirement) electronically. This SOR is processed by the Central Repository Officer and if found in order the statutory declarations/forms are approved and sent through post. The physical dispatch of these statutory declarations/ farms involves delay in actual delivery of forms to the applicants and hence was under revision.
2. The said process has been revised and it has now been proposed to electronically issue statutory declarations/forms under the Central Sales Tax Act, 1956 in PDF format to the e-mail address of the applicant. The relevant procedural changes have been designed so as to have minimum human interference. It is expected that in the eligible cases the applicant electronically receives the statutory declarations/forms in T+ 1 days.
3. Procedure to be followed by the applicants:
a. Digital CST declarations in non-editable PDF Format shall be issued in case of all the applications made on or after 01 Feb 2014. The procedure for filling on-line application i.e. Statement of Requirement, has been revised and shall come in to force from 1February 2014.
b. The requisite utility for the said purpose has been made available on the sales tax Department's website www.mahavat.gov.in
c. The new proposed SOR is slightly changed over the existing SOR so as to contain the invoice vise purchase annexure. Three separate Annexure(s) have been prescribed for each of the forms / Declarations viz,
i. Declarations/certificates in both Form C and F.
ii. Certificates in Form H.
iii. Declarations/certificates in Form E-I and E-II.
d. Before making an application for the CST declarations the applicant shall ensure that the turnover of interstate transactions for which the application is being made is within the limits of the turnover of interstate transactions shown by him in the return covering the period of transactions. If the turnover of interstate transactions shown in the return is less than the turnover of interstate transactions mentioned in the SORs filed by the dealer then the applicant shall file the revised return, admit the additional turnover and then apply for the CST declarations.
e. The applicant dealer shall neither be required to upload any document as an attachment nor submit any physical documents in respect of the SOR.
f. The applicants with six monthly periodicity are presently unable to make quarterly applications for the CST declarations. Such applicants, at the beginning of the year, have an option of changing their periodicity to the quarterly and apply for the CST declarations on quarterly basis.
g- The applicant shall first down load the requisite template of the SOR from the appropriate link on the web site, fill in the requisite details and validate the template of the SOR. If such validations throw any errors then the same shall be corrected by the applicant. In case of error free template a rem.txt file of the SOR shall get generated.
i. The SOR shall mandatorily contain email address and contact mobile telephone number (10 digit) of the applicant for the SDM (Service delivery purpose).The action taken by the department in respect of said SOR will be communicated on aforesaid e-mail address and the mobile telephone number.
i. The applicant shall upload the rem.txt file of the SOR on the appropriate link on the wwww.mahavat.gov.in. After the successful uploading an acknowledgement will be generated and shall be available to the applicant through his access on the web site.
j. All the SORs uploaded till 6 p.m. on any day shall be processed overnight and the same will be further processed by Central Repository Officer on the next working day.
k. The applicant dealer may withdraw the SOR till 6 p.m. of the day of uploading of SOR.
4. Online validation checks at the time of uploading of the SOR.
a. The system will check for the validity of the TIN of the applicant i.e. unless the applicant holds a valid TIN under the CST Act 1956 as issued by the Maharashtra Sales Tax department the SOR will not get uploaded.
b. The system will check the validity of the TIN under the CST Act 1956 of the selling dealer .Unless the selling dealer holds a valid 11 digit TIN, the SOR will not get uploaded. However, this validation does not apply to the SORs wherein the applicant requires CST forms declarations in respect of the purchases from the state of Tamil Nadu and union territory of Daman.
c. The dealer whose registration is cancelled may apply online for the CST declarations pertaining to the period of validity of their registration under the CST Act, 1956.
d. The system will not allow the dealers who have been identified by the department as suspicious to upload the SOR.
e. The system will not allow the dealers to upload more than two SORs for a particular period covered by the return. However, the 3rd SOR in respect of a particular period covered by the return can be uploaded only with the permission from the Additional CST of the concerned location.
5. Internal verifications by the system after the SOR is uploaded:
After the SOR is uploaded the system will verify the following four things and the results thereof will be available to the concerned CR officer in the verification report.
a. Whether the applicant dealer has filed all the returns for earlier periods.
b. Whether the turn-over of within state and inter-State sales/ purchases or, as the case may be, branch transfer/consignment transfer has been disclosed appropriately in the return for the period vis-a-vis the said turn-over mentioned in the SOR.
c. Whether the applicant dealer has any outstanding dues under MVAT Act 2002, CST Act 1956 or any other allied Act administered by the Sales Tax Department or/and has any return related dues.
d. Whether the applicant dealer (if he is liable to file Audit Report in Form No. 704 as provided under section 61 of the MVAT Act 2002) has filed Audit Report in Form 704 for all the periods starting from 1.4.2008 till the period for which due date for submission of Audit Report is over.
6. Verifications to be done by the Central Repository Officer:
The SOR filed by the dealers get allocated to CR officers on random basis. The CR officer with the help of MAHAVIKAS shall verify the following aspects:
a. In case of requisitions of Form F – Whether the address and TIN/CST Registration No. of Branch /Branches outside the Maharashtra State are incorporated in the registration record of the applicant.
b. In case of requisitions of all the CST declarations- Whether the applicant dealer fulfils all the conditions /restrictions in respect of the commodity stated in the SOR and commodity details available in MAHAVIKAS.
(Refer to Trade Circular No. 22T of 2012 issued on 26th November 2012).
7. Applications to be kept on hold and the issuance of Defect Notice:
a. If the verification by the system and the CR officer results into finding of defects, the concerned Central Repository Officer shall inform the same to the applicant through an e-mail. The applicant dealer shall be required to correct these defects within 15 days from the date of receipt of said e-mail. During the intervening period the application shall be kept on 'hold'.
b. The concerned officer may also hold the application if he is of the opinion that further verification is necessary before issuance of declaration.
c. If the applicant does not comply with requirements of the Defect notice within 15 days then the relevant application (SOR) shall be automatically rejected.
d. In case the said compliance is either not accepted by the Officer concerned or is rejected by the MAHAVIKAS System then, the Officer concerned will communicate such rejection to the applicant dealer.
e. If dealer submits the compliance in pursuance to the defect memo so issued and proves to the satisfaction of the CR officer that the defects have been complied with then the CR officer shall approve the application.
f. In case the applicant is pointed out to be a short filer of return but the applicant is in a position to prove it otherwise then the applicant shall first approach the concerned returns branch for correction in the Mahavikas. After such correction the Mahavikas data shall get corrected automatically and the defect shall also get closed automatically. However, this needs to happen within 15 days allowed for the compliance of the defect notice issued to the applicant.
8. Electronic issuance of statutory declarations/forms under the CST Act 1956:
In case of applications (SORs) successfully uploaded and verified for no defects by the CR officer and in other cases after the defects have been rectified, the statutory declarations/forms under the CST Act 1956 shall be electronically issued to the applicant through an email. The applicant is therefore needed to furnish the correct and authentic email address in the SOR.
9. Procedure for cancellation of the declarations issued:
The existing system of online application for the CST declarations shall be deactivated with effect from 31.01.2014. In case of rectification/cancellation of the declarations/certificates issued on or before 31.01.2014, the applicant shall submit manual application to the concerned authority as per the existing procedure. The officer in-charge shall rectify/deface the declarations submitted along with such applications as they case may be.
10. Procedure in case of the lost declarations:
In case of the lost declarations there is no change in the procedure except that after completion of requisite procedure, the Officer in-charge shall cancel the lost declarations/certificates. Wherever necessary the dealer shall upload the application on e-CST system and shall get digital forms in lieu of such lost declarations/certificates.
11. Procedure for the applications pending for disposal as on 31.01.2014:
a) The new system of electronic issuance of declarations/certificates under CST Act shall come into force from 01.02.2014.All the applications made up to 31.01.2014 shall be processed by the department as per the existing system unless the applicant dealer desires to withdraw his pending application and apply afresh for the e CST declarations.
b) Any applicant who desires to withdraw any application i.e. Statement of Requirement (SOR) made up to 31.01.2014 shall submit his request for withdrawal of the said application (as per concerned existing system) to the e mail id of concerned desk. The e-mail so send shall specify the transaction id in respect of such SOR i.e. the application which is to be cancelled. After receiving the request for withdrawal of the application through e mail the application related to the transaction id mentioned by the applicant shall be rejected. This will not apply to the SORs for which the CST declarations/certificates have already been printed.
c) All the applications made up to 31.01.2014 for which the applicants have not preferred withdrawal shall be processed for issuance of printed CST forms as per the existing system. The dealers who have applied for CST forms up to 31.01.2014 shall ensure that they do not apply under the new system of e CST forms for the same transactions as per the SORs uploaded up to 3'1.0 r.014 unless they apply for the cancellation of SOR as per the existent system.
12. Help Desks and assistance from the department:
The procedure of obtaining CST declaration is self-explanatory. The same is made available on the Web site of the Department .Help desks are being created at every Central Repository locations. In case of any difficulty, the dealers are requested to approach to the concerned Central Repository officers. This new procedure for issuance of declaration is available online for the declarations pertaining to period from 01.04.2008 onwards only.
Your Faithfully
(DR. NITIN KAREER)
Commissioner of Sales Tax, Maharashtra State, Mumbai.
A Sigh of relief for the CST Dealers
CA Lalit Bajaj
At present, for obtaining declaration or certificates under the Central Sales Tax Act, 1956, the dealer submits/uploads application called SOR (Statement of Requirement) electronically. This SOR is processed by the Central Repository Officer and if found in order the statutory declarations/forms are approved and sent through post. The physical dispatch of these statutory declarations/ farms involves delay in actual delivery of forms to the applicants and hence was under revision.The said process has been revised and it has now been proposed to electronically issue statutory declarations/forms under the Central Sales Tax Act, 1956 in PDF format to the e-mail address of the applicant. The relevant procedural changes have been designed so as to have minimum human interference. It is expected that in the eligible cases the applicant electronically receives the statutory declarations/forms in T+ 1 days.
To make the above possible and to improve the quality of services to dealers, a comprehensive and end to end automated eCST Module has been developed by the MVAT department and is being rolled from 01/02/2014. In the new module, uploading of SOR, viewing the defect memo and also compliance to defect memo will happen online only. The CST Forms would be in digital formats and hence, printing of Forms on pre-printed stationery would be discontinued. The automatic messages will be delivered (through email & SMS) about status of SOR (Hold, Approved, Rejected etc.) to the dealers.
The Maharashtra VAT Department has introduced issue of e-CST declarations w.e.f. 1-February-2014. Refer following documents -
- Trade Circular 4T of 2014 dated 28-01-2014 – Procedure for submission of application for CST e-declarations / certificates and issuance of the same electronically.
- e-CST Declaration Dealer Instruction Sheet
- FAQ for dealers requesting for CST Forms
- New e-CST Application Form (SOR)
(Article is Complied Jointly by CA Sandeep Kanoi & CA Lalit Bajaj)
RBI releases Framework for Revitalising Distressed Assets in the Economy
The Reserve Bank of India today released on its website the Framework for Revitalising Distressed Assets in the Economy. The Framework outlines a corrective action plan that will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. The main features of the Framework are:
- Early formation of a lenders' committee with timelines to agree to a plan for resolution.
- Incentives for lenders to agree collectively and quickly to a plan: better regulatory treatment of stressed assets if a resolution plan is underway, accelerated provisioning if no agreement can be reached.
- Improvement in current restructuring process: Independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors.
- More expensive future borrowing for borrowers who do not co-operate with lenders in resolution.
- More liberal regulatory treatment provided for asset sales:
- Lenders can spread loss on sale over two years provided loss is fully disclosed.
- Take-out financing/refinancing possible over a longer period and will not be construed as restructuring.
- Leveraged buyouts will be allowed for specialised entities for acquisition of 'stressed companies'.
- Steps to enable better functioning of Asset Reconstruction Companies mooted.
- Sector-specific Companies/Private equity firms encouraged to play active role in stressed assets market.
Background
With the slowdown of the Indian economy, a number of companies/projects are under stress. As a result, the Indian banking system has seen increase in NPAs and restructured accounts during the recent years. Not only do financially distressed assets produce less than economically possible, they also deteriorate quickly in value. Therefore, there is a need to ensure that the banking system recognises financial distress early, takes prompt steps to resolve it, and ensures fair recovery for lenders and investors. 'Improving the system's ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery' has been indicated by the Governor, Reserve Bank of India as one of the five pillars on which Reserve Bank's developmental measures will be built for improving the financial system over the next few quarters. Accordingly, a Discussion Paper on 'Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy' was released on December 17, 2013 for comments by January 1, 2014. Today's Framework incorporates public comments on that Paper and outlines the specific proposals the Reserve Bank will implement.
ITR-1, ITR-4S and ITR-7 utilities (Java based) with new features
NEW ITR UTILITY
These ITR utilities are developed using the latest JAVA technology and effort has been made to make it user friendly, simpler and faster preparation/submission of tax returns. It is recommended to stay connected to internet to experience the refreshingly new utility. Please check for new updates before starting to enter the data. This utility can run on operating system like Windows 7.0 and above and latest Linux, where Java Runtime Environment Version 7 Update 6 (jre 1.7 is also known as jre version 7) or above is installed.
New Features
Pre-Fill
You have the option to pre-fill Personal, Address and Tax information without going to e-Filing portal. To make use of this feature, you're to be connected to the internet. To pre-fill, open the latest downloaded utility and click on "Pre-fill" in the menu. You should type in the e-Filing portal credentials, User ID, Password and DOB, select the Address you want to pre-fill and click SUBMIT and the details are pre-filled. This will help in minimizing the errors, specifically in tax information. Make sure you complete this activity before you start putting together the data in the utility. Please validate the content, post import of details.
Open
Using this option, you can import the XML of the respective AY. You're required to validate the content imported. This will help in updating/editing information, if you want to submit a revised ITR form on a later date.
Save Draft
This option will help you to save the unfinished work, should you want to continue later. The XML saved as "Save Draft" cannot be used for submission, as the XML might be incomplete.
Submit
You can generate and submit the XML using this option. After you have entered the data completely (no errors displayed in the right hand pane), you'll be prompted to type in the e-Filing credentials. You'll be required to type the details and click OK to submit the ITR data. On successful validation and submission, you'll see a success screen with the ITRV link (if you have e-Filed without a Digital Signature Certificate). To use this feature, you should be connected to the internet.
Errors and Suggestions
User friendly tips on various errors and suggestions on the right hand pane are provided. You may click these links and the cursor will be taken to the field where there is an error. Please note, you'll be able to submit only after correcting all the errors.
Help
IT: Duty drawback incentive would not form part of profits earned for purposes of section 80-IB
■■■
[2013] 40 taxmann.com 535 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Commissioner of Income-tax -I, Ludhiana
v.
Vallabh Yarns (P.) Ltd.*
RAJIVE BHALLA AND DR.BHARAT BHUSHAN PARSOON, JJ.
IT APPEAL NO. 888 OF 2010†
JULY 30, 2013
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Computation of deduction] - Assessment year 2006-07 - Whether income on duty drawback falls exclusively in domain of export incentives earned by assessee in nature of facility provided under legislative enactments or by Government of India in its schemes and is not 'derived' from 'business of industrial undertaking' of assessee and lacks nexus between profits earned and business of such industrial undertaking - Held, yes - Whether even expenses incurred on receipt of such export incentives pursuant to policies and schemes of Government, would not form part of expenses of business - Held, yes [Para 13] [In favour of revenue]
FACTS
| ■ | The assessee-company was engaged in manufacturing and sale of finished knitted fabrics and readymade garments. | |
| ■ | It filed its return claiming deductions under section 80-IB. | |
| ■ | While framing assessment, the Assessing Officer disallowed various items of receipt including duty drawback (DDB). | |
| ■ | The Commissioner (Appeals) allowed certain items for which deduction was disallowed but affirmed the order of the Assessing Officer with respect to duty drawback receipt. | |
| ■ | The Tribunal while allowing certain receipts to be eligible for deduction under section 80-IB also allowed the assessee to exclude expenses incurred on realization of receipts of duty. |
Assessee's contention
| ■ | The Tribunal was right in granting concession of exclusion of expenses incurred for realization of DDB as the expenses were met out of income from the business of the assessee in the regular course of its transactions of manufacturing of export goods on which DDB incentives became available to the assessee. |
HELD
| ■ | The contention of the assessee lacks merit. When income on DDB falls exclusively in the domain of export incentives earned by the assessee in the nature of facility provided under legislative enactments or by Government of India in its schemes and is not 'derived' from the 'business of industrial undertaking' of the assessee and lacks nexus between the profits earned and business of such industrial undertaking, even expenses incurred on receipt of such export incentives (which have been held to be not income which is derived from the business of the enterprise) pursuant to policies and schemes of the Government, would not form part of expenses of the business. [Para 13] | |
| ■ | In short, when the industrial undertaking itself is required to be the 'source of income' and the business of such undertaking should result in direct yield of such income which DDB incentives are not, any expenditure made on recovery of such export incentives would also not qualify for allowable deductions. | |
| ■ | Merely because some expenses have been incurred on getting DDB incentives, which incentives have neither any direct nexus nor are derived from business of industrial undertaking and are also included in the net profits and gains of such undertaking, any expenditure having nexus with such export incentive as DDB would also not qualify for allowable deduction under section 57 or 71. [Para 14] | |
| ■ | In short, gross receipt of DDB incentive, without reduction of expenditure spent for its recovery, is to be excluded from allowable deductions under section 80-IB. [Para 15] |
CASES REFERRED TO
Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 (SC) (para 10) and CIT v. Rachna Udhyog [2010] 1 taxmann.com 29 (Bom.) (para 11).
Rajesh Katoch for the Appellant. Pankaj Jain for the Respondent.
ORDER
Dr. Bharat Bhushan Parsoon, J. - This income tax appeal under Section 260A of the Income Tax Act, 1961 (for short, the 1961 Act) is directed against the order of the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh passed in ITA No.79/CHD/2010 dated 28.4.2010 for the assessment year 2006-07.
2. Facts of the case:
The respondent-assessee is a company engaged in manufacturing and sale of finished knitted fabrics and readymade garments. It had filed its return on 29.11.2006 declaring taxable income of Rs.84,49,800/- while claiming deductions under Section 80-IB of the 1961 Act to the tune of Rs.35,91,572/-. The assessment was finalized by the Assessing Officer on 8.12.2008. While framing assessment, the Assessing Officer re-computed deductions under Section 80-IB allowable to the assessee and disallowed various items of receipt including duty draw back (hereinafter referred to, as DDB) for a sum of Rs.4,40,823/-. Aggrieved with this order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-I, Ludhiana which was decided on 11.11.2009. Though the appeal was partly allowed in favour of the assessee in respect of certain items for which deduction was disallowed under Section 80-IB but the appellate authority had affirmed the order of the Assessing Officer with respect to duty drawback receipt.
3. Still aggrieved from the order of the Commissioner of Income Tax (Appeals), the assessee preferred another appeal before the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh. The appeal was also preferred by the revenue qua deductions allowed under Section 80IB of the 1961 Act to the assessee. The Income Tax Appellate Tribunal vide order dated 28.4.2010 partly allowed the appeal of the respondent-assessee though dismissed the appeal of the revenue. While allowing certain receipts to be eligible for deduction under Section 80IB, the appellate authority also allowed the assessee to exclude expenses incurred on realization of receipts of duty drawback. Relevant extract of order dated 28.4.2010 (Annexure A-3) in this context is as under:—
"13. Having considered the rival stands, on the aspect of excluding Duty Drawback income from the purview of Section 80IB, we set aside the issue back to the file of the Assessing Officer who shall exclude only such amount of income which is net of expenses incurred for its realization. Before the Assessing Officer, the assessee shall provide the necessary workings in this regard. On being satisfied, the Assessing Officer shall re-work the disallowance u/s 80IB with respect to the income on account of Duty Drawback. Thus, on this ground, the assessee succeeds for statistical purposes."
4. Aggrieved with this order, the revenue has filed this appeal, claiming, that the appellate authority was not justified in directing the Assessing Officer to exclude the expenses incurred for realization of DDB for the purpose of computing deductions under Section 80IB as DDB benefits do not form part of the net profits of eligible industrial undertaking for the purpose inter alia of section 80IB of the 1961 Act.
5. As per the revenue, the following substantial question of law requires determination in this appeal:—
"Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in directing the Assessing Officer to exclude amount of Duty Drawback net of expenses incurred for its realization for the purpose of computing deduction u/s 80IB ignoring the judgment of Hon'ble Supreme Court in the case of Liberty India v. CIT (supra)?"
6. During the course of arguments addressed by the parties, this question of law was modified in the following terms:—
"Whether disallowance of deduction under Section 80IB on duty drawback is to be made on its gross amount or after reduction of expenses?"
7. Praying for answer of this question in its favour, the Revenue wants quashing of the impugned order,
Plea of the assessee is that DDB is an incentive which is given specially to reduce the cost of manufacturing of goods. The assessee pays custom and excise duties on the goods which are transported by it in the course of its business. It is claimed that as these duties escalate the cost of production, expenses made on realization of duty drawback ought to be eligible for deduction to reduce the liability of taxation.
8. Contention of the revenue per contra, however, is that since DDB is not business income of the assessee, any expenditure made in realization of such export incentive also cannot be business expenditure and, thus, is not to be allowed as eligible deduction. In short, it is claimed that DDB is to be disallowed in its gross amount and no reduction of expenses made on its realization is to be permissible.
9. The DDB is in the nature of an export incentive. As per Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, Government of India has provided for repayment of custom and excise duty paid by an assessee. Such refund is allowed on the average amount of duty paid in respect of material of any particular nature or on description of goods used as raw material for manufacture of specified class of goods to be exported. Thus, the source of DDB receipts are statutory provisions coupled with scheme of the Government of India to provide incentive to manufacturers of export goods of specified class.
10. In Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349, Hon'ble Apex Court had held that profits derived by way of export incentives such as DDB do not fall within the expression "profits derived from industrial undertaking" in terms of Section 80-IB of the Act.
11. Following ratio decidendi laid down by the Apex Court in Liberty India's case (supra), the High Court of Bombay in CIT v. Rachna Udhyog[2010] 1 taxmann.com 29 (Bom.) also held that deduction of export incentive inter alia in the nature of DDB is not allowable under section 80IB.
12. It is contended by the assessee that Income Tax Appellate Tribunal was right in granting concession of exclusion of expenses incurred for realization of DDB as the expenses are met out of income from the business of the assessee in the regular course of its transactions of manufacturing of export goods on which DDB incentives become available to the assessee.
13. This contention of the assessee lacks merit. When income on DDB falls exclusively in the domain of export incentives earned by the assessee in the nature of facility provided under legislative enactments or by Government of India in its schemes and is not 'derived' from the 'business of industrial undertaking' of the assessee and lacks nexus between the profits earned and business of such industrial undertaking, even expenses incurred on receipt of such export incentives (which have been held to be not income which is derived from the business of the enterprise) pursuant to policies and schemes of the Government, would not form part of expenses of the business.
14. In short, when the industrial undertaking itself is required to be the 'source of income' and the business of such undertaking should result in direct yield of such income which DDB incentives are not, any expenditure made on recovery of such export incentives would also not qualify for allowable deductions. Merely because some expenses have been incurred on getting DDB incentives, which incentives have neither any direct nexus nor are derived from business of industrial undertaking and are also included in the net profits and gains of such undertaking, any expenditure having nexus with such export incentive as DDB would also not qualify for allowable deduction under Section 57 or 71 of the Act.
15. In short, gross receipt of DDB incentive, without reduction of expenditure spent for its recovery, is to be excluded from allowable deductions under Section 80-IB of the Act.
16. Sequelly, question of law framed earlier is answered in favour of the revenue. Consequently, the appeal is accepted reversing the order of the Income Tax Appellate Tribunal to the extent mentioned above.
LATA †Arising out of order of ITAT, Chandigarh Bench - B in IT Appeal No. 79/Chd./2010, dated 28-4-2010.
IT: Amount received by assessee under section 80-IB on account of excise duty refund in pursuance of policy of State would be treated as capital receipt and, thus, not chargeable to tax
■■■
[2013] 40 taxmann.com 536 (Jammu & Kashmir)
HIGH COURT OF JAMMU AND KASHMIR
Commissioner of Income-tax
v.
Jay Ambey Corporation*
M.M. KUMAR, CJ.
AND MOHAMMAD YAQOOB MIR, J.
AND MOHAMMAD YAQOOB MIR, J.
IT APPEAL NO. 169 OF 2012
NOVEMBER 12, 2012
Section 4, read with section 80-IB, of the Income-tax Act, 1961 - Income - Chargeable as [Excise duty refund] - Assessment years 2005-06 and 2008-09 - Whether amount received by assessee under Section 80-IB on account of excise duty refund in pursuance of policy of State would be treated as capital receipt and, thus, not chargeable to tax - Held, yes [Para 4] [In favour of assessee]
CASE REVIEW
Shree Balaji Alloys v. CIT [2011] 333 ITR 335/198 Taxman 122/9 taxmann.com 255 (J&K) (para 5) followed.
CASES REFERRED TO
Shree Balaji Alloys v. CIT [2011] 333 ITR 335/198 Taxman 122/9 taxmann.com 255 (J&K) (para 2), Sahney Steel & Press Works Ltd. v. CIT[1997] 228 ITR 253/94 Taxman 368 (SC) (para 2) and CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87 (SC) (para 2).
D.S. Thakur and K.D.S. Kotwal for the Respondent.
JUDGMENT
M.M. Kumar, CJ. - This order shall dispose of two Income Tax appeals filed by the Revenue against an identical order of the Tribunal passed on 02.07.2012 in respect of assessment years 2005-2006 & 2008-2009 confirming the view taken by Commissioner of Income Tax (Appeals) in its order dated 21.12.2011.
2. The pivotal issue raised in these appeals is whether the deduction claimed by the assessee under Section 80-IB on account of excise duty refund in pursuance of the policy of the State would be treated as 'Capital Receipt' or 'Revenue Receipt'. The Commissioner of Income Tax (Appeals) has taken the view that the nature of receipt on which deduction under Section 80-IB of the Income-tax Act were claimed had not been disputed. A Division Bench of this Court after analyzing the New Industrial Policy and the nature of concessions granted by the Central Government for the State of Jammu and Kashmir has concluded in the case of Shree Balaji Alloys v. CIT [2011] 333 ITR 335/198 Taxman 122/9 taxmann.com 255 that the purpose of New Industrial Policy and the incentives provided to industrial units in terms of that policy was to accelerate industrial development in the State leading to creation of such industrial atmosphere and environment which would provide additional permanent source of employment to the unemployed youth in the State of Jammu and Kashmir. On that basis, the Division Bench held that the purpose of the New Industrial Policy was eradication of the problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area which was certainly a purpose of public interest. The Division Bench also ruled that the policy cannot be construed to have provided incentives for production and trade. The incentives were to be made available to the bona fide industrial units so that larger public interest of eradicating unemployment in the State of Jammu and Kashmir is achieved. For the aforesaid view, the Division Bench has placed reliance on the judgments of Hon'ble the Supreme Court in the Cases of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 and CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392/174 Taxman 87.
3. Mr. D. S. Thakur, learned counsel for the Revenue has made an attempt to persuade us to take a view different than the one taken by the Division Bench of this Court in the case in Shree Balaji Alloys (supra). According to the learned counsel, the ratiodecidendi of the Sahney Steel and Press Works Ltd. case (supra) has been incorrectly understood by the Division Bench and that error needs to be corrected. Mr. Thakur has also brought to our notice that against a Division Bench judgment in the case of Shree Balaji Alloys (supra), Civil Appeal No. 10061/2011 filed by the Revenue is pending consideration of their Lordships of Hon'ble the Supreme Court.
4. Having heard learned counsel for the Revenue and perusing the judgment rendered by the Division Bench of this Court in Shree Balaji Alloys case (supra), we are of the considered opinion that no question of law would emerge from the impugned order of the Tribunal which may warrant admission of the appeal within the jurisdiction of this Court. The Division Bench has already put the controversy beyond any doubt and therefore, the excise refund on account of the incentives given to the Assessee/respondent will have to be treated as 'Capital Receipt' and not the 'Revenue Receipt'. Merely because the Division Bench has not understood the judgment of Hon'ble the Supreme Court in Sahney Steel and Press Works Ltd. case (supra) would not be sufficient for us to reopen the issue. We might have felt persuaded if the judgments of Hon'ble the Supreme Court were not considered. Therefore, we are of the opinion that a binding precedent cannot be brushed aside.
5. As a sequel to the above discussion, these appeals are found to be covered by the Division Bench judgment of this Court in Shree Balaji Alloys case (supra). Accordingly, both the appeals fail and the same are dismissed along with connected CMAs, if any.
SUNIL Service Tax : Where SEZ unit availed goods transport agency's services for movement of goods within SEZ or from SEZ and bills showed that recipient of service was assessee located in SEZ, assessee could claim refund of service tax paid thereon
■■■
[2014] 41 taxmann.com 259 (Ahmedabad - CESTAT)
CESTAT, AHMEDABAD BENCH
Indofil Chemicals Co.
v.
Commissioner of Central Excise, Vapi*
M.V. RAVINDRAN, JUDICIAL MEMBER
ORDER NOS. A/10278-10279/WZB/AHD/2013
APPEAL NOS. ST/749 & 750/2011
APPEAL NOS. ST/749 & 750/2011
FEBRUARY 13, 2013
Section 93 of the Finance Act, 1994 - Exemptions from service tax - Refund of tax paid on services received by Special Economic Zones/Developers - Assessee, a unit in SEZ, paid Service Tax on GTA services and claimed refund thereof - Department rejected refund on ground that assessee had not produced documentary evidences as to whether services were provided to SEZ and consumed in SEZ - HELD : Assessee had filed refund application with required documents and photo copy of bills viz. : (1) bills of transport companies, which indicated consignors or beneficiary of services as assessee located in SEZ; (2) said transport company was engaged for transportation of goods into SEZ unit and also taking up goods from SEZ unit - Said evidences were enough and, therefore, rejection of refund claim on ground of non-filing of documents was erroneous - Matter was remanded back for purpose of quantification of amount of refund [Paras 4 to 7] [In favour of assessee]
Jagdish Surti for the Appellant. Manoj Kutty for the Respondent.
ORDER
1. This appeal is directed against Order-in-Appeal No. Commr. (A)/297/VDR-II/2011, dt.23.08.2011.
2. Heard both sides and perused the records.
3. The issue involved in this case is regarding refund of the amount of Service Tax paid by the appellant on GTA services during the period April to September, 2009. The adjudicating authority as well as the first appellate authority has rejected the refund claim only on the ground that the appellant has not produced the documentary evidences in respect of taxable services being provided to SEZ and consumed partially or wholly outside the SEZ.
4. On perusal of the records, I find that that the refund application filed by the appellant before lower authorities clearly indicate that the appellant had filed the said refund application along with the required documents and photo-copy of the bills for the respective quarter. I have perused the said documentary evidences which are in the form of the invoices raised by BSNL and other various telephone service providers and also the bills of transport companies, which indicate the consignors or beneficiary of the services as the appellant in a particular clause which is in SEZ. It is also seen from the records that the said transport company is for transportation of the goods into the SEZ unit and also taking up the goods from the SEZ unit. In my view, the appellant has produced enough evidence before the lower authorities to justify his refund claim.
5. Accordingly, I find that that both lower authorities rejecting the refund claim for non-filing of documents is erroneous. Holding that the appellant has filed all the documentary evidences along with refund claim, I set aside the impugned order and allow the appeals.
6. Since the exact amount of refund has to be quantified by the lower authorities, I remand the matter back only for limited purpose of quantifying and grant of such amount.
7. The appeals are disposed of as indicated hereinabove.
VINEET*In favour of assessee.
IT : Period of holding as de facto owner should be considered for computing holding period of capital asset u/s 2(42A)
• For the purpose of computing the 36 months holding period of a capital asset under section 2(42A), there is no requirement in section 2(42A) that holding period should only include the period for which assessee was the owner of the asset with a registered deed of conveyance conferring title on him. The words "held by the assessee" in section 2(42A) does not mean vesting of legal title to the property in the assessee. Where BDA allots plot to assessee in 1988 and on e finding it is mired in legal disputes cancels the booking and allots another plot 2007 and that also is cancelled for same reason and fresh plot allotted in 2008 and same is registered in assessee's name and consideration paid in 1988 is treated as consideration in the sale deed and assessee sells the plot in 2008 itself, resulting capital gains is long-term capital gains and eligible for benefits under sections 54F & 54EC
■■■
[2014] 41 taxmann.com 475 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax - III
v.
A. Suresh Rao
N. KUMAR AND MRS. RATHNAKALA, JJ.
IT APPEAL NO. 417 OF 2013
OCTOBER 28, 2013
Sanmathi E.I. for the Appellant. Chythanya K.K. for the Respondent.
JUDGMENT
N. Kumar, J. - This appeal is by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Bangalore holding that the capital gain claimed by the assessee is to be treated as a long term capital gain and consequently he is entitled to the benefit of exemption from levy of tax as a capital gain under Sections 54EC and 54F of the Income Tax Act, 1961 (hereinafter referred as 'the Act' for brevity).
2. For the purpose of convenience, parties are referred to as they are referred in the original proceedings.
3. The assessee is a chartered accountant. In the assessment year 2009 - 10, he filed the return of income on 29.09.2009 declaring income of Rs. 11,63,410/-. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and notice under Section 143 (2) of the Act was issued. The assessee appeared in pursuance of the notice, produced the details called for. The material produced discloses that during the financial year 2009 -10, the assessee sold the property No.365-A, situated at Sector 6, Hosur - Sarjapur Road, Bangalore on 28.05.2008 for consideration of Rs. 1,13,00,000/-. The assessee worked out the income from long term capital gain as under:-
| Sale consideration | Rs. 1,13,00,000/- |
| (Less) Cost of property allotted on 21.09.1988 Rs.1,20,510/- | |
| Indexed cost of acquisition Rs. 1,20,510/- x 161/585 | Rs. 4,37,878/- |
| Rs. 1,08,62,122/- | |
| (Add) Registration Fee etc. paid on 27.02.2008 | Rs. 11,770/- |
| The total capital gain is | Rs. 1,08,73,892/- |
Out of the consideration received by the assessee, he invested an amount of Rs.28,00,000/- and Rs.22,00,000/- in REC bonds and National Highway Authority Bonds respectively. He also purchased an apartment at Hebbal, Bangalore for a sum of Rs.56,03,596/- and offered the balance amount of Rs.2,70,296/- to tax under the head 'income from long term capital gain'.
4. The assessing authority was of the view that the sale deed executed in favour of the assessee was on 27.02.2008 and he sold the property on 29.05.2008 within four months from the date of purchase and therefore, the capital gains arising there from cannot be construed as long term capital gain. Therefore, he disallowed the exemption claimed under Sections 54EC and 54F of the Act and raised a demand for a sum of Rs.45,94,750/-. Aggrieved by the said order, the assessee preferred an appeal with the Commissioner of Income Tax (Appeals). The Appellate Authority after referring the judgment to which the reliance is placed was of the view that the crux of the discussion is that the assessee was allotted a site on 25.08.1988 and lot of incidents happened before the final site was allotted to him. The capital asset involved was a site which was allotted and registered on 27.02.2008, even after applying the Board circular referred to by the assessee, the date of allotment of this particular site is that which matters and not the earlier allotment and cancellation for the purpose of reckoning capital gains. The Appellate Authority also held that the property was sold within a period of three years and hence, it is liable to be taxed as short term capital gain. Being aggrieved by the order of the First Appellate Authority, the assessee preferred an appeal before the Tribunal.
5. The Tribunal interpreting the word "held by the assessee" in Section 2 (42-A) of the Act, held that it does not mean vesting of legal title to the property in the assessee. He acquired a right to hold the property when allotment was made for the first time on 25.8.1988. Because of the disputes between the Bangalore Development Authority and the original owners of the site allotted to the assessee, he could not be conveyed a site without encumbrance and with clear title. Therefore, in the end, though the site was allotted on 15.2.2008 followed by a registered sale deed dated 27.2.2008, the claim of the assessee that he held the property from the year 1998 is to be accepted. As the sale has taken place beyond three years' period, the capital gains accrued on such transfer constitutes a long term capital gain and therefore, he is entitled for the exemption sought for. Accordingly, the appeal was allowed. The impugned order passed by the Assessing Authority as well as the Appellate Authority was set aside. Aggrieved by the said order, the Revenue has preferred this appeal.
6. In the light of the aforesaid facts, the substantial question of law that arises for our consideration in this appeal is as under:
Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that the expression "held by the assessee" in Section 2(42-A) of the Income Tax Act implies a person in whose favour an allotment of a site made in the first instance, when the entire consideration was paid in pursuance of such allotment?
7. The learned Counsel appearing for the revenue contended that though initially the site was allotted on 21.9.1988 and an amount of Rs.1, 11,480/- was paid as consideration for the said site and sale deed also came to be executed on 6.10.2005, the same was cancelled on 18.9.2007. Subsequently, one more site was allotted in Hennur-Banaswadi Road, which allotment also came to be cancelled on 9.1.2008 and finally the site in question was allotted on 15.2.2008 followed by a registered sale deed dated 27.2.2008. Therefore, it is only on 27.2.2008 it can be said that the assessee held the capital asset. Therefore, when he sold the said capital asset on 29.5.2008 within three years from the date of purchase, the capital gains accrued thereon is a short term capital gain and therefore, the assessee is not entitled to exemption sought for under Section 54EC and Section 54F of the Act. The Tribunal was not justified in interfering with the order passed by the authorities and therefore, he submits that a case for interference is made.
8. Per contra, learned Counsel appearing for the assessee submitted that, subsequent to the amendment of Section 2(47) of the Act, the word "transfer" has undergone substantial change, clauses (5) and (6) are introduced, which deal within its fall of definition "transfer" any transaction which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, when once an allotment is made and the allottee has paid the requisite consideration, in other words, has paid the cost of acquisition of the asset, for the purpose of determining whether it is a long-term capital gain or short-term capital gain, it is the date of payment of cost of acquisition, which is to be taken into consideration as it is on that date, the assessee held the asset in view of the expanded definition of the word "transfer" and therefore, he submits that the order passed by the Tribunal is legal and valid and do not call for any interference.
9. Both the learned Counsel have relied on several judgments of various courts apart from placing reliance on the statutory provisions, the circulars issued by the Department.
10. The word "capital gains" is not defined under the Act. However, Section 48 of the Act provides for computation of the capital gains. The Act defines what is the short-term capital asset" and what is the "short-term capital gain."
Section 2(42A) of the Act defines "short-term capital asset" as under:
"2(42A): "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer:
Provided that in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of Section 10 or a zero coupon bond, the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted."
Section 2(42B) of the Act defines what is the short-term capital gain. It reads as under:
"2(42B) : "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset."
"Section 2(29A) of the Act defines "long-term capital asset" as under:
"2(29A): "long-term capital asset" means a capital asset which is not a short-term capital asset".
Section 2(29B) of the Act defines "long-term capital gain", which reads as under:
"2(29B): "long-term capital gain" means capital gain arising from the transfer of a long-term capital asset."
The definition of "long-term-capital gain" and "short-term capital gain" refers to "transfer". The word "transfer" is also defined under the Act at Section 2(47). This provision has undergone substantial amendment by Finance Act, 1987, which came into effect from 1.4.1988, whereunder clauses-5 and 6 were introduced. In the definition of "short-term capital asset" prior to the amendment, by Finance Act No.2 of 1977, which came into effect from 1.4.1978, the period prescribed was 60 months. By Finance Act, 1977, it was amended reducing the period to 36 months. In the memorandum explaining the provisions in the Finance (No.2) Bill, 1977, the reasons for enlargement of the scope of long-term capital gains is set out as hereunder:
"Enlarging the scope of "long-term capital gains". -Any profits or gains arising from the transfer of any capital asset held by a tax payer for not more than 60 months immediately preceding the date of its transfer are treated as capital gains relating to a "short-term capital asset" and charged to tax as ordinary income. Gains arising from the transfer of a capital asset held by the tax payer for more than 60 months are treated as "long-term capital 'gains" and charged to tax on a concessional basis. As the holding period of 60 months is unduly long and adversely affects the investment climate, the Bill seeks to secure that gains arising from the transfer of any capital asset held by a tax payer for more than 36 months immediately preceding the date of its transfer are treated as "long-term capital gains" and, therefore, charged to tax on a concessional basis."
Similarly, the reason for introduction of clauses - 5 and 6 in the definition of the word "transfer" in Section 2(47) of the Act is contained in the circular No.495 dated 22.9.1987 by way of explanatory notes on the provisions of the Finance Act, 1997, which reads as under:
"11.1 The existing definition of the word "transfer" in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member of or acquiring shares in a co-operative society, company, or association of persons or by way of any agreement or any arrangement whereby such person acquires any right in any building which is either being constructed or which is to be constructed.. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangement confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multistoreyed constructions in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of the Transfer of Property Act, 1882. New sub-clauses (v) and (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above.
11.2 The newly inserted sub-clause (vi) of section 2(47) has brought into the ambit of "transfer", the practice of enjoyment of property rights through what is commonly known as Power of attorney arrangements. The practice in such cases is adopted normally where transfer of ownership is legally not permitted. A person holding the power of attorney is authorized the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transferor.
11.3 These amendments shall come into force with effect from 1-4-1988 and will accordingly apply to the assessment year 1988-89 and subsequent years."
Subsequent to the amendment, the Central Board of Direct Taxes issued a Circular No.471 dated 15.10.1986 explaining how capital gains from long-term capital asset is to be calculated in cases where the allottee gets title to the property on the issuance of allotment letter and the payment of instalments though possession is not delivered and registered deed of conveyance is not disputed. It reads as under:
"474. Capital gains from long-term capital asset - Investment in a flat under the self-financing scheme of the Delhi Development Authority - Whether to be treated as construction for the purposes of capital gains
| 1. | Sections 54 and 54-F provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer. | |
| 2. | The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the SFS of D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession. | |
| 3. | The. Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that true transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains." |
Section 48 of the Act deals with mode of computation of capital gains, which reads as under:
"48. Mode of computation. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-
| (i) | expenditure incurred wholly and exclusively in connection with such "transfer, | |
| (iii) | the cost .of acquisition of the asset and the cost of any improvement thereto: |
Provided ..................
Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian Company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted."
A reading of the aforesaid provisions makes it clear that for the purpose of determining the income chargeable under the head "capital gains", the full value of the consideration received or accrued is to be taken into account. Out of the said amount, deductions have to be made in respect of
| (a) | expenditure incurred wholly and exclusively in connection with such transfer; | |
| (b) | the cost of acquisition of the asset and the cost of any improvement thereto. |
11. For the said purpose, in the case of long term capital gain for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement", are to be substituted. The same is defined in the Explanation to the said section. It is to be calculated as prescribed in the Explanation. Then it is to be deducted out of the full consideration received. Therefore, investment by way of a cost of acquisition of the asset, cost of improvement of the asset, any expenditure incurred wholly and exclusively in connection with such transfer and the said amount is being converted into indexed cost of acquisition or indexed cost of any improvement would in fact constitute the principal amount invested for acquiring the said asset. Any amount received by the assessee for the said investment is the gain which accrues to him by virtue of the transfer of capital asset. If the investment and subsequent transfer is after a period of three years of investment it becomes a long-term capital gain and then such gain would be entitled to the benefit of exemption as provided under Section 54EC and 54F of the Act.
12. The definition as contained in Section 2 (42A) of the Act, though uses the words, "a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer", for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of "short-term capital gain. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multistoried constructions in big cities. The aforesaid new sub-clauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.471 goes to the extent of clarifying that for the purpose of Income Tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a followup action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal v. Commissioner of Income-tax [1985] 156 ITR 497 (SC) wherein it is held as under:
"Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered............... Courts should, whenever possible unless prevented by the express language of any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country."
Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order to determine the capital gain from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a short-term capital gain or a long-term capital gain.
13. Revenue relies on the case of Commissioner of Income Tax v. Smt. R.R. Sood [1986] 161 ITR 92 (Bom), where the Court was dealing with an agreement to purchase a plot dated 25th May 1963 and the amount paid under the said agreement. In that context, it was held that it was on the execution of the conveyance that the assessee acquired title to the said plot and it was only from the date of conveyance that it can be said that assessee held the said plot as the owner thereof. When the assessee has disposed of or sold the said plot within 12 months of acquiring title to the same and holding the same as the owner thereof, the said portion is regarded as a short-term capital asset in the hands of the assessee.
14. Again in the case of Commissioner of Income Tax v. Mormasji Mancharji Vaid [2001] 250 ITR 542 (Guj), a Full Bench of the Gujarat High Court was dealing with an agreement where leasehold rights were conferred under an agreement dated 3rd August 1968. In the said case, after referring to the definition of the same as contained in the Transfer of Property Act and then referring to the provisions of Section 45 of the Income Tax Act, it is held as under:
"21. In case of ownership, there is a transfer of capital assets. This is a case of lease. The transferee was put in possession and was enjoying the property as a leaseholder. There cannot be different criteria for transfer of capital asset. For the purpose of tax even if document, i.e., conveyance is not executed but the transferee exercises all the rights of the true owner, one cannot emphasize for the taxation purpose that unless and until the deed of conveyance transferring the rights in property is executed, the transferee is not liable though did everything which is required for acquiring a property. As pointed out, vendor is not permitted in law to dispossess or question the title of the vendee."
15. All the aforesaid judgments relied on by the Revenue are cases arising prior to the amendment to Section 2(47) of the Act. The very same judgments show, in particular the judgment of the Full-Bench of the Gujarat High Court, the reasons for amendment i.e., even in the absence of a registered deed of transfer', if the transaction in question demonstrates the intention of the parties and after paying the entire consideration agreed upon, the purchaser enjoys the property. The fact that the transaction is not completed by execution of the registered sale deed makes no difference in the eye of law for the purpose of taxes. If the Revenue is entitled to collect tax on such capital gains, even in the absence of a registered document, on the same analogy, the assessee, who is liable to pay the capital gains, is also entitled to the exemption granted under the very Act on such capital gains. That is precisely what the Apex Court has said in Smt. Saroj Aggarwal's case (supra) that facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Too hyper technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. The Courts should place an interpretation making a benevolent and justice oriented inference and the facts must be viewed in the social milieu of a country. Now in this background, let us see the facts of this case.
16. The assessee was allotted a site on 21.9.1988 in R.M.V. Extension, Bangalore. The assessee paid a sum of Rs. 1,11,480/- on such allotment. He was also put in possession of the property and possession certificate was issued. On compliance with other legal requirement, a registered sale deed came to be executed on 6.10.2005 in his name. However, the said site was the subject matter of litigation and therefore, when the assessee was not allowed to enjoy the said property in obedience of the orders passed by the courts, the BDA cancelled the sale deed dated 6.10.2005 by executing a deed of cancellation dated 18.9.2007. Thereafter in lieu of the site, which was cancelled, a fresh allotment was made in Hennur-Banaswadi road. When the assessee after the site being allotted, went to the spot, he found that there was a construction, which was also involved in a legal dispute. Inspite of the orders of the court to demolish the structure, it has not been done. When he reported the matter to the authorities, the allotment of site in Hennur-Banaswadi road was cancelled on 9.1.2008 and in lieu of the same, the present site was allotted on 15.2.2008. A registered sale deed came to be executed on 27.2.2008. No consideration was paid under the said sale deed. The consideration paid on 21.9.1988, which was acknowledged in the sale deed dated 6.10.2005, was treated as a consideration for the same on 27.2.2008. It is thereafter the assessee transferred the site by way of a registered sale deed in favour of a purchaser on 29.5.2008 and received a consideration of Rs.1 crore 13 lakhs. This site, which was transferred, he was holding it from 21.9.1988, when he paid the consideration on intimation of allotment. Merely because the original site which was allotted was cancelled, yet another site was allotted and the said site was also cancelled and thereafter the present site was allotted, in law - would make no difference. Admittedly, the consideration paid on 21.9.1988 is treated as the consideration for the sale dated 27.2.2008. In other words, the cost of acquisition of the asset was paid on 21.9.1988 and no cost was paid either on the date of allotment i.e., on 15.2.2008 or on the date of registered sale deed on 27.2.2008. For the purpose of computing the capital gains under Section 48 of the Act, it is the date of acquisition of the asset, which is to be taken into consideration and the said cost of acquisition is to be converted as the indexed cost of acquisition as defined in the Explanation to Section 48 of the Act and, the said amount is to be deducted out of the sale consideration to arrive at the capital gain. Accordingly, after deducting the cost of acquisition and the registration fee, the capital gain after the transfer of the said asset was Rs. 1,08,73,892/- as it was a long-term capital gain. He invested an amount of Rs.28 lakhs in Rural Electrification Corporation Limited and an amount of Rs.22 lakhs in the National Highways Authority of India in terms of Section 54EC of the Act. Similarly he purchased an apartment at Hebbal, Bangalore, for a sum of Rs.56,03,590/- in terms of Section 54F of the Act and sought an exemption. For the balance of Rs.2,70,296/-, he has paid the long-term capital gain. Therefore, the assessee has rightly claimed the benefit of exemption under Section 54EC and 54F of the Act.
17. In that view of the matter, if we look at the facts in a natural perspective, there is no dishonest or improper motive on the part of the assessee in claiming said exemption. The fact seen from the social milieu of our society, it, is in natural course of conduct of any law abiding citizen. When capital gain is accrued in him instead of paying tax to the Government, he has invested the money in the aforesaid manner, which gives him the benefit of exemption from payment of capital gains. He satisfies the requirement of the law. By hypertechnical or legalistic approach, such benefit conferred on an assessee cannot be denied. Very fact that the law encourages an assessee to make such investments to avoid payment of tax, such benevolent provision which is meant for such assessees has to be equitably interpreted and justly administered.
18. In that view of the matter, we do not see any infirmity committed by the Tribunal in passing the impugned order extending the benefit which the law has extended to an assessee. Threfore, there is no merit in this appeal. The substantial question of law is answered in favour of the assessee and against the Revenue.
Appeal is dismissed.
■■
Regards,
Pawan Singla , LLB
M. No. 9825829075Board's Report – Enhanced Role under the New Companies Act, 2013
CS S. Dhanapal
INTRODUCTIONSection 134 of the Companies Act, 2013 casts a responsibility on the Board of Directors to prepare a report containing details as discussed below and this report needs to be annexed to the Financial Statements which are laid before the members in the annual general meeting. Companies Act, 2013 also contains provisions regarding revision of Board's report which has been discussed in Chapter VI of the companies act, 2013 along with revisions of Financial Statements under Section 131.
MANNER OF PREPARATION AND CONTENTS OF BOARD'S REPORT
Board Report shall be prepared based on the stand alone financial statements of the company and the report must contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented. Board' Report must contain disclosure on the following, except in case of a One Person Company:
BUSINESS/FINANCIAL HIGHLIGHTS
- The state of the company's affairs
- Financial Summary/Highlights
- Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report
- Change in the nature of business, if any;
- The amount, if any, which it recommends should be paid by way of dividend
- The amounts, if any, which it proposes to carry to any reserves
- Names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year along with reasons
DEPOSITS
- Details relating to Deposits, covering the following:
(a) Accepted during the year;
(b) Remained unpaid or unclaimed as at the end of the year;
(c)Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved:
i. at the beginning of the year
ii. maximum during the year
iii. at the end of the year
(d) Details of deposits which are not in compliance with the requirements of Chapter V of the Act
DIRECTORS, BOARD COMMITTEES, KMP AND REMUNERATION
• Details of directors or key managerial personnel who were appointed or have resigned during the year;
• A statement on declaration given by independent directors under sub-section (6) of section 149
• Re-appointment of an Independent director after completion of 5 year term.
• In case of a company covered under sub-section (1) of section 178, company's policy on directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178
• In case of a listed company and every other public company having a paid up share capital of Rs. 25 Crores or more, calculated as at the end of the preceding financial year, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
• Particulars of loans, guarantees or investments under section 186;
• Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in Form No. 9.5, along with the justification for entering into such contract or arrangement.
• Composition of Audit Committee and reason for not accepting any recommendation of the audit committee
• Details of policy relating to the remuneration of the directors, key managerial personnel and other employees formulated by the Board on recommendation of nomination and remuneration committee.
• Details of establishment of vigil mechanism
• In case of listed companies, following details:
o the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year
o Percentage increase in remuneration of each director and CEO in the financial year
o Percentage increase in the median remuneration of employees in the financial year
o Number of permanent employees on the rolls of company
o Explanation on the relationship between average increase in remuneration and company performance
o Comparison of the remuneration of the Key Managerial Personnel against the performance of the company
o The key parameters for any variable component of remuneration availed by the directors
o The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year
o Affirmation that the remuneration is as per the remuneration policy of the company
• A statement showing followingdetails of every employee of the company who was in receipt of remuneration in excess of Rs. 60 Lakhs, if employed throughout the year or Rs. 5 lakhs per month, if employed for part of the financial year or received remuneration in excess of that drawn by the MD/WTD/Manager and holding 2% or more of equity share capital of the company (himself along with spouse and dependent children)
o Name, age and designation of the employee
o Remuneration received.
o Nature of employment, whether contractual or otherwise
o Date of commencement of employment;
o The last employment held by such employee before joining the company
o Percentage of equity shares held in the company along with spouse and dependent children
o Whether any such employee is a relative of any director or manager of the company and if so, name of such director
o Details of Commission/remuneration received by a MD/WTD of the company from the company's holding or subsidiary company.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO,
(A) Conservation of energy:
Steps taken / impact on conservation of energy, with special reference to the following:
(i) Steps taken by the company for utilising alternate sources of energy including waste generated
(ii) Capital investment on energy conservation equipments
(B) Technology absorption:
1. Efforts, in brief, made towards technology absorption.
2. Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution, etc.
3. In case of imported technology (imported during the last 3 years reckoned from the beginning of the financial year), following information may be furnished:
(a) Details of technology imported.
(b) Year of import.
(c) Whether the technology been fully absorbed
(d) If not fully absorbed, areas where absorption has not taken place, and the reasons therefor.
4. Expenditure incurred on Research and Development
(C) Foreign exchange earnings and Outgo
DISCLOSURE ON CSR AND OTHER POLICIES
- Composition of CSR Committee
- The details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;
- A statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;
QUALIFICATIONS IN AUDIT REPORTS
- Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—
(a) by the statutory auditor in his report; and
(b) by the company secretary in practice in his secretarial audit report;
OTHER DISCLOSURES
- Details of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and company's operations in future.
- Extract of the annual return as provided under sub-section (3) of section 92 in form no. 7.9.
- Number of meetings of the Board;
- Secretarial Audit Report under Section 204 of the Act, to be annexed to Board's report.
- In case of Buy-Back under Section 67, where the voting rights are not exercised directly by the employees in respect of shares to which the scheme relates, following disclosures have to be made
(a) names of the employees who have not exercised the voting rights directly;
(b) reasons for not voting directly;
(c) name of the person who is exercising such voting rights;
(d) number of shares held by or in favour of, such employees and the percentage of such shares to the total paid up capital of the company;
(e) date of the general meeting in which such voting power was exercised;
(f) resolutions on which votes have been cast by persons holding such voting power;
(g) percentage of such voting power to the total voting power on each resolution;
(h) whether the votes were cast in favour of or against the resolution.
- In case of any revision of financial statements or Board's report made during the financial year, detailed reasons for revision of financial statements or Board's report to be disclosed.
DIRECTORS' RESPONSIBILITY STATEMENT
Stating that –
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis; and
(e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
BOARD'S REPORT FOR OPC
The report of the Board of Directors to be attached to the financial statement under this section shall, in case of a One Person Company, mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimermade by the auditor in his report.
CERTIFICATION OF BOARD'S REPORT
| One Person Company | Board Consists of 1 director only – By said 1 director Board consists of 2 or more directors - Chairperson alone, if so authorised by Board of Directors At least 2 Directors, one of whom shall be Managing Director |
| Other Companies | Chairperson alone, if so authorised by Board of Directors At least 2 Directors, one of whom shall be Managing Director |
VOLUNTARY REVISION OF BOARD'S REPORT
Section 131 of the Act permits revision of Board's report in case of non-compliance of any provisions of section 134 subject to the compliance with provisions of that Section.
PENAL PROVISIONS
| Company | Fine which shall not less than Rs. 50,000/- but which may extend to Rs. 25 Lakhs. |
| Every Officer in Default | Imprisonment for a term which may extend to three years OR Fine which shall not be less than Rs. 50,000/- but which may extend to Rs. 5 Lakhs OR Both |
Wrap Up
Companies Act 2013 has enhanced the scope and role of Board's report to a very great extent. The quantum and quality of disclosures required have been made very widespread. Preparing the Board's report will definitely require the experience and expertise of a professional and the Board will need to be very cautious in certifying the same. The penalty provisions have also been made much more stringent.
(Written by S.Dhanapal, Senior Partner, S Dhanapal & Associates, A firm of Practising Company Secretaries, Chennai.)
Prosecution Architecture under Companies Act 2013
CS S. Dhanapal
FOREWORDMECHANISM FOR CRIMINAL PROCEEDINGS UNDER THE PRESENT COMPANIES ACT 1956
Generally at the time of scrutinizing the Balance Sheet and Other Financial Statements of the Company, if Registrar of Companies come across any lapses on part of the Company in recording the transactions and financial irregularities etc. and observed provisions of Companies Act 1956 has been violated by the Company and Officers in preparation of Financial Statements, the Registrar of Companies issues show cause notice to the company / officers in default. On such Show cause notice is being served upon to the company, it is the responsibility of the Company to make sure all details sought by the Registrar of Companies is properly provided to the satisfaction of the Registrar of Companies. If Registrar of Companies is convinced with the explanation given by the company and upon getting proper documents and back papers, he may drop the proceedings.
In case, the company is not in a position to prove its genuineness in providing the details sought for by the Registrar of Companies, then the Registrar of Companies will serve show cause notice to the directors as officers in default and company stating that why action shall not be taken by the Registrar of Companies against the company for the lapse in compliance as observed by Registrar of Companies. In which case the company have a option of either satisfying the Registrar of Companies by providing required documents and details sought for or if it is not in a position to prove that the company genuinely recorded the financial transactions and maintain books of accounts in compliance with the provisions of the Act, approach Company Law Board to compound the offences committed by the company accepting that there are lapses on part of the Company as well as directors in complying the provisions of the Act.
In case, the company is failed to compound the offences with Company Law Board, then the Registrar of Companies will proceed further to file a complaint against the company and its directors with Magistrate Court who has jurisdiction to try the said offences after obtaining permission from the Ministry.
On such complaint being filed with Magistrate, the procedure prescribed under Code of Criminal Procedure will be followed by the Magistrate Court to dispose the matter.
PROSECUTION UNDER COMPANIES ACT 2013
SERIOUS FRAUD INVESTIGATION OFFICE (SFIO)
Companies Act 2013 provides for establishment of a Serious Fraud Investigation Office to investigate into the affairs of the Company on an order by the Central Government and where any case has been assigned to the SFIO, no other investigating agency shall proceed with investigation in such case. The Investigating Officer of SFIO shall have all the powers of a civil court while trying a suit.
If the Director, Additional Director or Assistant Director of Serious Frauds Investigation Office authorised in this behalf by the Central Government has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of any offence punishable under sections referred earlier in this write up as "cascading effect of Section 447, he may arrest such person present him before the Judicial Magistrate or a Metropolitan Magistrate within 24 hours.
For this purpose the Central Government shall, by notification, establish an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a Company.
Therefore under the provisions of Companies Act 2013, SFIO has got statutory status as proposed therein. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences of the Act which attract the punishment for fraud. Those offences shall be cognizable and the person accused of any such offence shall be released on bail subject to certain conditions provided in the relevant section of the Act. Stringent penalty is provided for fraud related offences.
However it is also provided that until the Serious Fraud Investigation Office is established under subsection (1), the Serious Fraud Investigation Office set-up by the Central Government in terms of the Government of India Resolution No. 45011/16/2003-Adm-I, dated the 2nd July, 2003 shall be deemed to be the Serious Fraud Investigation Office for the purpose of this section.
It is provided that when the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office-
(a) on receipt of a report of the Registrar or inspector under section 208;
(b) on intimation of a special resolution passed by a company that its affairs are required to be investigated;
(c) in the public interest; or
(d) on request from any Department of the Central Government or a State Government,
the Central Government may, by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office and its Director, may designate such number of inspectors, as he may consider necessary for the purpose of such investigation.
It is also provided that where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act and in case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office.
It has also been prescribed in the Companies act that where the investigation into the affairs of a company has been assigned by the Central Government to Serious Fraud Investigation Office, it shall conduct the investigation in the manner and follow the procedure provided in Chapter XIV and submit its report to the Central Government within such period as may be specified in the order. In such case the Director, Serious Fraud Investigation Office shall cause the affairs of the company to be investigated by an Investigating Officer who shall have the power of the inspector under section 217.
It is also mandated not only on part of the company but also its officers and employees, who are or have been in employment of the company to take responsibility to provide all information, explanation, documents and assistance to the Investigating Officer as he may require for conduct of the investigation.
SPECIAL COURTS
The provisions of the Companies Act 2013 provide for establishment of Special Courts. Offences under the Companies Act 2013 shall be tried only at Special Courts. Complaints can be filed by Shareholder, ROC or any officer authorized by Central Government; however the court may take cognizance of offences relating to issue and transfer of securities and non-payment of dividend, on a complaint in writing, by a person authorized by the Securities and Exchange Board of India.
LAST WORDS:
One of the most important and serious provision that is going to be made applicable on Companies act 2013 becoming effective is that irrespective of anything contained in the Code of Criminal Procedure, 1973, the offences covered under sub-sections (5) and (6) of section 7, section 34, section 36, subsection (1) of section 38, sub-sections (5) of section 46, sub-section (7) of section 56, subsection (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206,section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447 of companies Act 2013 shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless-
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:
However if any person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs.
It is also provided that the Special Court shall not take cognizance of any offence referred to this sub-section except upon a complaint in writing made by-
(i) the Director, Serious Fraud Investigation Office; or
(ii)any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government.
The limitation on granting of bail specified above is in addition to the limitations under the Code of Criminal Procedure, 1973 or any other law for the time being in force on granting of bail. Therefore seriousness and intention of introducing in-depth criminal provisions into the provisions of Companies Act 2013 goes to prove that law makers have decided to bring a thought process into the mind of corporates and other stake holders that Companies Act shall no longer be looked into as civil and regulatory kind of law and It looks that they wanted corporate and other stake holders to treat and understand it as more of a criminal nature of law , when they fail to follow and comply with the provisions of the Companies Act 2013 in its real and true spirits.
The stringent penalties prescribed for non-compliance under each section, providing statutory status to Serious Fraud Investigation Office and placing the report of SFIO on par with police report, giving it power to arrest, introduction of section 447 providing severe Punishment for Fraud etc. all drive at the point that the Companies Act 2013 is extremely serious on compliance and it has also provided for an effective and time bound enforcement machinery to inflict it.
(Written by S.Dhanapal, Senior Partner, S Dhanapal & Associates, A firm of Practising Company Secretaries, Chennai.)
__._,_.___
No comments:
Post a Comment