HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R
Court No.33
Civil Misc Writ Petition (Tax) No.657 of 2013
Rakesh Kumar Gupta
Vs.
Union of India and another
***
Hon'ble Tarun Agarwala,J.
Hon'ble Dr. Satish Chandra,J.
(Per: Tarun Agarwala,J.)
Court No.33
Civil Misc Writ Petition (Tax) No.657 of 2013
Rakesh Kumar Gupta
Vs.
Union of India and another
***
Hon'ble Tarun Agarwala,J.
Hon'ble Dr. Satish Chandra,J.
(Per: Tarun Agarwala,J.)
In the light of the decision of the Delhi High Court and the instructions issued by the CBDT, we find that the admitted position in the instant case is, that the returns were processed and accepted by the Income Tax Department. A sum of Rs.43,740/- was refunded and the balance amount was not refunded on account of the TDS being mismatched. It is also admitted that the TDS certificates were also filed by the assessee. It is also an admitted position that the deductor in the instant case is a Government Department.
We find from a perusal of the counter affidavit that no effort was made by the assessing officer to verify the fact as to whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income Tax Department has shown their helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS. The stand of the respondents is, that a refund could be allowed only on matching the TDS with that disclosed in Form 26 AS.
In the instant case, it is apparent that there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax returns. The Court finds that when the assessment was processed and a refund of Rs.43,740/- was issued, no intimation was given by the department as to why the balance TDS amount could not be credited in favour of the petitioner. The Court further finds that the assessing officer was under a duty to verify whether or not the deductor had made the payment of the T.D.S. in the government account.
The petitioner has suffered a tax deduction at source, but has not been given due credit inspite of the fact that he has been issued a TDS certificate by a government department. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the petitioner. The fault, if any, lay with the deductor. In the instant case, nothing had been indicated that the fault lay with the petitioner in furnishing false details.
In the light of the aforesaid, we find from the perusal of the counter affidavit, that the respondents have denied refunding the TDS on the ground that the refund would only be granted when the TDS matches with the details mentioned in Form 26AS. Since the mismatching is not attributable to the assessee and the fault solely lay with the deductor, we find that a case has been made out for grant of a mandamus for refund of the TDS amount. The petitioner has also made out a case for payment of interest since we find that the delay in refunding the amount was attributable solely with the Income Tax Department and there is no fault on the part of the assessee.
For the reasons stated aforesaid, the writ petition is allowed. A writ of mandamus is issued commanding respondent no.2 to refund an amount of Rs.1,88,631/- along with interest as per the law within three weeks from the date of the production of a certified copy of this order is produced before respondent No.2.
In the circumstances of the case, respondent No.2, will also pay cost of Rs.25,000/- to the petitioner within the same period.
We find from a perusal of the counter affidavit that no effort was made by the assessing officer to verify the fact as to whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income Tax Department has shown their helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS. The stand of the respondents is, that a refund could be allowed only on matching the TDS with that disclosed in Form 26 AS.
In the instant case, it is apparent that there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the income tax returns. The Court finds that when the assessment was processed and a refund of Rs.43,740/- was issued, no intimation was given by the department as to why the balance TDS amount could not be credited in favour of the petitioner. The Court further finds that the assessing officer was under a duty to verify whether or not the deductor had made the payment of the T.D.S. in the government account.
The petitioner has suffered a tax deduction at source, but has not been given due credit inspite of the fact that he has been issued a TDS certificate by a government department. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the petitioner. The fault, if any, lay with the deductor. In the instant case, nothing had been indicated that the fault lay with the petitioner in furnishing false details.
In the light of the aforesaid, we find from the perusal of the counter affidavit, that the respondents have denied refunding the TDS on the ground that the refund would only be granted when the TDS matches with the details mentioned in Form 26AS. Since the mismatching is not attributable to the assessee and the fault solely lay with the deductor, we find that a case has been made out for grant of a mandamus for refund of the TDS amount. The petitioner has also made out a case for payment of interest since we find that the delay in refunding the amount was attributable solely with the Income Tax Department and there is no fault on the part of the assessee.
For the reasons stated aforesaid, the writ petition is allowed. A writ of mandamus is issued commanding respondent no.2 to refund an amount of Rs.1,88,631/- along with interest as per the law within three weeks from the date of the production of a certified copy of this order is produced before respondent No.2.
In the circumstances of the case, respondent No.2, will also pay cost of Rs.25,000/- to the petitioner within the same period.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI ITA No. 4780/Del/2012 : Asstt. Year : 2008-09 Shri Kishan Lal,Date of Pronouncement : 20.5.2014 It was noticed by the Assessing Officer during the course of assessment proceedings that the
assessee deposited huge cash in Axis Bank Ltd. on various dates. On being called upon to clarify the position, it was explained that the assessee was engaged in purchase and sale of old properties on behalf of his customers for commission, which amount was included in the total income. Not convinced, the AO totaled all cash deposits in Axis Bank amounting to Rs. 12,88,630/- and a cheque deposit for a sum of Rs.
1,46,800/-, totaling Rs. 14,35,430/- and added the same to the total income of the assessee.
Having heard the rival submissions and perused the relevant
material on record, it is seen that the assessee categorically stated that the credit entries in the Axis bank account reflected the amounts received from various persons to whom the properties were sold by him as mediator earning commissions from such transactions. It was also stated that the debit entries in the said bank account totaling Rs 13,50,057/- represented the amounts of purchase price handed over to the sellers after retaining commission on sale properties. The said explanation given by the assessee before the A.O during remand proceedings has remanded uncontroverted. The Assessing Officer did
not call for any further details for corroboration of the stand taken by the assessee before him. It can be seen that the assessee disclosed brokerage commission on property deals in his return of income at Rs. 41,500/-. The position which, therefore, emerges is that the assessee furnished explanation about the debits and credits in his bank account which explanation has not been disputed by the Assessing Officer. Neither the assessee was called upon to produce the persons from whom such cash
was received or paid, nor the Assessing Officer proceeded at his own to verify the veracity of the assessee's explanation. Once an explanation about the source of a deposit is given, which is not rejected by the Assessing Officer with some cogent material, then the presumption is that such explanation stood accepted. It is not open to the A.O to discard such the explanation without showing any infirmity therein. Adverting to the facts of the instant case, we find that the assessee's explanation about the source of deposits in the bank account has not been contradicted by the Assessing Officer, who chose to make addition by considering only the credit entries in the Pass book totaling Rs. 14.35 lakh by virtually ignoring that there were debit entries in the same bank
account representing cash withdrawals to the tune of Rs. 13.50 lakh. Under these circumstances, we are of the considered opinion that the view taken by the ld. CIT(A) does not require any interference. The same is therefore upheld.
IN THE HIGH COURT OF DELHI AT NEW DELHI
ITA 196/2014 SUDHIR ENGG.COMPANY 07.05.2014 The appellant is aggrieved by an order dated 08.11.2013 passed by
the Income Tax Appellate Tribunal (ITAT) AY 2007-08. It is urged by the
assessee that deletion of penalty imposed to the extent of `20,31,603/-
is erroneous.
The appellant is aggrieved by an order dated 08.11.2013 passed by
the Income Tax Appellate Tribunal (ITAT) AY 2007-08. It is urged by the
assessee that deletion of penalty imposed to the extent of `20,31,603/-
is erroneous.
The assessee, for AY 2007-2008 declared an income of `7,33,03,088/-
. During the assessment proceedings, the AO observed that an amount of
`2.13 lacs or claim for guarantee could not be allowed. Likewise, further
sums such as an amount of `63,48,443/- lacs is doubtful debts and prior
period income of `2.10 lacs was also observed not to be permissible. He
merely admitted these additions and initiated penalty proceedings under
Section 271(1)(c) of the Income Tax Act, 1961 and on 26.05.2010 an order
was framed for levying penalty. Aggrieved by the order of the AO,
assessee preferred an appeal, the CIT(Appeals) by its order accepted the
assessee?s contention which was essentially based on the circumstance
that during the assessment proceedings he realised his mistake and
accepted that the expenses were not allowable. It also appears that
during the proceedings, the assessee offered to bring those amounts to
tax. Being aggrieved by the order passed by the CIT(Appeals), the
Revenue preferred an unsuccessful appeal to the ITAT.
ITA 196/2014 SUDHIR ENGG.COMPANY 07.05.2014 The appellant is aggrieved by an order dated 08.11.2013 passed by
the Income Tax Appellate Tribunal (ITAT) AY 2007-08. It is urged by the
assessee that deletion of penalty imposed to the extent of `20,31,603/-
is erroneous.
The appellant is aggrieved by an order dated 08.11.2013 passed by
the Income Tax Appellate Tribunal (ITAT) AY 2007-08. It is urged by the
assessee that deletion of penalty imposed to the extent of `20,31,603/-
is erroneous.
The assessee, for AY 2007-2008 declared an income of `7,33,03,088/-
. During the assessment proceedings, the AO observed that an amount of
`2.13 lacs or claim for guarantee could not be allowed. Likewise, further
sums such as an amount of `63,48,443/- lacs is doubtful debts and prior
period income of `2.10 lacs was also observed not to be permissible. He
merely admitted these additions and initiated penalty proceedings under
Section 271(1)(c) of the Income Tax Act, 1961 and on 26.05.2010 an order
was framed for levying penalty. Aggrieved by the order of the AO,
assessee preferred an appeal, the CIT(Appeals) by its order accepted the
assessee?s contention which was essentially based on the circumstance
that during the assessment proceedings he realised his mistake and
accepted that the expenses were not allowable. It also appears that
during the proceedings, the assessee offered to bring those amounts to
tax. Being aggrieved by the order passed by the CIT(Appeals), the
Revenue preferred an unsuccessful appeal to the ITAT.
Approved ITAT order: "In order to
gather intention of assessee as to whether it was mala fide or bona fide
if we weigh income declared of `7.33 crores vis-a-vis efforts to avoid income of about `65 lakhs then to our mind the scale would tilt in favour
of assessee's bonafide because after declaring so much income it is quite
difficult for an assessee to take chance to litigate with the Department
for such a small amount. Therefore, we are of the view that the Assessing
Officer has failed to prove that explanation of the assessee was false
and there was mala fide attempt."
gather intention of assessee as to whether it was mala fide or bona fide
if we weigh income declared of `7.33 crores vis-a-vis efforts to avoid income of about `65 lakhs then to our mind the scale would tilt in favour
of assessee's bonafide because after declaring so much income it is quite
difficult for an assessee to take chance to litigate with the Department
for such a small amount. Therefore, we are of the view that the Assessing
Officer has failed to prove that explanation of the assessee was false
and there was mala fide attempt."
We are of the opinion that in view of the law declared in respect
of Section 271(1)(c) of the Act and in the case of CIT v. Reliance Petro
Product Pvt. Ltd.: (2010) 322 ITR 158 (SC), the Tribunal has not fallen
into error in confirming the order passed by the Commissioner of Income
Tax (Appeals). No question of law arises for our consideration. The
appeal is accordingly, dismissed.
of Section 271(1)(c) of the Act and in the case of CIT v. Reliance Petro
Product Pvt. Ltd.: (2010) 322 ITR 158 (SC), the Tribunal has not fallen
into error in confirming the order passed by the Commissioner of Income
Tax (Appeals). No question of law arises for our consideration. The
appeal is accordingly, dismissed.
Signing of development agreement couldn't trigger capital gains tax unless developer discharged his obligations
IT : Where assessee entered into a development agreement of land with a developer in terms of which developer had to develop property according to approved plan and deliver a part of constructed area to assessee, in view of fact that developer had not done anything to discharge obligations cast on it, capital gains could not be brought to tax in year under appeal merely on basis of signing of development agreement
IT : Issue as to whether or not provision for non-performing assets made can be added to book profits as per Explanation (c) for purposes of computing income under section 115JA, requires fresh adjudication
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[2014] 44 taxmann.com 485 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax
v.
ICDS Ltd.*
N. KUMAR AND MRS. RATHNAKALA, JJ.
IT APPEAL NO. 581 OF 2007†
DECEMBER 17, 2013
Section 115JA of the Income-tax Act, 1961 - Minimum alternate tax (Provision for non-performing assets) - Assessment year 1999-2000 - Question arose as to whether provision made by assessee for non-performing assets could be added to book profits of company as per Explanation (c) to section 115JA(2) for purposes of computing income under section 115JA and as to whether a provision made towards non-performing asset can be considered as provision made for meeting liability, more particularly when nomenclature itself suggests it as an asset - Tribunal following earlier year's judgment of Tribunal in ITA No. 703/Bang/2000 for assessment year 1997-98 allowed assessee's claim - In that year, High Court, following judgment of Apex Court in case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562, had set aside order of Tribunal and remanded matter back to assessing authority for fresh consideration - Whether impugned order for current year was required to be set aside for fresh consideration - Held, yes [Para 4] [In favour of revenue]
E. Sanmathi Indrakumar for the Appellant. S. Parthasarathi for the Respondent.
JUDGMENT
1. This appeal (is preferred "by the revenue challenging the order passed by the Tribunal pertaining to the assessment year 1999 - 2000.
2. The substantial questions of law which arise for consideration in this appeal are as under:
| "1. | Whether the Appellate Tribunal is correct in holding that provision for non-performing assets of Rs. 5,88,29,114/- made by the assessee cannot be added to the book profits of the company as per the Explanation (c) to Section 115JA(2) of the Act for purposes of computing income under Section 115JA of the Act? | |
| 2. | Whether non-performing asset is a provision made towards asset or can it be considered as provision made for meeting the liability more particularly when nomenclature itself suggests it as an asset?" |
3. The tribunal following the earlier judgment of the tribunal in ITA No.703/Bang/2000 for the assessment year 1997-98 allowed the assessee's claim and dismissed the appeal preferred by the revenue. It is against the said order, this appeal is filed.
4. The order passed by the tribunal in ITA No. 703/Bang/2000, was the subject matter of the appeal in ITA No.343/2001. This Court by order dated 31.10.2007, following the judgment of the Apex Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 , has set aside the said order and remanded the matter back to the assessing authority for fresh consideration. For the reasons set out in the said order, the impugned order also requires to be set aside for the same reasons. The matter is remanded back for fresh consideration in accordance with law.
5. In the light of the aforesaid judgment as well as the judgment of the Apex Court the following order is passed:
ORDER
| (a) | The appeal is allowed. | |
| (b) | The impugned order is set aside. | |
| (c) | The entire matter is remanded back to the assessing authority for fresh consideration in accordance with law. |
In that view of the matter, we have declined to answer the substantial questions of law.
SB*In favour of revenue.
†Arising out of order of Tribunal in IT Appeal No. 1448/Bang./2004, dated 19-2-2007.
CST & VAT : Where assessee, a deemed university, was running medical colleges and hospitals attached thereto and it collected huge amounts from sale of prospectus and application forms and earned huge profit thereon, assessee was indulging in business so as to make profit out of sale of prospectus and application forms and sale of said goods would fall under Entry No. 71 of Third Schedule to Karnataka Value Added Tax Act, 2003 so as to attract levy of tax
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[2014] 45 taxmann.com 6 (Karnataka)
HIGH COURT OF KARNATAKA
Manipal University
v.
State of Karnataka, Department of Finance*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
STRP NOS. 412, 795-850 OF 2013†
APRIL 2, 2014
Section 2(6), read with sections 4 and 5, of the Karnataka Value Added Tax Act, 2003 - Business - Sale of prospectus and application forms - Assessment years 2005-06 to 2009-10 - Assessee, a deemed university, was running medical colleges and hospitals attached thereto - It was a registered dealer under provisions of Karnataka Value Added Tax Act - During relevant period, it collected huge amounts from sale of prospectus and application forms and earned huge profits/surplus thereon - Assessing Authority disallowed assessee's claim and levied tax on sale of prospectus and application forms - Whether in given situation assessee was indulging in business so as to make profit out of sale of prospectus and application forms - Held, yes - Whether sale of prospectus and application forms would fall under Entry No. 71 of Third Schedule to Act so as to attract levy of tax - Held, yes [Paras 15 and 21] [In favour of revenue]
Interpretation of words : Prospectus
FACTS
| ■ | The assessee, a deemed university, was running medical colleges and hospitals attached thereto. It was a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003. The registration certificate issued in Form VAT 7 by the authority clearly certified that the assessee whose principal place of business was at Manipal had been registered as a dealer under section 22, subject to the provisions of the Act and the Rules made thereunder. It further mentioned the additional places of business showing the name of assessee as a trader. Though the assessee in its application for registration in Form VAT 1 under rule 4(i) mentioned certain items/goods for which it sought registration, but the registration certificate was not granted for sale of any particular commodities/items/goods. | |
| ■ | During the assessment years 2005-06 to 2009-10, it collected huge amounts from the sale of prospectus and application forms and earned huge profits/surplus thereon. During the said period it paid tax only on the sale of medicines in the hospitals maintained by it and so also in the medical shops attached thereto. | |
| ■ | The Assessing Authority disallowed the assessee's claim and levied tax on the sale of prospectus and application forms. | |
| ■ | Both the First Appellate Authority and the Tribunal upheld the order of the Assessing Authority. | |
| ■ | On revision : |
HELD
| ■ | Section 2(12) defines 'dealer', which means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and it includes several other categories as mentioned in this provision. Section 2(34) defines 'taxable turnover' to mean the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. 'Total turnover' is defined by section 2(35) to mean the aggregate turnover in all goods of a dealer at all places of business in the State. Section 2(36) defines 'turnover' to mean the aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer. | |
| ■ | Charging provision is section 3, which provides that the tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered under the provisions of the Act. Section 4 provides that every dealer who is or is required to be registered shall be liable to pay tax on his taxable turnover. Section 22 speaks about liability to register. Under this provision, every dealer requires to get himself register if he is falling within the categories of dealers mentioned therein. [Para 9] | |
| ■ | Rules 4 to 12 deal with registration as a dealer under section 22. Under rule 4, every dealer who is liable to be registered under section 22 or any dealer who desires to register voluntarily under section 23 is obliged to submit an application for registration in Form VAT 1. Rule 5 provides for application for registration of additional place of business. Rule 8 provides for rejection of application and demand of surety. Rule 9 provides for issue of registration certificate which states that the registered authority shall assign a registration number or tax payers identification number (TIN) to the dealer and issue a certificate of registration in Form VAT 7 or Form VAT 8, as the case may be, to him and also certified copies of such certificate for any additional place of business. [Para 9.1] | |
| ■ | Form VAT 1 under rule 4(i) provides for several particulars to be furnished by the applicant. Clause 6 thereof provides for furnishing type of business: manufacturer/wholesaler/retailer/contractor/hotelier/others (specified). Column 7 provides for commodities dealt, obliging the applicant to specify all commodities. From bare perusal of columns 6 and 7, it appears that an applicant is supposed to specify a list of all commodities he/it dealt. In the instant case, merely because the assessee did not specify all the goods/commodities in the Form VAT 1, in particular the prospectus, cannot claim that the registration certificate in Form VAT 7 was issued for the sale of only medicines or the commodities mentioned in the Form VAT 1. [Para 9.2] | |
| ■ | From bare reading of the aforesaid provisions, it is clear that a registration certificate is not meant for carrying on business in buying or selling of any particular commodity or goods, but it is general in nature. Once a dealer obtains such certificate, he is obliged to file return in Form VAT 100 in respect of turnover of all sales made by it/him. The dealer on its/his own cannot decide to exclude sale of any particular commodity/item. | |
| ■ | In the instant case, the assessee being a registered dealer is liable to be taxed for all sales made by it. In other words, every transaction of sale should reflect in the return filed in Form VAT 100. It was not open to it to exclude prospectus from the return. [Para 9.3] | |
| ■ | It is well settled that if the main activity is not business, then the connected, incidental or ancillary activities of sales would not normally amount to business unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. In such cases the onus of proof of an independent intention to carry on business connected with or incidental or ancillary sales would rest on the department. [Para 14] | |
| ■ | In the instant case, the figures of receipts from the sale of prospectus and application forms clearly demonstrate that the assessee collected huge amounts every year from the sale of prospectus and application forms. As observed by the Supreme Court in the case of State of Tamil Nadu v. Board of Trustees of the Part of Madras [1999]114 STC 520 whether a person carries on business in a particular commodity depends upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive. As a matter of fact, the profit motive has now been excluded from the definition of business. It is not in dispute that the assessee sells prospectus and application forms every month during every academic year. It earns huge profits/surplus from the sale of prospectus/application forms. Therefore, looking at the price at which prospectus and application forms were sold and huge amounts were collected by the assessee during the relevant period, it cannot be stated that it was not carrying on business. It is not the case of the assessee that it sells or sold the prospectus and application forms at cost. | |
| ■ | Therefore, it cannot be stated that there was no profit motive as claimed by the assessee. Merely because the assessee was established for imparting education does not mean that it is not indulging in the business so as to make profit out of the sale of prospectus and application forms. Intention to make profit is clear from the facts and figures placed on record. [Para 15] | |
| ■ | That apart, once having registered as a dealer under section 22 the total turnover would mean aggregate turnover in all goods of a dealer at a place of business in the State, whether or not the whole or any portion of such turnover is liable to tax. The assessee cannot conveniently take a stand that it was registered as a dealer and certificate issued by the concerned authority was only for the sale of medicines and equipments in the hospital and not for the sale of prospectus and application forms. [Para 16] | |
| ■ | The First Schedule appended to the Act provides a list of goods exempted from tax under sub-section (1) of section 5. Entry 11 reads as: books, periodicals and journals including maps, charts and globe. [Para 17] | |
| ■ | The Third Schedule under section 4(1)(a)(ii) provides a list of goods taxable at 4 per cent. Entry 71 in this Schedule reads as: Printed materials other than books meant for reading; stationery articles namely, Account books, paper envelopes, diaries, calendars, race cards,catalogues, greeting cards, invitation cards, humour post cards, picture post cards, cards for special occasions, photo and stamp albums, computer stationery. [Para 18] | |
| ■ | In view of the language used in Entry 11 in the First Schedule, the assessee vehemently submitted that the prospectus being a booklet is liable to be exempted from tax under sub-section (1) of section 5. On the other hand, the revenue submitted that under any circumstances, the prospectus cannot be treated as a book so as to attract Entry 11 in the First Schedule. [Para 19] | |
| ■ | The word 'prospectus' is from the Latin verb speoere, to 'look', which is combined with the prefix pro-'forward' - giving a verb meaning 'to look forward' to something that is coming. In the Oxford English Dictionary, on historical principles, Vo. II, the word 'prospectus' is explained as follows: a printed document giving advance notification of the chief features of a forthcoming publication, issue of shares for commercial enterprises, etc., also, a brochure or pamphlet detailing the courses facilities etc. on an educational institution. It is also explained to mean a printed booklet advertising a school or university or giving details of a share offer. | |
| ■ | Thus the primary meaning of the 'prospectus' is a printed document listing courses offered by a college or university and the other relevant information about them. Even in common parlance, the word 'prospectus' is understood to mean a written catalogue or brochure or printed document that offers a plan as of school/college courses to take. The idea of a prospectus is to offer a variety of options and the plan of action in order to attract a desired participation. The prospectus is not a book. [Para 20.1] | |
| ■ | The word 'book' fell for consideration before the Kerala High Court in the case of Swaraj Printers v. State of Kerala [1973] 31 STC 559. The Court considered the question whether these books are books meant for reading or for reference. The books in question were giving details regarding various blends of tea, estates from where they are available and the quantities available in each estate. While dealing with this question it was observed that in a taxing statute, particular words have to be given their ordinary meaning. When a person uses the word 'book', an ordinary person understands by that expression a book meant for reading purposes. In the explanation referred to earlier, the object is made clear by expression meant for reading or reference. The object is further made clear by excluding account books, note books, diaries and the like. The words and the like take within their ambit books like Tea Review, balance sheet and the catalogue. [Para 20.2] | |
| ■ | Thus having regard to meaning of the word 'prospectus', one has no doubt that the prospectus of the assessee cannot be treated as 'book' or 'book meant for reading'. It is a printed document which could be called a brochure or a catalogue or a printed document detailing the courses, facilities etc. of its colleges. In any case, it cannot be treated as a book meant for reading as is known in common parlance. The prospectus of the assessee cannot be treated even as periodical or journal. In this view of the matter, the sale of prospectus and application forms would fall under Entry 71 of the Third Schedule. Therefore, the order of the Tribunal deserved to be upheld. [Para 21] |
CASE REVIEW
State of Tamil Nadu v. Board of Trustees of The Port of Madras [1999] 114 STC 520 (SC) (para 14) andSwaraj Printers v. State of Kerala [1973] 31 STC 559 (Ker.) (para 20.2) followed.
CASES REFERRED TO
State of Tamil Nadu v. Board of Trustees of The Port of Madras [1999] 114 STC 520 (SC) (para 6), CST vSAI Publication Fund [2002] 126 STC 288(SC) (para 6), Morarji Bros. (Import & Export) (P.) Ltd. v.State of Maharashtra [1995] 99 STC 117 (Bom) (para 6), State of Gujarath v. Raipur MFg. Co. Ltd.[1967] 19 STC 1 (SC) (para 6), Mahatma Gandhi Kashi Vidyapeeth v. State of U.P [2013] 64 VST 271 (All.) (para 6), Board of Revenue v. A.M. Ansari [1976] 38 STC 577 (SC) (para 7) and Swaraj Printers v. State of Kerala [1973] 31 STC 559 (Ker.) (para 20.2).
Ashok Haranahalli and Smt.Vani H. for the Petitioner. Smt. S. Sujatha for the Respondent.
JUDGMENT
Dilip B Bhosale, J. - These sales tax revision petitions under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (for 'short the Act'), are directed against the judgment dated 21st June 2013 rendered by the Karnataka Appellate Tribunal, Bangalore (for short 'the Tribunal') in STA Nos.1192 to 1248/2010, pertaining to the period commencing from April 2005 to December 2009. By the judgment dated 21st June 2013, the Tribunal dismissed all appeals filed by the petitioner-M/s. Manipal University (for short 'the University').
1.1 The appeals before the Tribunal were directed against the order dated 12-05-2010 passed by the Joint Commissioner of Commercial Taxes (appeals), Mangalore (for short 'the Appellate Authority') disposing of the Appeal Nos.KVAT/AP/1084 to 1140/09-10 whereby the Appellate Authority confirmed the order dated 12-03-2010 passed by the Assistant Commissioner of Commercial Taxes, (Enf-1), Mangalore (for short the Assessing Authority) under Section 39 of the Act by which the balance tax payable had been determined. By this order (12-03-2010), the Assessing Authority also levied interest under Section 36 and penalty under Section 72(2) of the Act.
2. Briefly stated the facts leading to these revision petitions are that, the Assessing Authority on 13.01.2010 visited the petitioner's premises and collected sales particulars of prospectus and application forms for the period between April 2005 to December 2009 (for short 'the relevant period') and also collected other particulars with which we are not concerned in the present petitions. After verification, the Assessing Authority found that the University had not declared the sales of application forms and prospectus and offered tax in the form VAT 100 filed by them. In view thereof, a pre-assessment notice under Section 39(1) of the Act was issued and after getting reply from the University, an order under Section 36(1) of the Act was passed on 12-03-2010. The Assessing Authority also levied penalty under Section 72(2) of the Act vide order dated 25-03-2010. As stated earlier, the order of the Assessing Authority was thereafter confirmed by the Appellate Authority and so also by the Tribunal.
3. The petitioner is a registered dealer, both under the provisions of the Act and Central Sales Tax Act, 1956 (for short 'CST Act'). The certificate issued under the Act was in Form VAT 7 under Rule 9(1) of the Karnataka Value Added Tax Rules, 2005 (for short the Rules). The TIN Number issued to the petitioner was 29040451525, both for the Act and CST Act. In the Form VAT 7, which is a prescribed form of the certificate, it is clearly stated that "M/s. Manipal University has been registered as a dealer under Section 22 of the Act and its principal place of business is Manipal E.D.U., Madhava Nagar, Manipal-576104". The certificate further mentions the additional places of business.
4. It is against this backdrop, the following questions of law fall for our consideration:
| "(i) | Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the view taken by the authorities below that the University is engaged in the activity of the sale of prospectus and application forms so as to attract levy of VAT under the provisions of the Act. ? | |
| (ii) | Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in not treating the activity of sale of prospectus and application forms, being an activity falling under Entry 11 of the First Schedule and/or holding that it falls under Entry 71 of the Third Schedule of the Act?" |
4.1 At this stage, we make it clear that though the petitioners formulated four questions of law in the memorandum of revision petitions, we have with the assistance of the learned counsel for the parties reformulated the questions of law as above and then, by consent proceeded to hear them on merits at the stage of admission.
5. We have heard learned counsel for the parties and with their assistance gone through the entire records placed before us for our consideration and so also the judgments of the Supreme Court and High Courts relied upon by them in the course of arguments.
6. Smt. Vani, learned counsel appearing for the University, at the outset submitted that the University is not carrying on any business in order to attract the levy of tax under the Act. The University is a deemed University engaged in imparting education and for this purpose they print and sell prospectus along with application forms for admission to various courses, so as to recover the expenditure incurred for printing the same. She submitted that though the University is a registered dealer, it got registered for sale of medicines and other equipments in the hospital and medical shops attached to their medical colleges and not for the sale of prospectus and application forms. She submitted that, in any case, the main activity of the University is to impart education and, therefore, the sale of prospectus and application forms cannot be treated as incidental or ancillary to the "business" but it is incidental and ancillary to educational activities. In other words, it was submitted that the sale of prospectus and application forms is incidental/ancillary to the main activity of education and not the business for which they got registered as a dealer under Section 22 of the Act. She submitted that the University is not in the business of printing and selling of prospectus and application forms. In support of these contentions, she placed reliance upon the judgments of the Supreme Court and other High Courts in State of Tamil Nadu v. Board of Trustees of The Port of Madras [1999] 114 STC 520 (SC), CST v SAI Publication Fund [2002] 126 STC 288(SC), Morarji Bros (Import & Export) (P.) Ltd. v. State of Maharashtra [1995] 99 STC 117 (Bom), State of Gujarath v.Raipur Mfg. Co. Ltd. [1967] 19 STC 1 (SC) and Mahatma Gandhi Kashi Vidyapeeth v. State of U.P[2013] 64 VST 271 (All).
6.1 In the alternative, she invited our attention to Entry 11 of the First Schedule to contend that sale of prospectus and application forms is exempted from tax under sub-section (1) of Section 5 and, therefore, it is not liable to be taxed. Further, she invited our attention to Entry 71 in the Schedule to contend that printing and selling of prospectus, in any case would not fall under Entry 71 which speaks about printed material other than the books meant for reading and stationery articles mentioned therein. She submitted that the prospectus are books meant for reading, and therefore, would not fall under this entry.
7. On the other hand, Smt.Sujatha, learned Government Advocate submitted that after having registered as a dealer under Section 22 of the Act and under the provisions of CST Act, it is not open to the University to claim that they are not carrying on any business or not liable to pay tax on the sale of prospectus and application forms. She submitted that having regard to the figure of receipts during the relevant period, it is clear that the University was making profit out of the sale of prospectus and application forms. She further submitted that it is not the case of the University that they print and sell the prospectus and application forms at cost. She submitted that during the relevant period the University sold prospectus and application forms for Rs.500/- each and thereby made huge profit/surplus. It was submitted that having regard to the manner in which the University print and publish the prospectus, it would amount to carrying on business of selling prospectus which has continuity and regularity. Then, she submitted that even if the University is mainly involved in imparting education and even if it is assumed that sale of prospectus and application forms is incidental or ancillary to the activities of education, it is always open to the Revenue to find out whether it had intention to conduct business and whether it would fall under Entry 71 of the Third Schedule. The Revenue has accordingly considered all these aspects in proper perspective to hold that the receipts out of the sale of prospectus and application forms are exigible to tax. She placed reliance upon certain observations made by the Supreme Court in the judgments relied upon by learned counsel for the petitioner-University. In addition, she placed reliance upon the judgment of the Supreme Court in Board of Revenue v. A.M. Ansari [1976] 38 STC 577.
8. It is not in dispute that the University is a registered dealer under the Act. They run medical colleges and hospitals attached thereto. Admittedly, they pay and paid during the relevant period tax on the sale of medicines in the hospitals maintained by them and so also in the medical shops attached thereto. The registration Certificate issued in form VAT-7 by the authority clearly certify that the University whose principal place of business is at Manipal-E.D.U, Madhava Nagar, Manipal-576 104 has been registered as a dealer under Section 22 of the Act, subject to the provisions of the said Act and Rules made there under. It further mentions the additional places of business showing the name of University as a trader. Though the University in their application Form-VAT-1 under Rule 4(i) of the Rules mentioned certain items/goods for which they sought registration, from plain reading of the provisions of the Act and in particular Rule 9(1), it cannot be stated that the registration certificate was granted for sale of any particular commodities/items/goods.
9. Section 2(12) defines 'dealer', which means any person who carries on the business of buying, selling and supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and it includes several other categories as mentioned in this provision. Section 2(34), defines 'taxable turnover' to mean that the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover, and in such manner as may be prescribed. 'Total turnover' is defined by Section 2(35) to mean the aggregate turnover in all goods of a dealer at all places of business in the State. Section 2(36) defined turnover' to mean the aggregate amount for which goods are sold or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (29) by a dealer. Charging provision in the KVAT Act is Section 3, which provides that the tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered under the provisions of the Act. Section 4 provides that every dealer who is or is required to be registered shall be liable to pay tax on his taxable turnover. Section 22 of the Act speaks about liability to register. Under this provision, every dealer requires to get himself register if he is falling within the categories of dealers mentioned therein.
9.1 Rules 4 to 12 in the Rules deal with registration as a dealer under Section 22 of the Act. Under Rule 4, every dealer who is liable to be registered under Section 22 or any dealer who desires to register voluntarily under Section 23 is obliged to submit an application for registration in Form VAT-1. Rule 5 provides for application for registration of additional place of business. Rule 8 provides for rejection of application and demand of surety. Rule 9 provides for issue of registration certificate which states that the registered authority shall assign a registration number or tax payers identification number (TIN) to the dealer and issue a certificate of registration in Form VAT-7 or Form VAT-8 as the case may be to him, and also certified copies of such certificate for any additional place of business. We are not concerned with other rules.
9.2 Form VAT-1 under Rule 4(i) provides for several particulars to be furnished by the applicant. Col.6 thereof provides for furnishing type of business: manufacturer/ wholesaler/retailer/contractor/hotelier/others (specified). Col.7 provides for commodities dealt, obliging the applicant to specify all commodities. From bare perusal of Columns 6 and 7, it appears to us that an applicant is supposed to specify a list of all commodities he/it dealt. In the present case, merely because the University did not specify all the goods/commodities in the Form VAT-1, in particular, the prospectus, cannot claim that the registration certificate in Form VAT 7 was issued for the sale of only medicines or the commodities mentioned in the Form VAT-1.
9.3. From bare reading of the aforesaid provisions, it is clear that a registration certificate is not meant for carrying on business in buying or selling of any particular commodity or goods, but it is general in nature. Once a dealer obtains such certificate, he is obliged to file return in Form VAT 100 of the Act in respect of turnovers of all sales made by it/him. The dealer, on its/his own cannot decide to exclude sale of any particular commodity/item.
In the instant case, the University being a registered dealer, is liable to be taxed for all sales made by it. In other words, every transaction of sale should reflect in the return filed in Form VAT 100. It was not open to them to exclude "prospectus" from the return.
10. We have, as stated earlier, perused the definitions of 'business' , 'dealer', 'sale', 'taxable turnover' and 'total turnover'. The definitions of these expressions in the Act and the Value Added Tax Act of several other States are similar, in particular Tamil Nadu General Sales Tax Act and Bombay Sales Tax Act. The Supreme Court inBoard of Trustees of the Port of Madras (supra), had an occasion to deal with these definitions and other relevant provisions of the Tamil Nadu Government Sales Tax Act. In this judgment, the Supreme Court also considered the expression "carrying on business" and observed that whether a person carries on business in a particular commodity must depend upon volume, frequency, continuity and regularity of transaction of purchase and sale in a class of goods and transaction must ordinarily be entered into with a profit motive, which may, however, be statutorily excluded. The question in issue before the Supreme Court was whether the Port trust was established by statute to "carry on business". It would be relevant to reproduce paragraphs 13 and 14 of the report for our purpose. Paras 13 and 14 of the report read thus :
'13. Now the definition of "business" in Section 2(d) and in most of the sales tax statutes is an inclusive definition and includes "trade or business or manufacture, etc.". This itself shows that the Legislature has recognized that the word "business" is wider than the words "trade, commerce or manufacture, etc.". The word "business" though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession which occupies time, attention and labour of a person, normally with a profit-motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure, (State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC); AIR 1965 SC 531). Even if such profit-motive is statutorily excluded from the definition of "business" yet the person could be doing "business".
14. The word "carrying on business" requires something more than merely selling or buying, etc. Whether a person "carries on business" in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. [Board of Revenue v. A.M. Ansari [1976] 38 STC 577 (SC); (1976) 3 SCC 512]. Such profit-motive may, however, be statutorily excluded from the definition of "business" but still the person may be "carrying on business".' (Emphasis supplied)
11. The Supreme Court in Sai Publication Fund (supra) also considered the definitions of words business, dealer and sale'. The question raised in the said case was whether the Trust-Sai Publication Fund, which had been set up by some devotees of Sai Baba of Shirdi for spreading his message, could be held to be a dealer, in respect of sale books, booklets, pamphlets, photos, stickers and other publications containing message of Sai Baba and the turnover on such publication could be assessed to sale tax under the Bombay Sales tax Act. The following observations made by the Supreme Court in this case in paragraph-11 are relevant for our purpose, which read thus :
'No doubt, the definition of "business" given in section 2(5A) of the Act even without profit-motive is wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business" unless an independent intention to carry on "business" in the incidental or ancillary activity is established. In such cases the onus of proof of an independent intention to carry on "business" connected with or incidental or ancillary sales will rest on the department. Thus, if the main activity of a person is not trade, commerce, etc., ordinarily incidental or ancillary activity may not come within the meaning on "business. To put it differently, the inclusion of incidental or ancillary activity in the definition of "business" pre-supposes the existence of trade, commerce, etc., The definition of "dealer" contained in Section 2(11) of the Act clearly indicates that in order to hold a person to be a "dealer", he must "carry on business" and then only he may also be deemed to be carrying on business in respect of transaction incidental or ancillary thereto. We have stated above that a main and dominant activity of the Trust in furtherance of its act is to spread message.' (Emphasis supplied)
11.1 In that case (Sai Publication Fund (supra), the object of the assessee-trust was to spread message of Sai Baba of Shirdi and it was not in dispute that the books and the literature containing message of Sai Baba were distributed by the trust to the devotees of the trust "at cost price". In view of the facts before the Supreme Court, it was observed that it cannot be said that the trust carried on the business of selling and supplying goods so as to fall within the meaning of dealer under Section 2(11) of the Bombay Sales Tax Act.
12. The Supreme court in A.M.Ansari (supra) also had an occasion to deal with the very same words /phrases. The observations made by the Supreme Court in the said report are relevant for our purpose which read thus:
"...whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. The court further went on to observe that when a subsidiary product is turned out in the factory of the assessee regularly and continuously and it is being sold from time to time, an intention to carry on business in such product may be reasonably attributed to the assessee. As the consideration of profit-motive cannot be regarded as an essential constituent of the term 'business' in view of the amendment introduced in the definition of the term 'dealer' in 1966, what we are left to consider is whether the other ingredients of the term "business", viz., volume, frequency, continuity and regularity of transactions of sale and purchase are satisfied in the instant cases.." (Emphasis supplied)
13. The Allahabad High Court in Mahatma Gandhi Kashi Vidyapeeth (supra) after considering the definition of 'dealer' and 'business' on the facts of that case observed that the element of business, i.e., motive on the part of the University to indulge in any business activity was totally lacking and statutorily impossible. The University in that case was established under the U.P. State Universities Act, 1973 to impart education in various discipline of higher education and research. In that case, the High Court observed that, it was a matter of mere convenience for students and university to get the forms printed for a price and not more than that and thus, the University was not a 'dealer' within the meaning of Section 2(h) of the U.P. Value Added Tax Act and, its activities of printing and selling of admission forms to the students did not amount to business within the meaning of Section 2(e) of the Act.
14. It is well settled that if the main activity is not business, then the connected, incidental or ancillary activities of sales would not normally amount to business unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. (See Board of Trustees of the Port of Madras). In such cases the onus of proof of an independent intention to "carry on business" connected with or incidental or ancillary sales would rests on the department. It is therefore necessary to find out whether the department has shifted the burden or that they have established an independent intention to conduct business in the connected, incidental or ancillary activity of sale of prospectus with application form.
15. It has come on record, and it is not in dispute that in 2005-06, total collection of the University from the sale of prospectus and application forms was Rs.2.55 crores, in 2006-07 Rs.5.62 crores, in 2007-08 Rs.4.46 crores, in 2008-09 Rs 4.27 crores and in 2009-2010 it was Rs.3.61 crores. Insofar as the year 2009-2010 is concerned for the period between April 2009 to December 2009 the sale, was Rs.1.37 crores. The figures of receipts from the sale of prospectus clearly demonstrate that the University collect huge amounts every year from the sale of prospectus. As observed by the Supreme court whether a person "carries on business" in a particular commodity depends upon volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive. As a matter of fact, the profit motive, has now been excluded from the definition of 'business'. It is not in dispute that the University sell prospectus and application forms every month during every academic year. The volume, frequency, continuity and regularity of transaction of sale is not in dispute. They earn huge profits/surplus from the sale of prospectus/application forms. Therefore, looking at the price at which prospectus and application forms were sold and huge amounts were collected by the University during the relevant period, it cannot be stated that they were not "carrying on business". We have perused the figures of the receipts of every month during the relevant period, and we find the collection towards sale of prospectus and application forms during particular months was more than one crore. It is not the case of the University that they sale or sold the prospectus and application forms at cost. The price, as contended by learned counsel for the University, of the prospectus during the relevant period was ranging from Rs.350-Rs.500. We have perused the prospectus for the relevant period, which, in our opinion, was on the higher side. Therefore, it cannot be stated that there was no profit motive as claimed by the University. Merely because, the University was established for imparting education does not mean that it is not indulging in the business so as to make profit out of the sale of prospectus and application forms. Their intention to make profit is clear from the facts and figures placed on record.
16. That apart, once having registered as a dealer under Section 22 of the Act the total turnover would mean aggregate turnover in all goods of a dealer at a place of business in the State, whether or not the whole or any portion of such turnover is liable to tax. The University cannot conveniently take a stand that they were registered as dealer and certificate issued by the concerned authority was only for the sale of medicines and equipments in the hospital and not for the sale of prospectus and application forms.
17. Next we would like to consider the second question of law. The First Schedule appended to the Act provides a list of goods exempted from tax under sub-section (1) of Section 5 thereto. Entry 11 read thus :
"Books, periodicals and journals including maps, charts and globe."
18. The Third Schedule under Section 4(1)(a)(ii) provides a list of goods taxable at 4% (at the relevant time). Entry 71 in this Schedule reads as under:
"71. Printed materials other than books meant for reading;
stationary articles namely, Account books, paper envelopes, diaries, calendars, race cards, catalogues, greeting cards, invitation cards, humour post cards, picture post cards, cards for special occasions, photo and stamp albums, computer stationery."
19. In view of the language used in Entry-11 in the First Schedule, learned counsel for the University vehemently submitted that the prospectus being a booklet is liable to be exempted from tax under sub-section (1) of Section 5 of the Act. On the other hand, learned counsel for the State submitted that under any circumstances, the prospectus cannot be treated as a 'book' so as to attract Entry 11 in the First Schedule.
20. To resolve this controversy, we have perused meaning of the word prospectus'. The word 'prospectus' is explained in Chambers 20th Century Dictionary as follows :
"prospectus.- the outline of any plan submitted for public approval, particularly of a literary work or of a joint-stock concern: an account of organization of school."
20.1 The word "Prospectus" is from the Latin verb specere, "to look," which is combined with the prefix pro-"forward" - giving us a verb meaning "to look forward" to something that is coming. In the Oxford English Dictionary, on historical principles, Vol.II, the word "Prospectus" is explained as follows: "a printed document giving advance notification of the chief features of a forthcoming publication, issue of shares for commercial enterprises, etc., also, a brochure or pamphlet detailing the courses facilities etc., of an educational institution". It is also explained to mean a printed booklet advertising a school or University or giving details of a share offer. Thus, the primary meaning of the word "Prospectus", for our purpose is a printed document listing courses offered by a college or university and the other relevant information about them. Even in common parlance, the word "prospectus" is understood to mean a written catalogue or brochure or printed document that offers a plan as of school/college courses to take. The idea of a prospectus is to offer a variety of options and the plan of action in order to attract a desired participation. In our opinion, 'prospectus' is not a book.
20.2 The word "book" fell for consideration of the High Court of Kerala at Ernakulam, in Swaraj Printers v. State of Kerala [1973] 31 STC 559. Kerala High Court considered the question "whether these 'books' are books meant for reading or for reference". The books in question were giving details regarding various blends of tea, estates from where they are available and the quantities available in each estate. While dealing with this question it was observed "in a taxing statute, particular words have to be given their ordinary meaning. When a person uses the word "book", an ordinary person understands by that expression a book meant for reading purposes. In the explanation referred to earlier, the object is made clear by expression meant for reading or reference. The object is further made clear by excluding account books, note books, diaries and the like. The words "and the like" take within their ambit books like "Tea Review, balance sheet and the catalogue".
21. Thus, having regard to meaning of the word "prospectus", we have no doubt that the prospectus of the University cannot be treated as "book" or "book meant for reading". It is a printed document which could be called a brochure or a catalogue or a printed document detailing the courses, facilities etc. of their colleges. In any case, it cannot be treated as a book meant for reading as is known in common parlance. The prospectus of the University cannot be treated even as periodical or journal. In this view of the matter, the contentions urged on behalf of the University must be rejected. We are in agreement with the view taken by the Tribunal that the sale of prospectus and application forms would fall under Entry 71 of the Third Schedule. Thus, the questions raised in these revision petitions are answered against the petitioner-University and in favour of the respondent-State. The revision petitions are accordingly dismissed. However, there shall be no order as to costs.
S.K.J. †Revision arising out of order of Tribunal in STA Nos. 1192 to 1248/2010, dated 21-6-2013.
Regards,
Pawan Singla , LLB
M. No. 982582907510 Indicators to understand importance of Health Insurance in your life
Health insurance is probably the biggest stress-reliever when medical emergencies arise. Apart from your regular investments, having health insurance is most vital asset in anyone's life. Yes, health insurance is not just an investment but an asset. Here are a few indicators that might change your mind.
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3. You are a young professional:Young professionals might feel that the medical cover provided by their workplace is sufficient for their needs. An additional health cover will prove invaluable over the years, even if you just consider the tax benefits to begin with. Look for a plan that might provide enhanced cover after claim-free years.
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9. You or a family member has a chronic or critical illness: Most insurance policies have exclusions for some types of illnesses, especially for pre-existing ones. Look for a policy that covers the type of treatment that you need, even if it might be excluded for the initial period of the policy. A premium guarantee in case of claim would also be useful.
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Did any of the above signs describe your situation? Then, contact a good health insurance policy provider to get more information today. You may even apply for health insurance online, which is a convenient choice for busy professionals as well as for those with limited mobility.
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Govt accepts report on rationalising FDI, FII
Government Accepts the Report of the Committee for Rationalising the Definition of FDI and FII
The Government of India had constituted a Committee for rationalising the definition of FDI and FII as per the announcement of the then Union Finance Minister during the Budget Speech 2013-14 (Para No. 95) which reads as follows:
"In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), I propose to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously."
The Committee has now submitted its report which has been accepted by the Government .Report of the Committee is available on the web-site of Ministry of Finance- www.finmin.nic.in. Major features of the report are as follows:
The core recommendation of the committee is that it should be the endeavour to simplify the classification of foreign investment and enable basically two classes of foreign investors in the long run viz. Portfolio Investors and FDI Investors, and at best carve outs therein for NRIs, in view of their special status.
The committee adopted the conceptual framework that Foreign Direct investment (FDI) is characterised by a lasting interest i.e. existence of a long term relationship, significant degree of influence. Normally, ownership of 10 percent or more of the ordinary shares OR voting power signifies this relationship and it involves both initial and subsequent transactions. On the other hand Portfolio Investment is characterised by the largely anonymous relationship between the issuers and holders, and the degree of trading liquidity in the instruments. Further it covers, but is not limited to securities traded on organized or other financial markets.
The Committee has recommended the merger of the FII and Qualified Foreign Investors (QFI) regimes under the new "Foreign Portfolio Investors" (FPI) regime, and this has been notified by SEBI and RBI in their respective regulations.
The FPI regime will be subject to the prevailing SEBI (SAST) Regulations to prevent persons acting in concert. There is no change proposed in the monitoring mechanism. However, it has been proposed in addition, that the onus of adherence to the aggregate FPI limit will also be cast on the Investee Company, which can be asked to get the compliance to the foreign investment limit verified by the Statutory Auditor on a half-yearly basis.
Foreign investment of 10 percent or more through eligible instruments made in an Indian listed company would be treated as FDI. All existing foreign investments below the threshold limit made under the FDI Route shall however, continue to be treated as FDI. Foreign Investment in an unlisted company irrespective of threshold limit may be treated as FDI. An investor may be allowed to invest below the 10 percent threshold and this can be treated as FDI subject to the condition that the FDI stake is raised to 10 percent or beyond within one year from the date of the first purchase. The obligation to do so will fall on the company. If the stake is not raised to 10% or above, then the investment shall be treated as portfolio investment. In case an existing FDI falls to a level below 10 percent, it can continue to be treated as FDI, without an obligation to restore it to 10% or more. In a particular company, an investor can hold the investments either under the FPI route or under the FDI route, but not both.
A relook at the Foreign Venture Capital Investors (FVCI) scheme is called for since these investors are basically in the nature of FDI.
Regarding NRI investors, they have a special place in the foreign investment regime since NRI funds flow even through deposits and remittances. Special privileges are also available to NRIs in terms of the Overseas Citizenship Act and the provision to make 'non-repatriable' investments. This position would remain and to reinforce the same, it may be further examined if non-repatriable investment by an NRI can be treated as "domestic" as also an enabling mechanism to enable such investment to come through via a corporate form.
Limitation of One mobile number or email ID for 4 Accounts on Income Tax e-filing portal
CA Sandeep Kanoi
Income Tax department has vide its press released dated 19.06.2014 has mandated registration of email id & mobile no. on Income Tax e-filing website i.e. on https://incometaxindiaefiling.gov.in/. It said that It is mandatory that all tax payers must have a valid contact details registered in e-Filing portal.
Press release said as follows :-
One mobile number or email ID can be used for a maximum of 4 user accounts as the Primary Contact- Mobile Number and Email ID in e-Filing. This is to ensure that family members (not exceeding 4 separate users) not having personal email or mobile can be covered under a common email or mobile, but in general taxpayers should have their own unique email ID and Mobile registered with the Department.
Considering the very low availability of Internet Facility in India especially in villages and smaller cities the move is the one which is not appreciated by tax professionals. Some of the professionals has also demanded that Limit of 4 registrations against a mobile number/email registration must be removed immediately.
One more practical difficulty may be in registration of Non-Residents, who do not have mobile facility in India. It is knot known, if they can register with foreign mobile number.
One of our reader Mr. Vijay K. Malik said that " It is not possible for ordinary person like chai walla, paan walla, small shop keepers to have their personal email id. This type of procedural hurdle will create more trouble for tax consultants, they have to create email id for their clients on their names, which seems to be more illegal to crate this type of email id. Income Tax Department has to think from this angle also. "
CA V Swaminathan commented that " The newly announced procedure for bringing on IT Record the particulars for communication to taxpayers is prima facie cumbersome and spells additional hassle. Further,more importantly, it does not seem to talk about updating of physical 'address'. As suggested before,in consideration of 'balance of convenience' , by having suitable changes made in the department's computerized system itself, the said address may be updated on the basis of the address/changed address as filled in / reported, in the tax return lastly filed and on its record."
In our opinion government move is with good intentions but been made without considering the ground realities, which needs a reconsideration.
Exclude Import related payment from Form Form 15CA & Form 15CB Requirements – ICAI
Issues arising from Notification No 67/2013, dt 2-9-2013 amending Rule 37BB of IT Rules, 1962 wrt Foreign Outward Remittances- Form 15CA & Form 15CB
Ministry of Finance has recently amended Income tax Rules vide Notification No 67/2013, dt 2-9-2013 with regard to Foreign Outward Remittances and Form 15CA &15CB. This notification is in supersession of an earlier Notification No 58/2013, dated 5- 8-2013.
Rule 37BB provides for the method/procedure to be followed while furnishing of information in case any payment is made to nonresident which is chargeable to tax. Notification No 67/2013, dt 2-9-2013 provides through an explanation a list of 28 payments where there is no need to file form 15CA/15CB. As per the earlier Notification No 58/2013, dated 5- 8-2013, there were a total of 39 payments in the specified list which were required to furnish information in Part B of the Form No.15CA. Payments which are not there in the new specified list are as below:
(i) Advance payment against imports- This is a routine payment made by the importers. Non exclusion of such payment from specified list is unnecessarily increasing the compliance burden of the assessees. Further, it may lead to harassment at the time of assessment.
(ii) Payment towards imports settlement of invoice - As mentioned above, such payment is also made in a routine manner by the importers.
Similarly, other payments which were earlier in the specified list of Not No 58/2013, dt 5-8-13 but not
included in new specified list of Not No 67/2013, dt 2-9-2013 and thereby increasing the compliance burden of assesses unnecessarily are as follows:
included in new specified list of Not No 67/2013, dt 2-9-2013 and thereby increasing the compliance burden of assesses unnecessarily are as follows:
(iii) Imports by diplomatic missions
(iv) Payments for surplus freight or passenger fare by foreign shipping companies operating in India
(v) Freight on imports -Shipping companies
(vi) Freight on exports – Shipping companies
(vii) Booking of passages abroad – Shipping companies
(viii) Freight on imports -Airlines companies
(ix) Payments for life insurance premium
(x) Freight insurance – relating to import and export of goods
(xi) Other general insurance premium
Since "Advance payment against imports" and "Payment towards imports-settlement of invoice" are routine payment made by the importers, they may be included in the specified list.
Source- Pre-budget Memorandum 2014 on direct taxes by ICAI
Number of Returns and payment schedule should be curtailed – ICAI
Even in the e-filing era, the assessees are overburdened with the compliances to be made with regard to filing of returns and payment schedules. An assessee is required to file quarterly returns relating to TDS on salaries, Quarterly returns relating to TDS on amounts other than salary, and quarterly returns relating to TCS. These are in addition to the Income tax return form which is to be filed on annual basis. Due to errors in the punched data or for some other reason, the assessee is required to file correction
statements or revised return which is also a cumbersome process.
statements or revised return which is also a cumbersome process.
Apart from this there is a payment schedule to be followed in respect of TDS/TCS, advance tax, Self assessment tax and so on. This is too cumbersome.
For the convenience of the tax payers it is suggested that the number of returns and payment schedule to be filed by the assessee should be curtailed appropriately.
Source- Pre-budget Memorandum 2014 on direct taxes by ICAI
IT : Where Assessing Officer while placing reasons recorded for approval of Commissioner prior to issuance of notice under section 148, recorded in Form No. ITNS-10 that income which escaped assessment was more than Rs. one lakh, statutory bar imposed against reopening of assessment under section 149(1)(b) would not operate in such a case
IT : Where Joint Commissioner nodded in favour of Assessing Officer by writing 'yes' to reasons recorded and accorded permission for reopening of assessment, notice of reopening on that count alone cannot fail holding that assumption of jurisdiction under section 147 was invalid, if application of mind is otherwise demonstrable from material on record
IT : Where Assessing Officer having completed assessment under section 143(3), initiated reassessment proceedings on basis of information supplied by Investigation wing that companies funding assessee's investment were bogus, since assessee herself admitted that investment transactions in question were name sake/sham transactions, validity of impugned reassessment proceedings deserved to be upheld
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[2014] 45 taxmann.com 404 (Gujarat)
HIGH COURT OF GUJARAT
Lalita Ashwin Jain
v.
Income Tax Officer*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NOS 1626 & 1627 OF 2014
MARCH 25, 2014
I. Section 149 of the Income-tax Act, 1961 - Income escaping assessment - Time limit for issuance of notice (Montary limit) - Assessment year 2006-07 - Whether where Assessing Officer while placing reasons recorded for approval of Commissioner prior to issuance of notice under section 148, recorded in Form No. ITNS-10 that income which escaped assessment was more than Rs. one lakh, statutory bar imposed against reopening of assessment under section 149(1)(b) would not operate in such a case - Held, yes [Para 15.1] [In favour of revenue]
II. Section 151, read with section 147, of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice (Applicability of) - Assessment year 2006-07 - Whether where Joint Commissioner nodded in favour of Assessing Officer by writing 'yes' to reasons recorded and accorded permission for reopening of assessment, notice of reopening on that count alone cannot fail holding that assumption of jurisdiction under section 147 was invalid, if application of mind is otherwise demonstrable from material on record - Held, yes [Para 17.4] [In favour of revenue]
III. Section 69, read with section 147, of the Income-tax Act, 1961 - Unexplained investments (Share transaction) - Assessment year 2006-07 - Assessee was engaged in share trading business - For relevant assessment year, assessee filed its return declaring certain taxable income - Assessing Officer completed assessment under section 143(3) - Subsequently, on basis of report of Investigation Wing, Assessing Officer initiated reassessment proceedings taking a view that sources of investment had been found to be unexplained as companies who funded investment had been found to be bogus - Whether in view of fact that in statement recorded under section 131(1)(a), assessee's husband himself admitted that investment transactions in question were name sake/sham transactions undertaken by him in name of his family members, it being a case of non-disclosure of complete and true facts at time of assessment, validity of impugned reassessment proceeding was to be upheld - Held, yes [Para 14] [In favour of revenue]
FACTS
| ■ | The assessee was engaged in share trading business. For the relevant assessment year, the assessee filed its return declaring certain taxable income. The Assessing Officer completed the assessment under section 143(3). | |
| ■ | After expiry of four years from end of relevant assessment year, the Assessing Officer initiated reassessment proceedings. The reason recorded for initiating said proceedings was that certain sources of investment had been found to be unexplained as the companies who funded the investment had been found to be bogus. The investment were also not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself. | |
| ■ | The assessee challenged validity of reassessment proceedings by filing instant writ petition contending that impugned proceedings were initiated on basis of mere change of opinion. |
HELD
| ■ | It is well established that when the assessment is framed under section 143 (3) of the Act, the reopening beyond the period of four years is permissible only if the income chargeable to tax has escaped the assessment on account of failure on the part of the assessee to make a return under section 139 or in response to the notice under sub-section(1) of section 142 or section 148 or if a person has failed to disclose fully and truly all material facts necessary for the assessment. The requirement of the proviso to section 147 deserves to be satisfied, and therefore, in absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped the assessment by reason of failure on the part of the petition/assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 would be invalid. [Para 11.1] | |
| ■ | The twin conditions required for the satisfaction of the Assessing Officer, in the event of reopening of assessment beyond the period of four years is that (i) there must be a reason to believe that income chargeable to tax had escaped assessment; and (ii) he also must have reason to believe that such escapement of income is on account of omission or failure on the part of the assessee to disclose fully and truly all material facts for assessment of the income of the assessee for the year under consideration. [Para 13] | |
| ■ | Once the Assessing Officer has a reason to believe that such income has escaped assessment, the same as per the statutory requirement under section 147(1)(b) has to be more than rupees one lakh or should likely to be more than rupees one lakh. And on having formed such belief, sanction of the Commissioner for reopening needs to be obtained under section 151 (2), who also is required to apply his mind to such proposal before according sanction, rather than acting mechanically. [Para 14] | |
| ■ | Therefore, at this juncture, all the three grounds raised by the assessee viz., (i) absence of any failure on the part of the assessee to disclose fully and truly any material facts necessary for the purpose of assessment for the year under consideration and the income chargeable to tax having escaped assessment for that year on account thereof; (ii) absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more; and (iii) absence of any application of mind on the part of the Commissioner, while exercising his power to grant sanction, are required to be dealt with in light of the discussion made hereinabove. [Para 14.2] | |
| ■ | It is well settled that where the amount of income escaping assessment exceed rupees one lakh, the Assessing Officer is required to record finding to that effect. If not in the reasons recorded in the present case, such findings forms part of ITNS-10 form where there is a specific quantification of the amount of tax that had escaped assessment, and therefore, the Assessing Officer before initiating the reassessment proceedings had specified by way of such quantification thereby clearly reflecting that the income which had escaped assessment was more than rupees one lakh. Therefore, challenge to the validity of the notice under section 147 on this count must fail. | |
| ■ | There was ample material on record to suggest that income chargeable to tax had escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts. Additional condition outlined in proviso to section 147 of the Act, thus, stood satisfied. Merely because in the reasons recorded, the Assessing Officer did not repeat such phrase would not be fatal to the notice of reopening. What is of importance is the substance and not the form. As long as it can be demonstrated that such condition was satisfied and there was material before the Assessing Officer on the basis of which he came to such a conclusion, in what manner in the reasons recorded, he conveyed the same is not material. [Para 15.1] | |
| ■ | With regard to satisfaction recorded by the Commissioner which is alleged to have not been recorded as required under section 151 of the Act, it is contended by the assessee that merely writing 'yes' and signing thereon suggest that the decision was mechanical. [Para 17] | |
| ■ | This of course is a very valid and additional safeguard to check against the excise of powers of reassessment in arbitrary fashion. Section 151 requires an Assessing Officer to seek approval of the Joint Commissioner, in a case where assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year and 'the notice is to be issued after expiry of four years from the end of the relevant assessment year'. Thus, while issuing notice of reopening on expiry of four years period from the end of the relevant assessment year, in a case assessment was previously framed under section 143 (3) or 147, seeking approval of the Joint Commissioner by the Assessing Officer is a must. Requirement under the law is that the Joint Commissioner needs to be satisfied on the reasons recorded by the Assessing Officer. [Para 17.1] | |
| ■ | Of course, the Courts have time and again emphasized that the Income tax Officer when proposes to reopen the assessment under section 147(a) and requests the Commissioner to accord necessary sanction for reopening the assessment, the Commissioner so as to obviate any impression that he had not applied the mind and also to infuse more confidence in the assessee should state brief reasons while sanctioning such proceeding under section 147. [Para 17.2] | |
| ■ | The reference needs to be made at this stage of Circular No. 1 of 2009 dated 27-3-2009 of CBDT sought to be relied upon by the revenue which is a self-explanatory note to the provisions of Finance Act 2008 where Note No.29 concerns amendment in respect of reassessment proceedings. It is meant to clarify the correct legislative intention in respect of the amendment relating to section 151 which has been made applicable with effect from 1-10-1998. It has been stated that the legislative intent is very clear that the Joint Commissioner is only required to be satisfied on the reasons recorded by the Assessing Officer and no notice is required to be issued by him. Possibly this was necessitated as some pronouncements on this issue insisted upon the issuance of notice at the end of Joint Commissioner. Here, of course, that is neither the case nor insistence of the petitioner. [Para 17.3] | |
| ■ | However, so as to aver such allegations of non-application of mind all that is desirable is that the Joint Commissioner should briefly state his reasons. However, only because he has nodded in favour of Assessing Officer by writing 'yes' to the reasons recorded and accorded permission for reopening of the assessment, the notice of reopening on that count alone cannot fail holding that the assumption of jurisdiction under section 147 is invalid, if application of mind is demonstrable from the material on record. | |
| ■ | From the record, it emerges that the reasons recorded were placed before the Assistant Commissioner along with other details in prescribed format. It was only after perusing such details that the Assistant Commissioner agreed that it was a fit case for issuing notice under section 148 of the Act. Thus, this is not a case where such permission can be stated to have been granted without application of mind. [Para 17.4] | |
| ■ | Considering the main ground of challenge whether in the circumstances reflected in the reasons recorded would lead this Court to hold that there was no suppression on the part of the assessee in disclosing fully and truly all material facts. This aspect has two limbs - firstly, whether in fact there was a full and true disclosure on the part of the assessee, and secondly, whether from the material the Assessing Officer had with him, he in fact had formed a reason to believe that the income chargeable to tax had escaped the assessment. [Para 17.5] | |
| ■ | The assessee at the time of original assessment in a scrutiny provided details of all the three companies. And as per the reasons recorded, the investment made by the assessee were funded by the companies which were found to be bogus. These details were culled out from the statement on oath given by the husband of the assessee under section 131(1)(a) on 8-2-2013. The assessment as noted hereinabove was concluded on scrutiny on 1-7-2008. Undoubtedly, the assessee provided details of companies since the investment was funded by such companies at the time of assessment. | |
| ■ | However, later on very existence of the companies was in doubt inasmuch as one 'R' and 'M' were the persons through whom the husband of the petitioner was introduced to such companies and when whereabouts of these two persons were inquired, he had pleaded ignorance. The Assessing Officer, therefore, noted that the source of investment in such circumstances remained unexplained as the companies are found to be bogus and in the books of account of the assessee, such investments were not found and were squared off during the financial year itself. [Para 17.6] | |
| ■ | Even if the assessee is in a position to point out that such investments were part of his books of account and were not squared off in the years itself, the far more vital in the reasons recorded is the aspect of the companies from whose fund investments were made in the Assessing Officer's belief are bogus, such details had been culled out from the statement recored by none other than husband of the petitioner who also had stated that he had carried out the transactions in the name of his family members. It is not being disputed by the petitioner that her husband who gave his statement was not truthful in so contending. [Para 17.8] | |
| ■ | The Assessing Officer, at the time of making original assessment though made an enquiry, could not have found by further inquiry or investigation whether such transactions were genuine or not. However, on the basis of subsequent informations, he arrived at such conclusion after satisfying both the conditions prescribed under section 147 that the assessee failed to disclose fully and truly all material facts at the time of original assessment and therefore, the income chargeable to tax had escaped assessment. The Assessing Officer certainly would assume jurisdiction under section 147. [Para 18] | |
| ■ | The Assessing Officer on the basis of material provided by the investigating wing; particularly the statement recorded under section 131(1)(a) notices the falsehood in the disclosure made by the assessee at the time of original assessment. Assuming that the dealing of the assessee was only with one company and not all of the three companies. In wake of the information received by the Assessing Officer, when formed a belief that the investment made from the funding of such companies which are bogus, the Assessing Officer had rightly assumed the jurisdiction of initiating the reassessment proceedings. Assessing Officer, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier, he surely cannot be said to have changed his opinion on the same facts. [Para 19.1] | |
| ■ | Thus, where the information furnished is found to be false, there could not be possibly any objection to the notice under section 148. Till completion of scrutiny assessment, the information provided mentioned clearly that investments made by the petitioner were from the funds of the companies and, therefore, there was no question of treating them as bogus. However, subsequently when an investigation, after completion of assessment under sub section (3) of section 143, the same is found to be bogus, notice under section148 of the Act deserves to be held to valid. | |
| ■ | To a limited extent, this Court has looked into the conclusion arrived at by the Assessing Officer in examining whether there was any material available on the record for the Assessing Officer to form a requisite belief and whether such material had any rational link with the income that escaped assessment and from such scrutiny, it is opined that no inference is called for at this juncture. | |
| ■ | Proceedings of reassessment initiated by the Assessing Officer on the basis of subsequent information which is found to be relevant and specific and when the Assessing Officer after recording the reasons for formation of his belief that in the original assessment, the assessee failed to disclose fully and truly facts, and therefore, the income chargeable to tax to the extent of Rs. 33.90 lakh [rounded off] escaped assessment has correctly exercised jurisdiction provided under section147, and therefore, this petition must fail. [Para 19.2] | |
| ■ | In the result, assessee's petition is dismissed. |
CASES REFERRED TO
Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372 (para 7.1), Gujarat Power Corpn. Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.) (para 8.1), Bakulbhai Ramanlal Patel v. ITO [2011] 56 DTR 212 (Guj) (para 8.2), Central India Electric Supply Co. Ltd.v. ITO [2011] 333 ITR 237/202 Taxman 86/10 taxmann.com 169 (Delhi) (para 8.2), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) (para 8.3), Mahesh Kumar Gupta v. CIT [2013] 33 taxmann.com 409/215 Taxman 114 (All.) (Mag.) (para 8.3), Signature Hotels (P) Ltd. v. ITO [2011] 338 ITR 51/[2012] 20 taxmann.com 797 (Delhi) (para 8.3), Chhugamal Rajpal v. S.P Chaliha [1971] 79 ITR 603 (SC) (para 8.3), Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627(para 9), P. Munirathnam Chetty & P. Satyanarayana Chetty v. ITO [1975] 101 ITR 385 (AP) (para 9), K.C.P Ltd. v. ITO [1984] 146 ITR 284/[1983] 13 Taxman 104 (AP) (para 9), P. Manirathnam Chetty & P. Satyanarayana Chetty v. ITO [1975] 101 ITR 385 (AP) (para 11.3), Dishman Pharmaceuticals & Chemicals Ltd. v. Dy CIT (OSD), [2012] 346 ITR 228/[2013] 33 taxmann.com 638 (Guj) (para 15.1) and Sri Krishna (P.) Ltd. v. ITO [1996] 221 ITR 538/87 Taxman 315 ) (para 19.1).
Hardik V. Vora for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent.
JUDGMENT
Ms. Sonia Gokani, J. - Challenging the notice of reopening for the A.Y 2006-2007 issued under Section 148 of the Income-tax Act, 1961 ["the Act" for short] dated 28th March 2013, the present petition is preferred under Article 227 of the Constitution of India, in the following factual background.
2. The assessee is in the share trading business. For the year under consideration, the return of income was filed on 6th December 2006. Notice under section 143 (2) of the Act was issued by the respondent on 30th July 2007, which was replied to and the Assessing Officer, after making certain additions, passed original assessment order on 1st July 2008. The assessee's income was assessed at Rs. 1,51, 892/=.
3. The impugned notice came to be issued after four years from the end of the relevant assessment year under consideration for reassessing the income of the assessee. The Assessing Officer, on having reason to believe that the income of the petitioner has escaped the assessment on account of non-disclosure of all material facts truly and factually, has issued such a notice.
4. The reasons recorded for reopening of assessment under Section 147 of the Act are as under :—
| '(a) | The following sources of investment have been found to be unexplained as the companies who funded the investment have been found to be bogus. The investments were also not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself. The explanation offered by the assessee is also not been found to be satisfactory in view of the following fact : | |
| "In the statement recorded on oath u/s. 131 (1A) of the Act on 8/2/2013, Shri Ashwin C. Jain admitted that all the transactions had been undertaken by him in the name of his family members. Upon being enquired, about New Generation Finvest Private Limited, SRS Vijay Sales Private Limited and M/s. Ami Securiteis, he contended that he had been only in contact with one Shri RajeshJain of Delhi and one Shri Amrutlal of Mumbai who in turn introduced him to the said companies for the purpose of providing him with marginal funding for IPO applications. When asked about the whereabouts of Shri Rajesh Jain and Shri Amrutlal and also about contact person for the said purposes, the assessee feigned ignorance. When asked to furnish complete details of how the loan amounts, refunds and profit were extended by the said parties to him, the assessee failed to comply". | ||
| In view of the above, I have therefore reason to believe that the assessee's income has escaped assessment within the meaning of Section 147 of the I.T Act, 1961. Therefore, this is a fit case for reopening of assessment.' |
5. In response to such notice, the objections have been raised by the petitioner herein vide communication dated 6th June, 2013 inter alia contending that any notice issued beyond the period of four years is invalid unless the income has escaped assessment on account of non-disclosure of all material facts truly and fully by the petitioner. It is also contended that the very issue has been in detail scrutinized by the Assessing Officer, and therefore, the notice is nothing but a change of opinion, which is impermissible under the law. It is further contended that the reasons recorded also did not reflect that there is any reason to believe that the income has escaped the notice inasmuch as the only source reflected in the reasons is the investigation.
6. The Assessing Officer, on consideration of the objections, passed an order rejecting the objections vide its Order dated 20th September, 2013. He observed that the sources of investment of Rs. 33.40 lakhs (rounded off) pertaining to purchase of shares have been found to be unexplained inasmuch as the companies with which the investments have been made are bogus, and therefore, in Form ITNS-10 clearly mentions that the income has escaped assessment warranting initiation of proceedings under Section 148 of the Act. All judicial pronouncements relied upon by the petitioner were considered and yet the conclusion remained the same, and therefore, the present petition seeking the following reliefs :—
"5.1 The petitioner accordingly prays that this Hon'ble Court may kindly be pleased to issue :—
| (a) | A writ of certiorari or any other wit, order or direction in the nature of certiorari quashing the impugned notice dated 28.03.2013 issued under section 148 of the Act for the assessment year 2006-07; | |
| (b) | Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of reassessment; | |
| (c) | Pass any other order(s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner; | |
| (d) | Any other and further relief deemed just and proper be granted in the interest of justice; | |
| (e) | To provide for the cost of this petition." |
7. On issuance of notice, respondent filed affidavit-in-reply inter alia contending that the petition is premature as there is alternative statutory remedy available under the provisions of the Act and in the event of petitioner not succeeding in convincing the Assessing Officer in dropping the proceedings under Section 147 of the Act, the appeal proceedings are available. It is also contended that for the assessment year under question, the return was processed under Section 143 (1) of the Act and on scrutiny, the order was passed in the original assessment assessing the income of the petitioner at Rs. 1.51 lakhs [rounded off]. However, subsequently it was noticed that the sources of income of Rs. 33.40 lakhs pertaining to purchase of shares remained unexplained, as the companies which funded the said investments were found bogus. Such investments were also not recorded in the books of account of the petitioner and they were squared off during the financial year itself, details were called for. During the course of recordance of statement under Section 131(1)(a) of the Act on 8th February, 2013, the husband of the assessee Shri Ashwin Jain admitted that all transactions were undertaken in the name of the family members and the companies which funded the investment were viz., New Generation Finvest Private Limited; SRS Vijay Sales Private Limited & M/s. Ami Securities. For the purpose of providing marginal funding for IPO applications, he was introduced to these companies through Shri Rajesh Jain of Delhi and Shri Amrutlal of Mumbai. However, whereabouts of these persons were not given and the details with regard to the loan amount, refund and profits etc were not furnished. Resultantly, it is the contention of respondent-Revenue that the source of investment pertaining to the purchase of shares has escaped the assessment, and therefore, the Assessing Officer when formed his belief on the strength of such material, no inference would be desirable at this stage. It is further contended that the queries were raised and insufficiently replied to, later on when it was revealed through the evidence that the explanation made was incorrect, the reopening is permissible as there was no true and full disclosure of the material facts necessary for the purpose of assessing the income of the petitioner"
7.1 Affidavit-in-rejoinder has been filed by the petitioner urging strongly that the petitioner has challenged the jurisdiction of the Assessing Officer in issuing the notice under Section 148 of the Act and such issue is long ago settled by the Supreme Court in case of Calcutta Discount Co. Ltd. v. ITOAIR 1961 SC 372. It is also further urged that the belief of the Assessing Officer that the investments were not recored in the books of account and were squared off during the financial year itself is totally on the wrong footing, as such investment continued to remain in the books of account, they would not be reflected in the balance sheet. Moreover, it is urged that the details of investments were called for during the scrutiny assessment as investment in shares were for more than rupees one lakh, which was a part of AIR information. The assessee had produced ledger accounts and vouchers in response to the AIR information which shows the investment in the profit made therefrom. Therefore, to say that the investment was not recorded in the books of account is contrary to the material on record.
8. Learned counsel Shri H.V Vora appearing for the petitioner has strenuously and fervently submitted in support of the averments set out in the petitions. He urged that in a matter of scrutiny assessment originally made in case of the petitioner, when the Assessing Officer has chosen not to make any additions and when the very issue was duly considered in a proceeding under Section 147 beyond the period of four years from the end of the relevant assessment year, in absence of anything to indicate that disclosure was not full and true on all material facts necessary for the purpose of assessment, no jurisdiction is available to the Assessing Officer. He urged that despite alternative remedy available to the petitioner, he cannot be allowed to undergo the hazards of reopening when the very basis of such proceeding is absent. He urged that the Supreme Court in case of Calcutta Discount Co. Ltd. (supra) had quashed the notice on the ground of lack of jurisdiction. Identical are the facts in the instant case where the petitioner has disclosed fully and truly all material facts. He urged the Court that in the reasons recorded, the Assessing Officer has solely relied on the material produced by the investigating team and there is no independent application of mind on his part. The Assessing Officer himself has no reason to believe that the income has escaped assessment. He also urged that the petitioner had not dealt with other two companies mentioned in the statement given by the husband of the petitioner, who is a separate entity in the eye of law. The books of account of the petitioner, according to the learned counsel, reflected entire transactions, and therefore, the order rejecting the objection wrongly states that these transactions were not reflected in the books of account and were squared off. He further urged that there has to be a rationale nexus of reasons recorded with the escapement of income. The objections raised by the petitioners were disposed of mechanically and therefore, Court's indulgence is required.
8.1 It is also further contended that no funding for investment was received from either SRS Vijay Sales or Messrs. Ami Securities, and therefore, the information that these two companies have funded the investment is totally false, misleading and contrary to the record. According to the petitioner during the inquiry, at the time of original assessment, a detailed reply has been furnished by the petitioner where all the ledgers reflected the investment, its sources and profit arrived therefrom. If no reference of the inquiry is made in the assessment order, that would not mean that no opinion is formed, as held by this Court in case of Gujarat Power Corpn. Ltd. v. Asstt. CIT 350 [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51.
8.2 It is further urged that on completion of four years from the end of relevant assessment year, Section 149 (1)(b) provides that the notice can be issued only if the income chargeable to tax, which has escaped the assessment or likely to amount to rupees one lakh or more for that year under consideration. In absence of anything in reason recorded to suggest in the reasons recorded that income chargeable to tax, which has escaped assessment is rupees one lakh or more, notice itself deserves to be quashed, as held by this Court in case of Bakulbhai Ramanlal Patel v. ITO [2011] 56 DTR 212 (Guj). It is further urged that Section 151 desires satisfaction of the Commissioner to be recorded while permitting the re-assessment proceedings on the reasons recorded by the Assessing Officer that it is a fit case for issuance of a notice under Section 148, if such notice is issued after expiry of four years from the end of the relevant assessment year. However, merely writing 'Yes' to the proposal would mean a mechanical nod which would be contrary to the settled principal as rendered in case of Central India Electric Supply Co. Ltd. v. ITO [2011] 333 ITR 237/202 Taxman 86/10 taxmann.com 169 (Delhi) .
8.3 Following are the authorities sought to be relied upon by the learned counsel for the petitioner in support of his contentions, these are —
| (a) | ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); | |
| (b) | Mahesh Kumar Gupta v. CIT [2013] 33 taxmann.com 409/215 Taxman 114 (All.) (Mag.) | |
| (c) | Signature Hotels (P) Ltd. v. ITO [2011] 338 ITR 51/[2012] 20 taxmann.com 797 (Delhi); | |
| (d) | Chhugamal Rajpal v. S.P Chaliha [1971] 79 ITR 603 (SC); | |
| (e) | Bakulbhai Ramanlal Patel (supra). |
9. Learned counsel Shri Manish Bhatt appearing for the Revenue forcefully submitted that in the wake of the alternative remedy available with the petitioner, no interference is desirable. He urged that though the original assessment was completed on scrutiny, it is very clear from the reasons recorded itself that the petitioner at no point of time had disclosed fully and truly all material facts. He urged that mere disclosure is not sufficient. It has to be true and full disclosure and therefore when subsequently, the Assessing Officer had found that the companies which had funded the petitioner for making investment in the shares were bogus, that would not mean the disclosure is full and true. Learned counsel sought to rely upon the following decisions :—
| (a) | Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 | |
| (b) | P. Munirathnam Chetty & P. Satyanarayana Chetty v. ITO [1975] 101 ITR 385 (AP); | |
| (c) | K.C.P Ltd. v. ITO [1984] 146 ITR 284/[1983] 13 Taxman 104 (AP); |
10. Upon thus hearing both the sides and on examination of the material on record, at the outset, the law on the subject deserves consideration.
11. Section 148 permits the Assessing Officer to reopen the assessment if he has a reason to believe that the income chargeable to tax has escaped the assessment. It authorizes him to make re-assessment even beyond the period of four years, if the income chargeable to take has escaped the assessment for such assessment year on account of the failure on the part of the assessee to make a return under section 139 or in respect to a notice under sub-section (1) of Section 142 or Section 148 or he has failed to disclose fully and truly all material facts necessary for such assessment.
11.1 In various judicial pronouncements, it has been established that when the assessment is framed under section 143 (3) of the Act, the reopening beyond the period of four years is permissible only if the income chargeable to tax has escaped the assessment on account of failure on the part of the assessee to make a return under section 139 or in response to the notice under sub-section (1) of Section 142 or Section 148 or if a person has failed to disclose fully and truly all material facts necessary for the assessment. The requirement of the proviso to Section 147 deserves to be satisfied, and therefore, in absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped the assessment by reason of failure on the part of the petition/assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act would be invalid.
11.2 In case of Phoolchand Bajrang Ltd. (supra), the Apex Court was dealing with a case of re-assessment. In the original assessment, the assessee firm claimed that it had borrowed certain amount from a Calcutta based company. The I.T.O directed the assessee to file a copy of account of the said Calcutta Company to support the loan transaction and in reply thereto, assessee produced a confirmatory letter from the said company confirming payment of loan to the assessee. For nearly five years ie, AYs 1968-69 to 1993-94, such deduction of interest, as claimed by the assessee having been paid to the Calcutta company, continued to be allowed by the I.T.O. Later on, I.T.O entertained some doubts about genuineness of loan transaction, and therefore, a communication was sent to I.T.O stationed at Calcutta. It was realized that the Managing Director of the said Calcutta company had confessed that he was only a name-lender and had not advanced any loan to any party during the three assessment years. Thus, these transactions were found to be bogus on the basis of subsequent information received. In light of these facts, the Apex Court held and observed thus, —
'15. In the present case, as already noticed, the I.T.O. Azamgarh, subsequent to completion of the original assessment proceedings, on making an enquiry from the jurisdictional I.T.O. at Calcutta, learnt that the Calcutta Company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash, had not really lent any money but only its name, to cover up a bogus transaction and after recording this satisfaction as required by the provisions of Section 147 of the Act proposed to reopen the assessment proceedings. The present is, thus, not a case where the Income Tax Officer sought to draw any fresh inference, which could have been raised at the time of original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta Company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the some facts and material which was available which the I.T.O. at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific.
| ** | ** | ** |
19. Again, in A.LA. Firm v. CIT [1991] 189 ITR 285, a three Judges bench of this Court, to which one of us (S.C. Agrawal, J.,) was a party, after an elaborate discussion of the subject opined that the jurisdiction of the Income Tax Officer to reassess income arises if he has in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe, that income chargeable to tax and had escaped assessment. It was held that even if the information be such that it could have been obtained by the I.T.O. during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income Tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under Section 147 of the Act are satisfied.
20. From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the" Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case (Supra) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly.
21. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude.
22. In our opinion, therefore, in the facts of the present case the Income-tax Officer, Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and therefore income chargeable to tax had escaped assessment. He, therefore, correctly invoked the provisions of Sections 147(a) and 148 of the Act. The High Court was, thus, perfectly justified in dismissing the writ petition. There is no merit in this appeal which fails and is dismissed but with no order as to costs.'
11.3 In case of P. Manirathnam Chetty & P. Satyanarayana Chetty v. ITO [1975] 101 ITR 385 (AP), the Income-tax Officer in a proceedings under Section 147 of the Act accepted the book results of the assessee-firm. However, later on, from the order of the Sales Tax authorities, the Assessing Officer noticed that the assessee had failed to disclose fully and truly all material facts as the turnover of the assessee was at much higher figure and penalty also was levied by the Sales Tax authorities for such suppression of turnover and therefore, the proceedings under Section 147 of the Income-tax Act were initiated. The Commissioner also granted sanction by saying "yes". The Court held that this was not a case where the I.T.O thought that it was a case for investigation nor was there any documentary evidence to support his report. Merely because the Commissioner said 'yes' against the question as to whether such was a fit case for issuance of the notice under Section 148, he was alleged of having acted mechanically. The Court, therefore, observed and held that in order to obviate such impression and to infuse more confidence in the assessee, the Commissioner ought to have at least briefly stated the reasons as to why the sanction was accorded for proceedings under section 147 of the Act.
11.4 In case of K.C.P Ltd. (supra), the assessee had sold certain machinery and had shown three-fourths of sale price as profits. The assessment was accordingly finalized. Depreciation also was allowed at the time of original proceedings. However, later on, it was realized that the same was in excess due to assessee's failure to disclose availment of initial depreciation. Therefore, the reassessment proceedings were initiated for withdrawing excess depreciation. The Court held that the assessee's contention that it was under no obligation to disclose the factum of availment of initial depreciation since the form of return prescribed at the relevant time did not contain any column requiring the assessee to furnish such information could not be accepted. Every assessee is expected to know the law that it was not entitled to claim normal depreciation above the prescribed ceiling. If that was done and if that had crossed the ceiling by availing the depreciation, he could be said to have omitted or failed to disclose fully and truly all material facts necessary for the purpose of assessment.
11.5 With regard to Commissioner's having exercised the function under section 148(2) of the Act, the same however was held not to be mechanical. The Court, therefore, held that, "..The Commissioner's function under section 148 (2) is not a mechanical one. He has to peruse the reasons and form an opinion that the assessee has failed to disclose fully and truly all material facts necessary for assessment of that year, and that the same has led to the income chargeable to tax escaping assessment. Obviously, he cannot form this opinion or satisfaction unless the basic facts constituting such non-disclosure are stated in the reasons recorded by the Income-tax Officer. The Income-tax Officer must broadly indicate the fact or facts, which constitute non-disclosure leading to assessable income escaping assessment."
12. At this juncture, some of the judgments sought to be relied upon by the petitioner deserve consideration.
12.1 In case of Bakulbhai Ramanlal Patel (Supra), the reasons recorded in the proceedings of reassessment were found to be vague or non-existent and in light of these facts, the Court held that for the purpose of invoking the provisions of Section 147 of the Act, formation of requisite belief precedes the initiation of the proceedings. The Assessing Officer is required to record reasons for the formation of belief that income chargeable to tax has escaped assessment and in absence of any such belief appearing on the record, it could be stated that the Assessing Officer reopened the assessment for the purpose of making a roving and fishing inquiry to verify as to whether any income has in fact escaped the assessment, which is impermissible. Thus, in absence of basic requirement of Section 147 of the Act, the assumption of jurisdiction by the Assessing Officer was held to be invalid. The Court in this case also has held and observed that in reassessment proceedings the income escaped must exceed rupees one lakh as per the limitation set out under the provisions of Section 149(1)(b). When the reasons do not reflect that the income having escaped assessment was more than rupees one lakh or likely to be more than rupees one lakh, the assumption of jurisdiction under Section 147 itself would be invalid, as such averment came in the affidavit-in-reply and there was no other material on record to indicate the extent of income which escaped assessment.
12.2 In case of Mahesh Kumar Gupta (supra), the Allahabad High Court was considering the case of reassessment after expiry of four years from the end of relevant assessment year on the ground that the assessee sold his property within three years of conversion, which would result into accrual of short term gain. In absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more, the reassessment notice issued after four years from the end of the relevant assessment year was held to be invalid .
12.3 The Apex Court in case of Chhugamal Rajpal (Supra) noticed that the Income-tax Officer initiated reassessment proceedings seeking to include certain cash credits appearing in the books of account of assessee's income on suspicion that the creditors were mere name-lenders though assessee had produced its books of account and also statement giving full particulars of creditors at the time of original assessment. The Court held that when the Income-tax Officer did not even come to a prima facie conclusion that the transactions were not genuine transactions and conclusion arrived were on a vague feeling that they might be bogus transactions, would not amount to fulfilling the requirements of the provisions of Section 151(2). In the case before the Apex Court, the Commissioner also mechanically accorded permission, and therefore, the Court held that the important safeguards provided in Sections 147 and 151 were lightly treated by the Income-tax Officer and the Commissioner, and therefore, the notice was held invalid.
12.4 The Apex Court in case of Lakhmani Mewal Das (supra) held that in case of reassessment proceedings, the reasons recorded for formation of belief, as contemplated under Section 147(a) must have rational connection with or relevant bearing on the formation of belief and rational connection postulates that there must be direct nexus or live link between material coming to Income-tax Officer's notice and formation of his belief that there has been escapement of assessee's income from assessment in a particular year because of his failure to disclose fully and truly all material facts.
12.5 In a case before the Apex Court, the Income-tax Officer had completed original assessment by allowing deduction of interest paid to certain creditors. However, when one of the creditors had confessed that he was doing only name-lending and that other creditors were only name-lenders, the reopening proceedings were initiated. There was absence of any material to indicate that the confession made by the creditor related to the loan to the assessee and not to someone else. In absence of such confession related to the period which was subject-matter of assessment, the Court found absence of live link or close nexus with the material and the belief of the Income-tax Officer, and therefore, the Apex Court quashed the order of the High Court by holding that such material could not have led to formation of belief that the income of the assessee had escaped assessment on account of assessee's failure or omission to disclose fully and truly all material facts.
12.6 Delhi High Court in case of Signature Hotels (P) Ltd. (Supra) was concerned with the reassessment proceedings where information was given by the Director of Income-tax (Investigation) that the amount received by assessee from other company was nothing but accommodation entry and assessee was beneficiary. In absence of any application of mind on the part of the Assessing Officer for his having formed a belief that the income chargeable to tax has escaped assessment which is a mandatory requirement, the Court held that the jurisdiction assumed by the Assessing Officer for the purpose of reassessment proceeding was invalid. The Court also held that, "..The 'reasons to believe' would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and does not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer."
12.7 Delhi High Court in case of Central India Electric Supply Company Ltd. (Supra) was dealing with a case of reopening. Such reassessment proceedings were initiated alleging that there was non-disclosure of primary facts on the part of the assessee company which was engaged in generation and supply of electricity from its unit. Its unit were acquired by the State Government in 1964 and compensation thereof was paid in the same year. The assessee had made claim for higher compensation and the matter was finally settled by the Supreme Court nearly after 10 years and the enhanced compensation was availed to the assessee in the assessment year 1979-80.
12.8 The Assessing Officer was of the belief that since the income had accrued to the assessee under the head of Long-term capital gain given on transfer of assets in respect of its two units, such income was to be taxed in the very assessment year ie., 1964 when the transfer took place. Considering the fact that the Supreme Court pronounced its judgment which settled the dispute of enhanced compensation, the Delhi High Court held that there was no lack of disclosure by assessee with respect to enhanced compensation and therefore, reopening of assessment for the relevant assessment year was held without jurisdiction.
12.9 In this very judgment, on the issue of sanction for issuance of the notice as contemplated under Section 151, the Court held and observed that mere rubber stamping of underlying material would suggest that there was no application of mind and such endorsement was taken in a mechanical manner and even if the authority agreed upon the reasonings set out by the Income-tax Officer, what is expected is that appropriate endorsement is made in this regard setting out brief reasons.
13. In light of the discussion held hereinabove, the twin conditions required for the satisfaction of the Income-tax Officer, in the event of reopening of assessment beyond the period of four years is that (i) there must be a reason to believe that income chargeable to tax had escaped assessment; and (ii) he also must have reason to believe that such escapement of income is on account of omission or failure on the part of the assessee to disclose fully and truly all material facts for assessment of the income of the assessee for the year under consideration.
14. Once the Assessing Officer has a reason to believe that such income has escaped assessment, the same as per the statutory requirement under Section 147(1)(b) has to be more than rupees one lakh or should likely to be more than rupees one lakh. And on having formed such belief, sanction of the Commissioner for reopening needs to be obtained under Section 151 (2) of the Act, who also is required to apply his mind to such proposal before according sanction, rather than acting mechanically. For examining the application of these statutory provisions, in the present case, it is necessary to revert to the facts. Admittedly, the assessee had made disclosure in respect of the investment made in three companies and the assessment was completed under Section 143 (3) on 1st July, 2008, after scrutiny. In the reasons recorded for reopening assessment under Section 147, the Assessing Officer has noted the fact that the return of the assessee for the A.Y 2006-07 was filed on 6th December, 2006 where he declared his income at Rs. 1,46,710/=, such return was processed under Section 143(1) and her case was selected for scrutiny through CASS and accordingly, the assessment order was passed on 1st July, 2008 assessing her income at Rs. 1,51,890/=. From the sources of investment, the Assessing Officer is of the belief that the companies who funded the investment were found to be bogus. The investments were not found to be recorded in the books of account of the assessee as they were squared off during the financial year itself and the explanation offered by the assessee was not found to be satisfactory, inasmuch as, the statement recorded under Section 131(1)(a) of Shri Ashwin C. Jain-husband of the petitioner on 8th February, 2013 wherein he admitted that such name-sake transactions had been undertaken by him were in the name of his family members. With regard to the three companies viz., New Generation Finvest Private Limited; SRS Vijay Sales Private Limited and M/s. Ami Securities, he stated inter alia that he was in contact with one Shri Rajesh Jain of Delhi and one Shri Amrutlal of Mumbai who introduced him to the said companies for the purpose of providing him with margin funding for I.P.O applications. However, he had no clue with regard to the whereabouts of both these persons. He also failed to furnish details of loan amounts, refunds and profit extended by the said parties to him. The Income-tax Officer on the basis of these details formed his belief that the assessee's income had escaped assessment within the meaning of Section 147 of the Act. This was thus a case where there were no full and true disclosures by the assessee.
14.1 It is also to be noted that for approval to be obtained of Additional Commissioner of Income-tax, form I.T.N.S-10 had also been furnished for such approval being a must under Section 151 wherein the quantum of income which had escaped assessment is mentioned. In Column No.6, amount mentioned is Rs. 33,40,980/= and in column No. 11, "the reason for the belief that income has escaped assessment" annexure was enclosed therewith. The Commissioner of Income-tax, of course while according sanction has written 'yes' on the reasons recorded by the Assessing Officer that it was a fit case for issuance of notice under Section 148 of the Act.
14.2 Therefore, at this juncture, all the three grounds raised by the petitioner viz., (i) absence of any failure on the part of the assessee to disclose fully and truly any material facts necessary for the purpose of assessment for the year under consideration and the income chargeable to tax having escaped assessment for that year on account thereof; (ii) absence of anything in the reasons recorded to suggest that income chargeable to tax which has escaped assessment was rupees one lakh or more; and (iii) absence of any application of mind on the part of the Commissioner, while exercising his power to grant sanction, are required to be dealt with in the light of the discussion made hereinabove.
15. Taking firstly the last two grounds raised by the petitioner, it is true that in the reasons recorded, the Assessing Officer has not specifically recorded that income chargeable to tax which had escaped assessment for the year under consideration was rupees one lakh or more. The impugned reassessment notice issued after four years of the close of the relevant assessment year, since is attacked on the ground of invalidity, it needs to be noted here that in the decision of this Court in case of Bakulbhai Ramanlal Patel (Supra), the reasons did not reflect that the income having escaped assessment was more than rupees one lakh or likely to be more than rupees one lakh, as is required to be done under the provisions of Section 149 (1)(b). The Court therefore held that while reopening the assessment beyond the period of four years from the end of relevant assessment year, such recordance is inevitable. Since there is a statutory bar against reopening the assessment, in case where the amount of income escaping the assessment does not amount to rupees one lakh or more. The Assessing Officer is required to record finding to that effect and when no such finding had been recorded, except for a bare averment made in the affidavit-in-reply stating therein that income which had escaped assessment was more than rupees one lakh, and thus, in absence of any material on record to indicate that extent of income which had escaped assessment, the Court held that the assumption of jurisdiction on the part of the Assessing Officer under 147 was invalid.
15.1 We notice that as in the case of Bakulbhai Ramanlal Patel (Supra), in the instant case also, the reasons do not reflect that the income having escaped assessment is more than rupees one lakh or likely to be more than rupees one lakh, as required under section 149 (1)(b) of the Act. However, the vital difference favouring the Revenue in the instant case is the fact that in form No. ITNS-10, while placing the reasons recorded for approval of the Commissioner prior to the issuance of the notice under section 148, the Assessing Officer had recorded in column No. 6 that the income which has escaped the assessment was Rs. 33,40,980/=, which obviously is more than the statutory requirement of rupees one lakh, and therefore, it cannot be said that the statutory bar imposed against reopening of assessment in case would operate in this case. As discussed above, where the amount of income escaping assessment exceed rupees one lakh, the Assessing Officer is required to record finding to that effect. We notice that if not in the reasons recorded in the present case, such findings forms part of ITNS-10 form where there is a specific quantification of the amount of tax that had escaped assessment, and therefore, we hold that the Assessing Officer before initiating the reassessment proceedings had specified by way of such quantification thereby clearly reflecting that the income which had escaped assessment was more than rupees one lakh Therefore, challenge to the validity of the notice under section 147 on this count must fail. What is vital is the recording of a finding to the effect that the income chargeable to tax which had escaped assessment was rupees one lakh or more. As discussed hereinabove, there is already a material on record which was in existence prior to initiation of proceedings and the amount of tax which had escaped assessment has not been reflected by way of affidavit-in-reply alone, as was the case in the matter between Bakulbhai Ramanlal Patel(supra) and therefore, heavy reliance on the said authority by the petitioner does" as such help the cause of petitioner. Further , as recorded earlier, there was ample material on record to suggest that income chargeable to tax had escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts. Additional condition outlined in proviso to Section 147 of the Act thus stood satisfied. Merely because in the reasons recorded, the Assessing Officer did not repeat such phrase would not be fatal to the notice of reopening. What is of importance is the substance and not the form. As long as it can be demonstrated that such condition was satisfied and there was material before the Assessing Officer on the basis of which he came to such a conclusion, in what manner in the reasons recorded, he conveyed the same is not material. In case of Dishman Pharmaceuticals & Chemicals Ltd. v. Dy CIT (OSD), [2012] 346 ITR 228/[2013] 33 taxmann.com 638 (Guj), it was observed that -
"8. From the above judicial pronouncements, following principles can be culled out :-
| (i) | To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act, beyond four years from the end of assessment year, following two conditions must be satisfied [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] same occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year. (i) Both the above conditions are condition-precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. (ii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail. (iii) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (iv) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court." |
16. In the present case, the reasons recorded clearly suggest that income escaped assessment due to assessee not disclosing true and full facts.
17. With regard to satisfaction recorded by the Commissioner which is alleged to have not been recorded as required under section 151 of the Act, it is contended by the petitioner that merely writing 'yes' and signing thereon suggest that the decision was mechanical.
17.1 This of course is a very valid and additional safeguard to check against the exercise of powers of reassessment in arbitrary fashion. Section 151 of the Act requires an Assessing Officer to seek approval of the Joint Commissioner, in a case where assessment under sub-section (3) of Section 143 or Section 147 has been made for the relevant assessment year and "the notice is to be issued after expiry of four years from the end of the relevant assessment year." Thus, while issuing notice of reopening on expiry of four years period from the end of the relevant assessment year, in a case assessment was previously framed under Section 143(3) or 147, seeking approval of the Joint Commissioner by the Assessing Officer is a must. Requirement under the law is that the Joint Commissioner needs to be satisfied on the reasons recorded by the Assessing Officer.
17.2 Of course, in the judicial pronouncements discussed hereinabove, the Courts have time and again emphasized that the Income-tax Officer when proposes to reopen the assessment under Section 147(a) and requests the Commissioner to accord necessary sanction for reopening the assessment, the Commissioner so as to obviate any impression that he had not applied the mind and also to infuse more confidence in the assessee should state brief reasons while sanctioning such proceeding under section 147 of the Act.
17.3 The reference needs to be made at this stage of Circular No. 1 of 2009 dated 27th March, 2009 of CBDT sought to be relied upon by the Revenue which is a self-explanatory note to the provisions of Finance Act 2008 where Note No. 29 concerns amendment in respect of reassessment proceedings. It is meant to clarify the correct legislative intention in respect of the amendment relating to Section 151 which has been made applicable w.e.f 1st October, 1998. It has been stated that the legislative intent is very clear that the Joint Commissioner is only required to be satisfied on the reasons recorded by the Assessing Officer and no notice is required to be issued by him. Possibly this was necessitated as some pronouncements on this issue insisted upon the issuance of notice at the end of Joint Commissioner. Here, of course, that is neither the case nor insistence of the petitioner.
17.4 However, so as to aver such allegations of non-application of mind all that is desirable is that the Joint Commissioner should briefly state his reasons. However, only because he has nodded in favour of Assessing Officer by writing 'yes' to the reasons recorded and accorded permission for reopening of the assessment, the notice of reopening on that count alone cannot fail holding that the assumption of jurisdiction under Section 147 is invalid, if application of mind is demonstrable from the material on record. From the record, it emerges that the reasons recorded were placed before the Assistant Commissioner along with other details in prescribed format. It was only after perusing such details that the Assistant Commissioner agreed that it was a fit case for issuing notice under Section 148 of the Act. Thus, this is not a case where such permission can be stated to have been granted without application of mind. We are satisfied from the overall facts and circumstances that the provisions of the Act are duly complied with in the action of the Joint Commissioner.
17.5 Considering the main ground of challenge whether in the circumstances reflected in the reasons recorded would lead this Court to hold that there was no suppression on the part of the assessee in disclosing fully and truly all material facts. This aspect has two limbs - firstly, whether in fact there was a full and true disclosure on the part of the assessee, and secondly, whether from the material the Assessing Officer had with him, he in fact had formed a reason to believe that the income chargeable to tax had escaped the assessment.
17.6 The assessee at the time of original assessment in a scrutiny provided details of all the three companies. And as per the reasons recorded, the investment made by the assessee were funded by the companies which were found to be bogus. These details were culled out from the statement on oath given by the husband of the petitioner under Section 131(1)(a) on 8th February, 2013. The assessment as noted hereinabove was concluded on scrutiny on 1st July, 2008. Undoubtedly, the assessee provided details of companies since the investment was funded by such companies at the time of assessment. However, later on very existence of the companies was in doubt inasmuch as one Shri Rajesh Jain of Delhi and Shri Amrutlal of Mumbai were the persons through whom the husband of the petitioner was introduced to such companies and when whereabouts of these two persons were inquired, he had pleaded ignorance. The Assessing Officer, therefore, noted that the source of investment in such circumstances remained unexplained as the companies are found to be bogus and in the books of account of the assessee, such investments were not found and were squared off during the financial year itself.
17.7 To such last portion of reasons recored ie., absence of reflection of such investment in the books of account and the same having been squared off during the finance year itself has been rigorously challenged by the petitioner. It as contended that this is completely bereft of facts, and therefore assumption of jurisdiction should be held invalid.
17.8 In our mind, even if the assessee is in a position to point out that such investments were part of his books of account and were not squared off in the years itself, the far more vital in the reasons recorded is the aspect of the companies from whose fund investments were made in the Assessing Officer's belief are bogus, such details had been culled out from the statement recored by none other than husband of the petitioner who also had stated that he had carried out the transactions in the name of his family members. It is not being disputed by the petitioner that her husband - Mr. Ashwin Jain who gave his statement was not truthful in so contending.
17.9 As held by the Apex Court in Phool Chand Bajrang Lal (supra) where transaction itself on the basis of subsequent information is found to be a bogus transaction, the Court held that mere disclosure of such transaction at the time of original assessment proceedings, cannot be said to be a disclosure of 'full' and 'true' facts and the Assessing Officer surely would have jurisdiction to reopen concluded assessment in such a case. The Apex Court also had observed in the said case that the Assessing Officer may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed, or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but is is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by him and further whether that material had any rational connection or a live link with the formation of the requisite belief .
18. In the instant case also, these observations and findings would have a direct bearing. The Assessing Officer, at the time of making original assessment though made an enquiry, could not have found by further inquiry or investigation whether such transactions were genuine or not. However, on the basis of subsequent informations, he arrived at such conclusion after satisfying both the conditions prescribed under Section 147 that the assessee failed to disclose fully and truly all material facts at the time of original assessment and therefore, the income chargeable to tax had escaped assessment. The Assessing Officer certainly would assume jurisdiction under Section 147.
19. The contention raised before us that the Assessing Officer had all the powers to further probe into the controversies of the transactions as reflected in the return at the time of original assessment proceedings also need not be gone into at this stage. As again held by the Court in case of Phool Chand Bajrang Lal (supra), "..one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 apperas to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude."
19.1 In the instant case also, we noticed that the Assessing Officer on the basis of material provided by the investigating wing; particularly the statement recorded under section 131 (1)(a) notices the falsehood in the disclosure made by the assessee at the time of original assessment. Assuming that the dealing of the petitioner was only with one company and not all of the three companies. In wake of the information received by the Assessing Officer, when formed a belief that the investment made from the funding of such companies which are bogus, the Assessing Officer had rightly assumed the jurisdiction of initiating the reassessment proceedings. Assessing Officer, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier, he surely cannot be said to have changed his opinion on the same facts. The Apex Court also, while analyzing what amounts to 'full' and ' true ' facts in the case of Sri Krishna (P.) Ltd. v. ITO [1996] 221 ITR 538/87 Taxman 315 has held the Income-tax Officer can issue notice under section 148 of the Income-tax Act, 1961, proposing to reopen an assessment only where he has reason to believe that on account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148 (2) imposes a further check upon the said power viz., the requirement of recording of reasons for such reopening by the Income-tax Officer. Section 151 imposes yet another check upon the said power viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the Income-tax Officer, that it is a fit case for issuance of such notice. The power conferred upon the Income-tax Officer by sections 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessee from harassment resulting from mechanical reopening of assessments but this protection avails only to those assesses who disclose all material facts truly and fully. The Apex Court, while referring to the decision of the Constitution Bench in Calcutta Discount Co. Ltd. (supra) observed and held thus —
' "..In that case, the alleged non-disclosure of material facts fully and truly - to put in the words of the Court - was the failure of the assessee to disclose "the true intention behind the sale of the shares". The assessee had stated during the assessment proceedings that the sale of shares during the relevant assessment years was a casual transaction in the nature of mere change of investment. The Income-tax Officer found later that 'those sales were really in the nature of trading transactions. The case of the Revenue was that the assessee ought to have stated that they were trading transactions and that his assertion that they were casual transactions, in the nature of change of investment, amounted to "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year" within the meaning of section 34. This contention of the Revenue was rejected holding that the true nature of the transaction, being a matter capable of different opinions, is not a material or primary fact but a matter of inference and hence, it cannot be said that there was an omission or failure of the nature contemplated by section 34 on the part of the assessee. Now, what needs to be emphasized is that the obligation on the assessee to disclose the material facts - or what are called, primary facts - is not a mere disclosure but a disclosure which is full and true. A false disclosure is not a true disclosure. The disclosure must not only be true but must be full - "fully and truly". A false assertion, or statement, of material fact, therefore, attracts the jurisdiction of the Income-tax Officer under section 34/147. Take this very case : the Income-tax Officer says that on the basis of investigation and enquiries made during the assessment proceedings relating to the subsequent assessment year, he has come into possession of material, on the basis of which, he has reasons to believe that the assessee had put forward certain bogus and false unsecured hundi loans said to have been taken by him from non-0existent persons or his dummies, as the case may be, and that on that account income chargeable to tax has escaped assessment . According to him, this was a false assertion to the knowledge of the assessee. The Income-tax Officer says that during the assessment relating to the subsequent assessment year, similar loans from some of these very persons were found to be bogus. On that basis, he seeks to reopen the assessment. It is necessary to remember that we are at the stage of reopening only. The question is whether, in the above circumstances, the assessee can say, with any justification, that he had fully and truly disclosed the material facts necessary for his assessment for that year. Having created and recorded bogus entries of loans, with what face can the assessee say that he had truly and fully disclosed all material facts necessary for his assessment for that year. True it is that the Income-tax Officer could have investigated the truth of the said assertion - which he actually did in the subsequent assessment year - but that does not relieve the assessee of his obligation, placed upon him by the statute, to disclose fully and truly all material facts. Indubitably, whether a loan, alleged to have been taken by the assessee, is true or false, is a material fact - and not an inference, factual or legal, to be drawn from given facts. In this case, it is shown to us that ten persons [who are alleged to have advanced loans to the assessee in a total sum of Rs. 3,80,000 out of the total hundi loans of Rs. 8,53,298] were established to be bogus persons or mere name-lenders in the assessment proceedings relating to subsequent assessment year. Does it not furnish a reasonable ground for the Income-tax Officer to believe that on account of the failure - indeed not a mere failure but a positive design to mislead - of the assessee to disclose all material facts, fully and truly, necessary for the assessment for that year, income had escaped assessment ? We are of the firm opinion that it does. It is necessary to reiterate 'that we are now at the stage of the validity of the notice under section 148/147. The enquiry at this stage of the only to see whether there are reasonable grounds for the Income-tax Officer to believe and not whether omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind."'
19.2 Thus, where the information furnished is found to be false, there could not be possibly any objection to the notice under section 148. Till completion of scrutiny assessment, the information provided mentioned clearly that investments made by the petitioner were from the funds of the companies and therefore, there was no question of treating them as bogus. However, subsequently when an investigation, after completion of assessment under sub-section (3) of Section 143, the same is found to be bogus, notice under section 148 of the Act deserves to be held to valid. To a limited extent, this Court has looked into the conclusion arrived at by the Assessing Officer in examining whether there was any material available on the record for the Assessing Officer to form a requisite belief and whether such material had any rational link with the income that escaped assessment and from such scrutiny, we conclude that no inference is called for at this juncture. Proceedings of reassessment initiated by the Assessing Officer on the basis of subsequent information which is found to be relevant and specific and when the Assessing Officer after recording the reasons for formation of his belief that in the original assessment, the assessee failed to disclose fully and truly facts, and therefore, the income chargeable to tax to the extent of Rs. 33.90 lakh (rounded off) escaped assessment has correctly exercised jurisdiction provided under section 147, and therefore, this petition must fail with an observation that in the reassessment proceedings, nothing observed by this Court hereinabove shall come in the way of either side in putting forth their respective case and uninfluenced by such observations, the Revenue authorities shall decide the reassessment proceedings.
20. In the result, Special Civil Application fails. Notice discharged with no ord
IT : Prior to 1-4-2014, loss incurred in respect of trading in commodity derivatives was to be treated as speculation loss
IT : Prior to insertion of clause (e) of proviso to section 43(5) which was inserted by Finance Act, 2013 w.e.f. 1-4-2014, loss incurred in respect of trading in commodity derivatites was to be treated as speculation loss
■■■
[2014] 45 taxmann.com 352 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'F'
Varsha Corporation Ltd.
v.
Deputy Commissioner of Income-tax (OSD) -9(1)*
I.P. BANSAL, JUDICIAL MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
IT APPEAL NO. 6534 (MUM.) OF 2012
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
JANUARY 17, 2014
Section 43(5) of the Income-tax Act, 1961 - Speculative transaction - Assessment year 2009-10 - Transactions done by assessee in commodity derivatives related to financial year 2008-09 - Provision of clause (e) of proviso to section 43(5) holding such transaction to be non-speculative in nature, was inserted only with effect from 1-4-2014 - Whether in relevant year assessee would not be entitled to claim benefit of said clause and, hence, loss from such transactions could not be treated as normal business loss - Held, yes [Para 11][In favour of revenue]
Circulars & Notifications : Notification No. 46/09, dated 22-5-2009, Notification No. 51, dated 4-7-2013, Notification No. 92/2013, dated 29-11-2013
FACTS
| ■ | The assessee-company was engaged in the business of trading in gold. It obtained gold from a bank, as gold loan for which the price was unfixed having regard to the price fluctuation for non-fixed date i.e. 90 days. In such transaction risk was involved according to price fluctuation for non-fixed quality of gold and in order to minimize such risk the assessee-company hedge the gold in MCX. Loss incurred on such transaction was treated by the assessee as business loss. On being asked, the assessee explained that the MCX is recognized as Stock Exchange for the purpose of section 43(5) vide Notification No. 46/09, dated 22-5-2009, issued by CBDT. Therefore, in view of provisions of section 43(5)(d) such transaction could not be treated as speculative transaction. | |
| ■ | The Assessing Officer did not accept the contention of the assessee as according to him proviso to section 43(5) states that the trading in derivatives carried out in a recognized exchange will not be deemed to be speculative transaction. Referring to the Explanation (ii) to clause (d) of sub-section (5) of section 43, the Assessing Officer observed that the exchange namely MCX was not a recognized stock exchange during the year under consideration. The notification on which the assessee had relied upon was issued on 22-5-2009, which pertained to the financial year 2009-10 and not to assessment year 2009-10. Thus, the assessee was not eligible to consider the said loss as normal business loss. | |
| ■ | The Commissioner (Appeals) observed that there is a difference between stock exchange and commodity exchange. The provisions of section 43(5)(d)(ii) talks of recognized exchanges by SEBI and are applicable only in the cases, which deals in share trading. MCX is a commodity exchange recognized by FMC. Section 43(5)(d)(ii) does not encompass within its ambit exchanges recognized by FMC. Therefore, the Assessing Officer was right in treating the loss as speculative loss. |
Assessee's submission
| ■ | Since now vide Notification No. 92/2013 dated 29-11-2013, the MCX through which the assessee had conducted the transactions, has been notified as 'recognized association', the transaction entered into by the assessee through MCX even prior to the notification, should be held to be transaction of the nature of non-speculative transactions in accordance with the provisions of clause (iii) of the Explanation 2 to clause (e) of proviso to clause 5 of section 43. |
HELD
| ■ | Admittedly, MCX, through which the assessee has carried out the transactions, is not a recognized stock exchange as required under the provisions of section 43(5)(d). As it can be seen from the notification dated 29-11-2013 the MCX, through which the assessee has carried out the transactions, is notified as a 'recognized association' for the purposes of clause (e) of proviso to clause 5 of section 43. Clause (e) of proviso to sub-section (5) of section 43 has recently been inserted by the Finance Act, 2013 with effect from 1-4-2014. | |
| ■ | Therefore, the exemption to the transactions given by the statute is with effect from 1-4-2014 and this is inserted by the Finance Act, 2013. In pursuance of the amendment, Notification No. 51, dated 4-7-2013 has been issued by the CBDT, vide which Rule 6DDD is inserted in the Income Tax Rules. | |
| ■ | If the assessee is seeking benefit of clause (e) of proviso to section 43(5), then such benefit can be extended to assessee only in respect of assessment year 2014-2015 as the provisions of clause (e) of proviso to section 43(5) are inserted by the statute with effect from 1-4-2014. | |
| ■ | However, in the present case, the transactions done by the assessee relate to financial year 2008-09. For these transactions, there was no provision in the statute to give the benefit to the assessee in respect of transactions of commodities, which are ultimately settled otherwise than by actual delivery or transfer of the commodity as per section 43(5). [Para 11] | |
| ■ | In the present case, when the assessee carried out these transactions, there was no existing provision in the statute in the shape of clause (e) of the proviso to Section 43(5). [Para 12] | |
| ■ | In view of above discussion, it is to be held that assessee is not entitled to claim the benefit of clause (e) of the proviso to section 43(5). [Para 13] |
CASE REVIEW
Asstt. CIT v. Arnav Akshay Mehta [2012] 53 SOT 581/25 taxmann.com 252 (Mum.) and CIT v. Nasa Finelease (P.) Ltd. [2013] 358 ITR 305/38 taxmann.com 108 (Delhi) (para 12) distinguished.
CASES REFERRED TO
Asstt. CIT v. Arnav Akshay Mehta [2012] 53 SOT 581/25 taxmann.com 252 (Mum.) (para 6), CIT v.Nasa Finelease (P.) Ltd. [2013] 358 ITR 305/38 taxmann.com 108 (Delhi) (para 7) and S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) (para 7.1).
Jitendra Jain and Ravikant S. Pathak for the Appellant. Ravi Prakash for the Respondent.
ORDER
I.P. Bansal, Judicial Member - This appeal is filed by the assessee against the order dated 16-8-2012, passed by the learned CIT(A)-19, Mumbai for the assessment years 2009-10.
2. The grounds of appeal in appeal of the assessee are as under:—
"1. The Commissioner of Income Tax (Appeals)-19, Mumbai erred in confirming the action of the AO in treating the loss of Rs. 21,04,331/- incurred on trading in futures & options on MCX, as speculation loss instead of business loss.
The appellant submits that the transaction entered into by the appellant with MCX Stock Exchange, a Recognized Stock Exchange, was for the purpose of minimizing the risk of price fluctuation by hedging the gold in MCX Stock Exchange and the transaction is not a speculative transaction and the loss there from shall be assessed as business loss."
3. During the course of assessment proceedings, it was found by the AO that the assessee had incurred a loss of Rs. 21,04,331/- on account of futures & options from MCX trading and such loss was treated by the assessee as speculative loss in the original return. In the revised return also the assessee considered such loss as speculation loss. Subsequently, in re-revised return filed on 30-6-2010, the said loss was treated as business loss. The AO asked the assessee to explain the same. It was submitted that the assessee company is engaged in the business of trading in gold. The company had obtained gold from State Bank of India, Opera House Branch as gold loan for which the price was unfixed and having regard to the price fluctuation for non-fixed date i.e. 90 days. In such transaction risk was involved according to price fluctuation for non-fixed quality of gold and in order to minimize such risk the assessee company hedge the gold in MCX. The transaction entered into by the assessee company through MCX is derivative transaction, in which it has incurred a loss of Rs. 21,04,331/-. The assessee also denied applicability of Section 43(5), which defines "speculative transaction". It was submitted that the MCX is now recognized as Stock Exchange for the purpose of Section 43(5) vide Notification No. 46/09, dated 22-5-2009, issued by CBDT, copy of which was furnished before the AO. Reference was made to provisions of Section 43(5)(d) to contend that such transaction could not be treated as speculative transaction. After considering the reply of the assessee, the AO did not accept the contention of the assessee as according to the AO Proviso to Section 43(5) states that the trading in derivatives carried out in a recognized exchange will not be deemed to be speculative transaction. According to the AO the words "recognized stock exchange" is dealt within the Explanation (ii) to Clause (d) of sub-section (5) of Section 43, which reads as under :—
'(ii) "recognized stock exchange" means a recognized stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.'
4. Referring to the aforementioned Explanation, the AO observed that the exchange namely MCX is not a recognized stock exchange during the year under consideration. The notification on which the assessee had relied upon is issued on 22-5-2009, which pertained to financial year 2009-10 and not to assessment year 2009-10. In this manner, learned AO has held that the assessee is not eligible to consider the said loss as normal business loss. Another reason given by the AO is that in the audit report, which was attached with the return, the auditor of the assessee did not place a note that such loss is to be treated as business loss. It is in this manner the aforementioned loss of Rs. 21,04,331/- was treated as speculation loss. Aggrieved, the assessee filed an appeal before the CIT(A).
5. The submissions made before the AO were reiterated. After considering the submissions, learned CIT(A) has observed that there is a difference between stock exchange and commodity exchange. The provisions of Section 43(5)(d)(ii) talks of recognized exchanges by SEBI and are applicable only in the cases, which deals in share trading. The assessee had dealt in commodity trading. MCX is a commodity exchange and it is recognized exchange by FMC who are regulators of commodity trading in country. Section 43(5)(d)(ii) does not encompass within its ambit exchanges recognized by FMC. MCX being not a recognized stock exchange by SEBI, therefore the AO was right in treating the loss as speculative loss. He has also distinguished the case laws relied upon by the assessee. The assessee being aggrieved has filed aforementioned grounds of appeal.
6.After narrating the facts and reiterating the arguments, learned counsel submitted that this position of law has been explained by Mumbai ITAT in the case of Asstt. CIT v. Arnav Akshay Mehta [2012] 53 SOT 581/25 taxmann.com 252, copy of which has also been placed on record and also given to the learned DR. In the said decision it has been held that according to the provisions under Section 43(5)(d)(ii) w.e.f. 1-4-2006, an eligible transaction carried out in a recognized Stock Exchange will not be treated as speculative transaction. Such provision is procedural mechanism and in the process if a longtime is taken to recognize the stock exchange, then it will not lead to an inference that the same would be applicable from the date when the stock exchange has been recognized by the Central Government. The transaction carried through MCX stock exchange after 1-4-2006 would be eligible to be treated as non-speculation within the meaning of section 43(5)(d). It was held that the assessee's derivative trading through MCX Stock Exchange in the assessment year 2007-08 is non-speculation transaction and loss incurred was to be treated as normal business loss. The recognition by CBDT of the stock exchange from a later date will not debar the transaction as non-speculation, especially after 1-4-2006.
7. Reliance was placed on another decision of the Hon'ble Delhi High Court in the case of CIT v.Nasa Finelease (P.) Ltd. [2013] 358 ITR 305/38 taxmann.com 108 vide order dated 6-9-2013, copy of which has also been placed on record and was given to the learned DR. In that case, a loss of Rs.1.90 crores was shown in derivative transaction. The AO disallowed the said loss under Section 73 of the Act. Secondly, the derivative transactions were during the period from July, 2005 to September, 2005. Considering the provisions of proviso (d) to sub-section 5 of Section 43, it was held by the AO that the same were violated. They were inserted in the statute w.e.f 1-4-2006, stipulating that eligible transaction should be conducted/carried out only in recognized stock exchange to be notified. The said insertion was made by the Finance Act, 2005. Rule 6 DDA and Rule DDB were subsequently enacted to prescribe conditions and procedure for notification of a recognized stock exchange. Accordingly, the National Stock Exchange and Bombay Stock Exchange were notified vide Notification dated 25th January, 2006 and the transactions carried out by the assessee were with National Stock Exchange. Notification dated 25th January, 2006 did not state or specify the date from which the National Stock Exchange and Bombay Stock Exchange were recognized. However, the Memorandum stipulated that transactions in respect of trading in derivatives in the aforementioned two stock exchanges w.e.f. 25-1-2006, shall not be deemed to be speculative transaction. The AO relying upon explanatory memorandum, held that the transactions entered into by the assessee between July 2005 to September, 2005 being before 25th January, 2006 and derivative loss arising therefrom was not eligible under proviso (d) to Section 43(5) of the Act and, hence, disallowed the loss.
7.1 In an appeal filed before the CIT(A), it was held that Section 43(5)(d) was operative in the assessment year 2006-07 but Rule 6DDA & DDB were notified on 1st July, 2005 and subsequently the two stock exchanges, namely, National Stock Exchange and Bombay Stock Exchange were notified w.e.f. 25th January, 2006, therefore, derivative transactions between July, 2005 to September, 2005, were not eligible. Learned CIT(A) also held that Explanation to Section 73 was not applicable as the assessee was an investment company and, thus, assessee was not entitled to set off the said loss from derivative transaction. However, the Tribunal accepted the proposition laid down by the assessee that the assessee is entitled to avail the benefit under Section 43(5)(d), even in respect of impugned transaction w.e.f. 1-4-2006. It was observed that the Parliament had enacted the provision w.e.f. the said date and the delay, if any, for the issue of Rules and Notification, cannot nullified the legislative mandate of the enactment. Delay was attributable to the CBDT, who had failed to issue necessary notification within time. Such findings of the Tribunal were confirmed by the Hon'ble High Court, following the decision of Hon'ble Supreme Court in the case of S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149.
8. Learned AR further referred to the Notification dated 29-11-2013 issued by CBDT vide which MCX was notified as a "recognized association" under the provisions of clause (iii) of the Explanationto clause (e) of proviso to clause 5 of Section 43 of the Income Tax Act read with sub-rule 4 of Rule 6DDD of the Income Tax Rules, 1962. For the sake of convenience, the said notification is reproduced below :—
"[To be published in the Gazette of India, extraordinary, Part II, section 3, sub-section (ii)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NOTIFICATION
New Delhi, the 29th November, 2013
INCOME-TAX
S.O.3539 (E).- In exercise of the powers conferred by clause (iii) of the Explanation 2 of clause (e) of the proviso to clause (5) of section 43 of the Income-tax Act, 1961 (43 of 1961) read with sub-rule (4) of rule 6DDD of the Income-tax Rules, 1962, the Central Government hereby notifies the Multi Commodity Exchange of India Limited, Mumbai as a recognised association for the purposes of clause (e) of the proviso to clause (5) of the said section, with effect from the date of publication of this notification in the Official Gazette.
2. The Central Government may withdraw the recognition of Multi Commodity Exchange of India Limited, Mumbai if any of the conditions specified in rule 6DDC of the Income-tax Rules, 1962, is violated.
3. This notification shall remain in force until the approval granted by the Forward Markets Commission is withdrawn or expires, or the notification is rescinded by the Central Government under sub-rule (5) of rule 6DDD of the Income-tax Rules, 1962.
[Notification No.9212013] [F. No. 14213112013-TPL]
[Ashis Mohanty]
Under Secretary to the Govt. of India"
9. It was submitted by learned AR that since now vide Notification dated 29-11-2013, the MCX through which the assessee has conducted the transactions, has been notified as "recognized association", the transaction entered into by the assessee through MCX even prior to the Notification, should be held to be transaction of the nature of non-speculative transactions in accordance with the provisions of clause (iii) of the Explanation to clause (e) of proviso to clause 5 of Section 43 of the Income Tax Act.
10. On contrary, it was submitted by the learned DR that the transactions entered into by the assessee through MCX, are to be treated as speculative transactions in view of the main provisions of Section 43(5) of the Act. He further submitted that it has clearly been brought out by the learned CIT(A) that Section 43(5)(d) referred to the eligible transactions, which are carried out in a recognized stock exchange. MCX is not a stock exchange, hence, on the basis of clause (d) of Section 43(5), relief cannot be granted to the assessee. Therefore, learned DR vehemently pleaded that the assessee does not deserve any relief.
11. We have given our thoughtful consideration to the submissions advanced at the hands of the learned counsel for the assessee as well as learned DR for the department. Admittedly, MCX, through which the assessee has carried out the transactions, is not a recognized stock exchange as required under the provisions of Section 43(5)(d) of the Act. As it can be seen from the abovementioned Notification dated 29-11-2013, which has been relied upon by the learned AR, which has also been reproduced in the above part of this order, the MCX, through which the assessee has carried out the transactions, is notified as a "recognized association" for the purposes of clause (e) of proviso to clause 5 of Section 43 of the Act. Clause (e) of proviso to sub-section (5) of Section 43 has recently been inserted by the Finance Act, 2013 w.e.f. 1st April, 2014, which reads as under :—
"(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, shall not be deemed to be a speculative transaction."
Therefore, the exemption to the transactions given by the statute is w.e.f. 1-4-2014 and this is inserted by the Finance Act, 2013. In pursuance of the amendment, Notification No. 51, dated 4-7-2013 has been issued by the CBDT, vide which Rule 6DDD is inserted in the Income Tax Rules. The said notification read as under :—
Income-tax (Ninth Amendment) Rules, 2013-Insertion of Rules 6DDC, 6DDD AND FORM NO. 3BC
In exercise of the powers conferred by clause (e) of the proviso to clause (5) of section 43 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—
1. (1) These rules may be called the Income-tax (9th Amendment) Rules, 2013.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962, in Part II, in sub-part C, after rule 6DDB, the following rules shall be inserted, namely :—
"6DDC. Conditions that a recognized association is required to fulfill to be notified as a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43. - For the purposes of clause (e) of the proviso to clause (5) of section 43, a recognized association shall fulfill the following conditions in respect of trading in derivatives, namely:-
| (i) | the recognized association shall have the approval of the Forward Markets Commission established under the Forward Contracts (Regulation) Act, 1952 (74 of 1952) in respect of trading in derivatives and shall function in accordance with the guidelines or conditions laid down by the Forward Markets Commission; | |
| (ii) | the recognized association shall ensure that the particulars of the client (including unique client identity number and P AN) are duly recorded and stored in its databases; | |
| (iii) | the recognized association shall maintain a complete audit trail of all transactions (in respect of derivative market) for a period of seven years on its system; | |
| (iv) | the recognized association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased; | |
| (v) | the recognized association shall ensure that the transactions (in respect of derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BC to the Director General of Income-tax (Intelligence and Criminal Investigation), New Delhi within fifteen days from the last day of each month to which such statement relates. |
6DDD. Notification of a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43.- (1) An application for notification of a recognized association (as per clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952) as a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43 may be made to the Member (Legislation), Central Board of Direct Taxes, North Block, New Delhi.
(2) The application referred to in sub-rule (1) shall be accompanied with the following documents, namely :—
| (i) | approval granted by Forward Markets Commission for trading in derivatives; | |
| (ii) | up-to-date rules, bye-laws and trading regulations of the recognized association; | |
| (iii) | confirmation regarding fulfilling the conditions referred to in clause (ii) to clause (v) of rule 6DDC; | |
| (vi) | such other information as the recognized association may like to place before the Central Government. |
(3) The Central Government may call for such other information from the applicant as it deems necessary for taking a decision on the application.
(4) The Central Government, after examining the information furnished by the recognized association under sub-rule (2) or sub- rule (3), shall notify the recognised1ssociation as a recognized association for the purposes of clause (e) of the proviso to clause (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received.
(5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Forward Markets Commission is withdrawn or expired, or the notification is rescinded by the Central Government."
3. In the said rules, in Appendix-II, after Form No. 3BB, the following Form shall be inserted, namely:—
Form No. 3BC
[See rule 6DDC]
Monthly statement to be furnished by a recognized association in respect of transactions in which client codes have been modified after registering in the system for the month of …………………."
In pursuance to the aforementioned Notification, the MCX has been notified as "recognized association" vide Notification dated 29-11-2013, which is also reproduced above. If the assessee is seeking benefit of clause (e) of proviso to Section 43(5), then such benefit can be extended to assessee only in respect of assessment year 2014-2015 as the provisions of clause (e) of proviso to Section 43(5) are inserted by the Statute w.e.f. 1-4-2014. However, in the present case, the transactions done by the assessee relate to financial year 2008-09. For these transactions, there was no provisions in the statute to give the benefit to the assessee in respect of transactions of commodities, which are ultimately settled otherwise then by actual delivery or transfer of the commodity as per Section 43(5) of the Act.
12. The case relied upon by the assessee also do not support the case of the assessee. In case of Arnav Akshay Mehta (supra), the transactions relate to stock exchange of India, which is MCX stock exchange, which was notified on 22-5-2009 and the transactions were governed by clause (d) of the proviso to Section 43(5), which was inserted by the Finance Act, 2005 w.e.f. 1-4-2006. Therefore, for the transactions, which were under consideration in that case, were held to be not of speculative nature under the provisions of clause (d) of the proviso to Section 43(5) of the Act and the said case relates to assessment year 2007-08. The transactions entered into by the assessee after insertion of clause (d) of the proviso to Section 43(5), were held to be of non-speculative nature as there was a provision on the statute. However, in the present case, when the assessee carried out these transactions, there was no existing provision in the statute in the shape of clause (e) of the proviso to Section 43(5).
13. In the case of Nasa Finelease (P.) Ltd. (supra), the case relates to proviso (d) to sub-section 5 of Section 43 of the Act and the said insertion was made by the Finance Act, 2005 and the National Stock Exchange and Bombay Stock Exchange, through which the assessee in that case had carried out the transaction were notified on 25th January, 2006. It was the case of the assessee that the transaction conducted by it from July 2005 to September, 2005, cannot be rejected for the benefit of proviso (d) to sub-section 5 of Section 43(5) as there was a provision on the statute in the shape of clause (d). The lapse in the issue of notification etc. was only on account of delay by CBDT. It is in these circumstances, the Hon'ble High Court has upheld the order of the Tribunal vide which the relief was given to the assessee. Thus, in that case, there was a provision on the statute under which the assessee sought the benefit. However, in the present case, as mentioned earlier, provisions of clause (e) of the proviso to Section 43(5) did not exist during the period when the assessee carried out the transactions.
In view of above discussion, we hold that assessee is not entitled to claim the benefit of clause (e) of the proviso to Section 43(5) of the Act.
14. No other issue was raised before us, except the arguments which are recorded above.
15. In the result, the appeal filed by the assessee is dismissed.
■■*In favour of revenue.
IT : Provision of section 40(a)(ia) would cover not only amounts which are payable as on 31st March of a particular year but also which are payable at any time during relevant year
■■■
[2014] 45 taxmann.com 405 (Lucknow - Trib.)
IN THE ITAT LUCKNOW BENCH 'B'
Deputy Commissioner of Income-tax- VI, Lucknow
v.
Ama Medical & Diagnostic Centre*
SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND A.K. GARODIA, ACCOUNTANT MEMBER
AND A.K. GARODIA, ACCOUNTANT MEMBER
IT APPEAL NO. 119 (LKW.) OF 2013
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
APRIL 11, 2014
Section 40(a)(ia) of the Income-tax Act, 1961 - Business disallowance - Interest, etc., paid to resident without deduction of tax at source (Applicability of) - Assessment year 2005-06 - Whether provision of section 40(a)(ia) would cover not only amounts which are payable as on 31st March of a particular year but also which are payable at any time during relevant year - Held, yes [In favour of revenue] [Para 9]
CASES REFERRED TO
Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244 (Visakhapatnam) (SC) (para 3), Underwater Services Co. v. ITO [2012] 54 SOT 178/25 taxmann.com 216 (Mum.) (para 3), CIT v. Crescent Export Syndicate [2013] 216 Taxman 258/33 taxmann.com 250 (Cal.) (para 3), CIT v. Sikandarkhan N. Tunvar [2013] 357 ITR 312/[2014] 220 Taxman 256/[2013] 33 taxmann.com 133 (Guj) (para 4), Antony D. Mundachal v. ACIT [IT Appeal. No.38 (Coch) of 2013] (para 4), ACIT v. Rishti Stock & Shares (P.) Ltd. [I.T. Appeal No. 112/Bom/2012] (para 4) and CIT v. Vector Shipping Services (P.) Ltd., [2013] 357 ITR 642/218 Taxman 93/38 taxmann.com 77 (All.) (para 5).
P.K. Dey for the Appellant. Dharmendra Kumar for the Respondent.
ORDER
Sunil Kumar Yadav, Judicial Member - This appeal is preferred on behalf of Revenue against the order of CIT(A), inter alia, on various grounds, which are as under:
| "1. | The Commissioner of Income-tax (Appeal), Lucknow has erred in law and on facts in deleting the addition made by the AO of Rs.33,14,317/- u/s 40(a)(ia) as the assessee failed to deduct tax at source u/s 194C of the Income-tax Act, on payments made to service provider, M/s Wipro G. E. Medical Systems for carrying out the work of the maintenance services. He failed to appreciate that the payment made to M/s Wipro G. E. Medical Services was in nature of work contract as defined in section 194C of the Income-tax Act and on Which TDS u/s 40(a)(ia) was liable to be deducted as per the statutory provisions and the assessee failed to follow it. | |
| 2. | The Commissioner of Income-tax (Appeal), Lucknow is not justified in relying on the judgment of the Visakhapatnam Special Bench in the case of M/s Merilyn Shipping & Transports Vs. ACIT; Range-1, Vishakhapatnam in ITA No. 477/Voz/2008 [20 taxman.com 244) 70 DTR 81 and in deleting the disallowance made by A.O. u/s 40(a)(ia) as the assessee failed to deduct tax at source u/s 194C of the Income-tax Act, on the payments made to M/s Wipro-G.E. Medical Services Ltd., Ld. CIT(A) as the above said order of Hon'ble ITAT has been stayed by the Hon'ble High Court of Andhra Pradesh. | |
| 3. | In doing so, Ld. CIT(A) failed to appreciate the word 'payable' used in the sub-section 40(a)(ia) includes, cases where the amounts, were 'paid' during the year in view of order of the Hon'ble High Court of Andhra Pradesh. | |
| 4. | That the appellant craves leaves to add or amend any of the grounds of appeal mentioned above and or to add any fresh grounds as and when it is required to do so." |
2. The facts, in brief, culled out from the orders of the authorities below, are that in the original assessment, the Assessing Officer had disallowed the payment of Rs.33,14,317/- as AMC paid to Wipro G.E. Medical Services on the ground that the payments were covered under the provisions of section 194C of the Act (hereinafter referred to as "the Act") on which TDS was not deducted under the provisions of section 40(a)(ia) of the Act. The matter travelled upto Tribunal and the Tribunal has set aside the issue vide its order dated 12/01/2010 and restored the matter to the file of the Assessing Officer with a direction to decide the issue whether the contract between the assessee and Wipro G. E. Medical Systems was a work contract or whether it was a service contract. The Assessing Officer was also directed to adjudicate the issue in the light of service/work contract agreement as the same was not furnished before the Tribunal. In set aside proceedings, the maintenance service agreement was filed before the Assessing Officer with the contention that it was mere a service contract for which provisions of section 194C are not applicable, therefore, the assessee was not required to deduct TDS as per the provisions of section 40(a)(ia) of the Act. The contentions of the assessee were not accepted by the Assessing Officer and he disallowed the aforesaid payment of Rs.33,14,317/- paid to Wipro G. E. Medical Systems having observed that the provisions of section 194C are applicable and TDS as required u/s 40(a)(ia) was not deducted.
3. Aggrieved, the assessee has preferred an appeal before the CIT(A) and has placed reliance upon the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244 (Visakhapatnam) with the submissions that the provisions of section 40(a)(ia) of the Act are not applicable in the light of the aforesaid order as the payment was actually made and no payment was outstanding at the end of the financial year. The CIT(A) solely relying upon upon the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra) and the order of the Mumbai Bench of the Tribunal in the case ofUnderwater Services Co. v. ITO [2012] 54 SOT 178/25 taxmann.com 216 in which the aforesaid order of the Special Bench was followed, has deleted the addition having observed that the Assessing Officer is not justified in making the addition of Rs.33,14,317/- u/s 40(a)(ia) of the Act.
4. Now the Revenue has preferred an appeal before the Tribunal with the submissions that the CIT(A) has followed the order of the Special Bench of the Tribunal while deciding the issue without having realized that the operation of the order of the Tribunal was stayed by Hon'ble Andhra Pradesh High Court in I.T.A. M.P. No. 908 of 2012 in I.T.A. No.384 of 2012. The learned D.R. further invited our attention to the judgment of Hon'ble Calcutta High Court in the case of CIT v. Crescent Export Syndicate [2013] 216 Taxman 258/33 taxmann.com 250 and the judgment of Hon'ble Gujarat High Court in the case of CIT v. Sikandarkhan N. Tunvar [2013] 357 ITR 312/[2014] 220 Taxman 256/[2013] 33 taxmann.com 133 and the orders of the Tribunal in the following cases in which the view taken by the Special Bench of the Tribunal in case of Merilyn Shipping & Transports (supra) was over ruled:
| (i) | Antony D. Mundachal v. ACIT I.T. Appeal. No.38(Coch) of 2013 | |
| (ii) | ACIT v. Rishti Stock & Shares (P.) Ltd. I.T. Appeal No. 112 (Bom.) of 2012 |
4.1 In the aforesaid judgments it has been repeatedly held that what section 40(a)(ia) requires is that there should be an amount payable on which tax is deductible at source under Chapter XVII-B or such tax has not been deducted or if deducted not paid before the due date and this provision nowhere requires that the amount which is payable is payable throughout the year. Learned D.R. further contended that since the view taken by the Special Bench in the case of Merilyn Shipping & Transports (supra) has been overruled by various High Courts and the operation of the order was stayed by Hon'ble Andhra Pradesh High Court also, the order of CIT(A) deserves to be set aside and the order of the Assessing Officer should be restored as it was passed in consonance with the judicial interpretation adopted by various High Courts.
5. The learned counsel for the assessee besides placing reliance upon the order of CIT(A) has contended that the impugned issue is squarely covered by the judgment of Hon'ble Jurisdictional High Court in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 357 ITR 642/218 Taxman 93/38 taxmann.com 77 (All.) in which the view taken by the Special Bench in the case of Merilyn Shipping & Transports (supra) was approved and followed. When the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports, the subordinate judicial forums within the jurisdiction of Hon'ble Allahabad High Court are suppose to follow the same and decide the issue accordingly. During the course of hearing of the appeal no argument was advanced on behalf of the assessee on merit nor did the CIT(A) has given any finding with regard to the applicability of section 194C of the Act.
6. In rebuttal the learned D.R. invited our attention to the judgment of Hon'ble Jurisdictional High Court with the submission that Hon'ble Jurisdictional High Court has not approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra). The Hon'ble Allahabad High Court has simply approved the view of the Tribunal taken on merit having noted that in the present case, tax was deducted on the salary of the employees paid by Mercator Lines Limitedand the circumstances in which the salaries were paid by Merilyn Shipping & Transports (supra) for Vector Shipping Services P Ltd., the assessee were sufficiently explained. At the concluding para of the order, the Hon'ble High Court has simply made a reference to the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra). Therefore, it cannot be said that the Jurisdictional High Court has thoroughly examined the view taken by the Special Bench of the Tribunal and approved the same. Whereas the validity of the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports was thoroughly examined by the Calcutta and Gujarat High Court and they have overruled the view taken by the Special Bench in so many words. The other Benches of the Tribunal in the case of Antony D. Mundackal and Rishti Stock and Shares Pvt. Ltd. have examined the view of the Special Bench in the light of the judgment of the other High Courts and also the judgment of Hon'ble Allahabad High Court and have categorically held that Hon'ble Allahabad High Court has not examined the issues in detail as the relief was granted to the assessee on merit. Therefore, the impugned issue is required to be adjudicated in the light of the judgment of Hon'ble Gujarat and Calcutta High Court. The learned D.R. further contended that having taken cognizance of all these developments with regard to the provision of section 40(a)(ia), the CBDT has issued a circular dated 16/12/2013 explaining the departmental view with regard to the interpretation of section 40(a)(ia) of the Act and clarified that in context of section 40(a)(ia), the term payable would include the sums which are payable during the previous year. Therefore, in the light of all these judgments and circulars, the order of CIT(A) deserves to be set aside.
7. Having given a thoughtful consideration to the rival submissions in the light of the orders of the authorities below and the judgments referred to by the parties, we find that the CIT(A) has adjudicated the issue in the light of order of Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra) and deleted the addition. The order of the Special Bench was challenged before Hon'ble Andhra Pradesh High Court in the case of Merilyn Shipping & Transports(supra), the Hon'ble High Court has suspended the operation of the order of the Tribunal. Despite the suspension of the order of the Tribunal by the concerned Hon'ble Jurisdictional High Court, the CIT(A) has followed the order of the Special Bench of the Tribunal and decided the issue in favour of the assessee as the CIT(A) has passed an order on 03/12/2012.
7.1 During the course of hearing, it was emphatically argued on behalf of the assessee that when the Hon'ble Allahabad High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports , this Bench of the Tribunal being subordinate to the High Court of Allahabad is bound to follow the same and decide the issue accordingly even without taking cognizance of the judgment of other High Courts in this regard. The subordinate authority has no jurisdiction to question the wisdom of the higher authority and they are required to follows the verdict in its letter and spirit given by higher authority.
7.2 Since the sole controversy is raised with regard to the judgment of Hon'ble Jurisdictional High Court, we have to examine the judgment of Hon'ble Jurisdictional High Court whether there have laid down any law on the impugned issue or a passing reference was made with regard to the aforesaid order in the case of Merilyn Shipping & Transports (supra).
7.3 Having carefully examined the judgment of Hon'ble Allahabad High Court in the case of Vector Shipping Services (P.) Ltd. (supra), we find that though there was dispute with regard to the disallowance of payment of salaries on account of non deduction of TDS as required u/s 40(a)(ia) of the Act but no question of law with regard to the ratio laid down by the Tribunal in the case ofMerilyn Shipping & Transports (supra) was raised before the Hon'ble High Court. The question of law before the Hon'ble High Court is as under:
| "(a) | Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s. Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition of memorandum of understanding, it included contract also." |
7.4 The main thrust of the argument before the Hon'ble High Court was that M/s Mercator Lines Ltd. had deducted TDS on salaries paid by it on behalf of the assessee. Under such circumstances, the assessee was not required to deduct TDS on reimbursement being made by it to M/s Mercator Lines Ltd. Besides reference was also made about the order of the Special Bench in the case of Merilyn Shipping & Transports (supra) wherein it has been held that if no amount remained payable at the year end, there would not be any disallowance as the provision of section 40(a)(ia) are not applicable. After recording the finding of the Tribunal and the CIT(A), the Hon'ble High Court has observed in last two paras that the provision of 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Their Lirdships have further observed that in the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. In last few lines, the Hon'ble High Court has made a reference to the ratio laid down by the Special Bench of the Tribunal and observed that it is noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. Except these observations, the Hon'ble High Court has not adverted to the legal proposition laid down by the Special Bench of the Tribunal. For the sake of reference, we extract the finding of the judgment of Hon'ble Jurisdictional High Court in this regard as under:
"We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transport v. Addl. CIT [2012] 136 ITD 23 (Visakha) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deducted at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure or which such TDS was deductible. In the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained.
It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.
We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal."
7.5 The impact of the judgment of Hon'ble Allahabad High Court and other High Courts was also examined by the different benches of the Tribunal and they have categorically held that the Hon'ble Allahabad High Court has decided the issue referred to it on different footing and has made a passing reference about the decision rendered by the Special Bench. Therefore, we are of the view that the Hon'ble Jurisdictional High Court has not examined the impugned issue i.e. whether disallowance u/s 40(a)(ia) of the Act could be made only in respect of such amount which are payable as on 31st March of every year under consideration whereas the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court have dealt with the issue in detail in the light of various judicial pronouncement and have categorically held that section 40(a)(ia) would cover not only to the amount which are payable as on 31st March of a particular year but also which are payable at any time during the year.
7.6 Before the Hon'ble Gujarat High Court in the case of Sikandarkhan N. Tunvar (supra), the following question of law was raised:
| (i) | Whether the disallowance u/s 40(a)(ia) of the Act would be made only in respect of such amounts which are payable on 31st of March? | |
| (ii) | Whether the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports lays down correct law? |
7.7 The Hon'ble High Court have adjudicated the issue in the detail in the light of various judicial pronouncements and have concluded that the section 40(a)(ia) would cover not only the amounts which are payable on 31st March of a particular year but also which are payable at any time during the year. The relevant observations of Hon'ble High Court are extracted as under:
In addition to such provisions already existing, the Legislature introduced yet another provision for ensuring compliance with the requirement of deducing tax at source and depositing it with the Central Government. Section 40(a)(ia), relevant for our purpose, reads as under :
'(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
| ** | ** | ** |
In such context, therefore, the question arises whether under section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be confined only to those cases where the amount remains payable till the end of the previous year or would include all amounts which became payable during the entire previous year.
The decision in the case of Merilyn Shipping and Transports v. Addl. CIT was rendered by the Special Bench by a split opinion. Learned Accountant Member who was in minority, placed heavy reliance on a decision of the Madras High Court in the case of Tube Investments of India Ltd. v. Asst. CIT (TDS) reported in [2010] 325 ITR 610 (Mad). The learned judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the court in the process useful and applicable. The learned judge rejected the theory of narrow interpretation of the term "payable" and observed as under (page 21 of 16 ITR (Trib)) :
"12.4 In our considered opinion, there is no ambiguity in the section and the term 'payable' cannot be ascribed a narrow interpretation as contended by the assessee. Had the intentions of the Legislature were to disallow only items outstanding as on March 31, then the term 'payable' would have been qualified by the phrase as outstanding on March 31. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee."
On the other hand, the learned Judicial Member, speaking for majority, adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in section 40 and the ultimate amendment which actually was passed by Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the Legislature has replaced the words "amounts credited or paid" with the word "payable" in the enactment. On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the Legislature had to be gathered from language used. In their opinion, the provision would apply only to amounts which are payable at the end of the year. Having said so, curiously, it was observed that the proviso to section 40(a)(ia) of the Act lays down that earlier years provision can be allowed in subsequent years only if tax at source is deducted and deposited and, therefore, the Revenue's fear is unfounded as the provision of section 40(a)(ia) of the Act covers the situation.
| ** | ** | ** |
What this sub-section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the Legislature. The term used is interest, commission, brokerage, etc., is payable to a resident or amounts payable to a contractor or a sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the Legislature has not used. No such interpretation would even otherwise be justified because, in our opinion, the Legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation, as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the Legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the Legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai(supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period, i.e., the accounting year. In this context, the last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to the last date of the accounting period. Particularly, in the context of requirements of section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on March 31, of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on March 31.'
7.8 Before Hon'ble Calcutta High Court in the case of Crescent Export Syndicate (supra), the following question of law was raised:
"If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transports, no addition shall be made. If any amount is found to be payable as on the year end, then the Assessing Officer shall give the assessee adequate opportunity to substantiate his case as to why the disallowance, if any, should not be made by invoking the provisions of section 40(1)(ia) of the Act".
7.9 The Hon'ble High Court has examined the issue in the light of the Finance Bill 2004, relevant provisions of the Act and various judicial pronouncements and the detailed order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra) and have finally concluded that majority view expressed in the Merilyn Shipping & Transports (supra) are not acceptable.
7.10 The relevant observations of their Lordships are as under:
'We already have quoted extensively both the majority and the minority views expressed in the aforesaid case. The main thrust of the majority view is based on the fact "that the Legislature has replaced the expression "amounts credited or paid" with the expression 'payable' in the final enactment.
"Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the case of CIT v.Kelvinator reported in 2010(2) SCC 723. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature.
The Learned Tribunal fell into an error in not realizing this aspect of the matter.
The Learned Tribunal held "that where language is clear the intention of the legislature is to be gathered from the language used". Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies.
The Learned Tribunal held that "Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head "income from business and profession" if the assessee does not deduct TDS on such expenses are disallowed".
Having held so was it open to the Tribunal to seek to justify that "this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid"? Does this not amount to deliberately reading something in the law which is not there?
We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries v. Bombay Iron & Steel Labour Board reported in 2010 (2) SCC 273.
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The key words used in Section 40(a)(ia), according to us, are "on which tax is deductible at source under Chapter XVII -B". If the question is "which expenses are sought to be disallowed?" The answer is bound to be "those expenses on which tax is deductible at source under Chapter XVII -B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction.
The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words "amounts credited or paid" were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous.
A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error.
For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports (supra) are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected.
The appeal is, thus, allowed in favour of the revenue.'
7.11 Our attention was also invited to a circular dated 16/12/2013 issued by the CBDT clarifying the stand of the Department in the light of the aforesaid judgments of different High Courts and it has been clarified that statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act, the term payable would include amounts which are paid during the previous year. For the sake of reference, we extract the circular as under:
'Circular No. 10/DV/2013
(Departmental View)
F. No. 279/Misc./M-61/2012-ITJ (Vol.-II)
Government of India Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, the December 16th 2013
Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg. It has been brought to the notice of the Board that there are conflicting interpretations by judicial authorities regarding the applicability of the provisions of section 40(a)(ia) of the Income-tax Act, 1961 ('the Act') with regard to the amount not deductible in computing the income chargeable under the head 'Profits and gains of business or profession'.
2. Section 40(a)(ia) of the Act reads as under:
"any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139..."
3. In the case of Merilyn Shipping & Transports v. Addl. CIT , it was held by Special Bench of ITAT, Vishakhapatnam, that the provisions of section 40(a)(ia) of the Act would apply only to the amount which remained payable at the end of the relevant financial year and could not be invoked to disallow the amount which had actually been paid during the previous year without deduction of tax at source. The order of the Special Bench has since been put under interim suspension by the Andhra Pradesh High Court.
3.1 The Hon'ble Calcutta High Court and Hon'ble Gujarat High Court in the case ofCommissioner of Income-tax, Kolkata-XI v. Crescent Exports Syndicate and Commissioner of Income-tax-IV v. Sikandarkhan N Tunvar respectively, have held that section 40(a)(ia) of the Act would cover not only the amounts which are payable at the end of the previous year but also which are payable at any time during the year.
3.2 The Hon'ble High Courts have further held that the intention of the legislation was to disallow certain types of expense, subject to provisions of Chapter XVII-B, which are payable at any time during the year but no tax was deducted at source or if deducted was not paid within the stipulated time. There is no such condition that amount should remain payable at the end of the year.
3.3 The Hon'ble Allahabad High Court in CIT v. Vector Shipping Service (P) Ltd . has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under section 40(a) (ia) of the Act, the amount should be payable and not which has been paid during the year. However, the decisions of the Hon'ble Gujarat and Calcutta High Courts (supra) were not brought to the attention of the Hon'ble Allahabad High Court.
3.4 In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares Pvt. Ltd. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an "orbiter dicta" while the decisions of the Hon'ble Gujarat and Calcutta High Court (supra) were 'ratio decidendi'. The ITAT accordingly applied the view taken by the Hon'ble Gujarat and Calcutta High Court as ratio decidendi prevails over an orbiter dicta.
4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a) (ia) of the Act would cover not only the amounts which arc payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a) (ia) of the Act the term 'payable' would include 'amounts which are paid during the previous year'.
5. Where any High Court decides an issue contrary to the 'Departmental View', the 'Departmental View' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgement to the notice of the CTC. The CTC shall examine the said judgement on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for.
6. The above clarification may be brought to the notice of all officers.'
8. Keeping in view the aforesaid judgments of various High Courts and the Tribunal, we are of the considered opinion that the view expressed or the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra)has been overruled. Therefore, it cannot be said that since the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra), the same has to be followed by the Tribunal situated within the jurisdiction of Hon'ble Allahabad High Court. Had the impugned issue been examined and adjudicated by the Jurisdictional High Court, it would have been respectfully followed by the Tribunal irrespective of the fact that contrary view have been expressed by the different High Courts. The Hon'ble Jurisdictional High Court has not examined the impugned issue at all and simple passing reference was made with regard to the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and the relief was granted to the assessee on merit. Therefore, the ratio laid down in the case of Merilyn Shipping & Transports (supra) , which has been suspended by Hon'ble Andhra Pradesh High Court has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports (supra), as it was overruled by the other High Court.
9. In the instant case, the CIT(A) has adjudicated the issue following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and decided the issue in favour of the assessee without adjudicating the appeal on merit, though specific grounds were raised before CIT(A). Though the Revenue has challenged the order of CIT(A) on merit also but no finding was given by the CIT(A) on merit with regard to the nature of payments. We, therefore, set aside the order of CIT(A) and reverse the finding of CIT(A) given following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports. Since the CIT(A) has not given any finding on merit, we restore the matter to his file with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are applicable to the present case and for the remaining issue, whether the provision of section 40(a)(ia) is applicable in respect of such amounts, which are payable as on 31st of March of the year under consideration, we hold that the provision of section 40(a)(ia) would cover not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. Accordingly, the matter is restored to the file of the CIT(A) for adjudication on merit.
10. In the result, the appeal of the Revenue is allowed for statistical purposes.
SUNILRegards,
Pawan Singla , LLB
M. No. 9825829075Acceptance of Public Deposits by Companies under Companies Act, 2013 – Provisions
CS S. Dhanapal
As per Section 2(31), "Deposit" includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India;Amounts which are not considered as deposits (Rule 2 of Companies (Acceptance of Deposits) Rules, 2014)
- any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature.
- any amount received from foreign Governments, foreign or international banks, multilateral financial institutions.
- any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution
- any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf
- any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India
- any amount received by a company from any other company
- any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for
- any amount received from a person who, at the time of the receipt of the amount, was a director of the company
- any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within five years:
- any amount received from an employee of the company not exceeding his annual salary under a contract of employment with the company in the nature of non-interest bearing security deposit;
- any non-interest bearing amount received or held in trust;
- any amount received in the course of, or for the purposes of, the business of the company as an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance:
Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply:
- any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfillment of the following conditions, namely
- the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;
- the loan is provided by the promoters themselves or by their relatives or by both; and
- the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter;
- any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act
ELIGIBLE COMPANY WHICH CAN RECEIVE DEPOSITS FROM PUBLIC
"Eligible Company" means a public company as referred to in sub-section (1) of section 76, having a net worth of not less than Rs. 100 Crores or a turnover of not less than Rs. 500 Crores and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits.
Provided that an eligible company, which is accepting deposits within the limits specified under clause (c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution;
QUANTUM OF DEPOSITS THAT CAN BE ACCEPTED
A. From members
- No Eligible company shall accept or renew any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds 10% of the aggregate of the paid-up share capital and free reserves of the company and
- No other company shall accept or renew any deposits from its members if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 25% of the aggregate of the paid-up share capital and free reserves of the company.
B. From public
- No eligible company shall accept or renew any deposit from public, if the amount of such deposit other than the deposit received from members, together with the amount of deposits outstanding on the date of acceptance or renewal exceeds 25% of aggregate of the paid-up share capital and free reserves of the company.
- No Government company eligible to accept deposits under section 76 shall accept or renew any deposit, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds 35% of the paid-up share capital and free reserves of the company.
CONDITIONS TO BE SATISFIED FOR ACCEPTING DEPOSITS
o Resolution to be passed by company in general meeting.
o Rules as may be framed by RBI to be complied with.
o Circular to be issued to members showing financial position of the company, the credit rating obtained, details of outstanding deposits, if any, and other particulars as given below.
o Deposit Repayment Reserve Account to be opened with a scheduled bank and atleast 15% of amount of deposits maturing during the current and next financial year to be deposited in the account. This account cannot be used for any other purpose.
o Deposit insurance to be provided in the manner prescribed below:
ü Every company referred to in sub-section (2) of section 73 and every other eligible company inviting deposits shall enter into a contract for providing deposit insurance at least thirty days before the issue of circular or advertisement or at least thirty days before the date of renewal, as the case may be
ü The deposit insurance contract shall specifically provide that in case the company defaults in repayment of principal amount and interest thereon, the depositor shall be entitled to the repayment of principal amount of deposits and the interest thereon by the insurer up to the aggregate monetary ceiling as specified in the contract
ü In the case of any deposit and interest not exceeding twenty thousand rupees, the deposit insurance contract shall provide for payment of the full amount of the deposit and interest and in the case of any deposit and the interest thereon in excess of twenty thousand rupees, the deposit insurance contract shall provide for payment of an amount not less than twenty thousand rupees for each depositor
ü The amount of insurance premium paid on the insurance of such deposits shall be borne by the company itself and shall not be recovered from the depositors
ü If any default is made by the company in complying with the terms and conditions of the deposit insurance contract which makes the insurance cover ineffective, the company shall either rectify the default immediately or enter into a fresh contract within thirty days and in case of non-compliance, the amount of deposits covered under the deposit insurance contract and interest payable thereon shall be repaid within the next fifteen days and if such a company does not repay the amount of deposits within said fifteen days it shall pay fifteen per cent interest per annum for the period of delay and shall be treated as having defaulted and shall be liable to be punished in accordance with the provisions of the Act.
o Certificate to be provided regarding absence of any default by the company in repayment of deposit or interest thereon, either before or after the commencement of this Act.
o Repayment of deposit and interest may also be secured by creation of charge on the assets and property of the company in compliance with rules in this regard.
o Deposits which are unsecured or partially secured shall be so mentioned in all documents related to invitation or acceptance of deposits.
o Credit rating should be obtained for accepting deposits from public
o Every deposit accepted by a company under this section shall be repaid with interest in accordance with the terms and conditions of the agreement entered between the company and depositor.
o In case of failure of company to repay deposits or interest thereon, the depositors can approach the Tribunal to obtain necessary orders for the company to make the payment or for any loss or damage incurred.
REPAYMENT OF DEPOSITS ACCEPTED BEFORE COMMENCEMENT OF NEW ACT [SECTION 74]
With regards to deposits accepted by companies before commencement of the new Act which remain outstanding in principle or interest, the following needs to be done :
- Company to file a statement with ROC giving details of deposit or interest outstanding along with the details of arrangements made for repayment within 3 months of commencement of new Act or due date of repayment whichever is earlier.
- Repayment to be made on due date of repayment .
RETURN OF DEPOSITS
Return of Deposit containing details as on 31st March of a year to be filed by every company to which the Deposit Rules apply, within 30th June of every year.
The information contained in the return should be duly audited by the auditor of the company who shall give his report as per Form DPT 3.
PENALTY
If any company referred to in sub-section (2) of section 73 or any eligible company inviting deposits or any other person contravenes any provision of rules for which no punishment is provided in the Act, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first day during which the contravention continues. [Rule 21 of (Acceptance of Deposits) Rules, 2014.]
Default in repayment of deposit or interest thereon within time
Where it is proved that deposits were accepted with intention to defraud the depositors or for any fraudulent purpose the company shall liable to pay fine between Rupees 1 Crore to Rupees 10 Crores Plus Repayment of amount of deposit/interest and Officer in Default will be personally liable with unlimited liability notwithstanding the penalty mentioned above and penalty for fraud. Aggrieved party may initiate any suit or proceedings.
Penalty for fraud:
Imprisonment for term between 6 months to 10 years and Fine ranging from amount involved in fraud to 3 times of the amount involved (Section 75)
Corporate Social Responsibility – Companies Act, 2013
CS S. Dhanapal
INTRODUCTIONCorporate Social Responsibility (CSR) has been in existence for a long time and is almost as old as civilization. It is based on the Gandhian Principle of "trusteeship concept" whereby business houses are looked upon as trustees of the resources they draw from society and thus are expected to return them back manifold. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large). Proponents of CSR argue that companies make more long term profits by operating with a perspective, while critics argue that CSR distracts from the economic role of businesses. Nevertheless, the importance of CSR cannot be undermined.
Section 135 of the Companies Act, 2013 contains provisions exclusively dealing with Corporate Social Responsibility. Schedule VII contains a list of the activities which a company can undertake as part of its CSR in initiatives.
PROVISIONS OF COMPANIES ACT, 2013 ON CSR (READ WITH NOTIFIED RULES)
♦ Meaning of CSR
"Corporate Social Responsibility (CSR)" means and includes but is not limited to
(i) Projects or programs relating to activities specified in Schedule VII to the Act; or
(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.
♦Applicability
- CSR rules shall be applicable commencing from financial year 2014-15 onwards. i.e. from 01.04.2014.
- Every company which ceases to be covered by the above criteria for 3 consecutive financial years shall not be required to comply with the CSR provisions till such time it again falls within the limits.
♦ CSR Committee
- CSR Committee should consist of atleast 3 directors out of which atleast 1 director should be independent director.
Explanations:
(i) an unlisted public company or a private company covered under subsection (1) of section 135 which is not required to appoint an independent director pursuant to sub-section (4) of section 149 of the Act, shall have its CSR Committee without such director.
(ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors;
(iii) with respect to a foreign company covered under CSR rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company.
- Board's Report to disclose composition of CSR Committee.
- Functions of CSR Committee:
v Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII of the Act.
v Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
v Monitor the Corporate Social Responsibility Policy of the company from time to time.
v Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.
♦ Responsibility of the Board of Directors
- To ensure that atleast 2% of average net profit of 3 immediately preceding years is spent on CSR activities every year.
"Net profit" means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely:
i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
ii) any dividend received from other companies in India, which are covered under and complying with provisions of Section 135 of the Act
- Average net profit shall be calculated in accordance with provision of Section 198.
- To approve the CSR Policy after considering recommendations of CSR Committee.
- To disclose CSR policy and initiatives in Board's report and Company's website.
- To ensure that activities reflected in CSR policy are actually undertaken by company.
- To ensure that activities included by a company in its Corporate Social Responsibility Policy are related to the activities included in Schedule VII of the Act.
- The Board's Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure to the CSR Rules.
- If the company does not spend 2% of net profits as required, then Board to report the reasons in the Board's report.
♦ CSR Policy & expenditure
- 'CSR Policy" relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company. The CSR Policy of the company shall, inter-alia, include the following, namely :-
- a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such project or programs and
- monitoring process of such projects or programs:
- The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company.
- CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which fall within the purview of Schedule VII of the Act.
♦ Other points relating to CSR
- The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society or a company established by the company or its holding or subsidiary or associate company under section 8 of the Act or otherwise, provided that –
(i) if such trust, society or company is not established by the company or its holding or subsidiary or associate company, it shall have an established track record of three years in undertaking similar programs or projects;
(ii) the company has specified the project or programs to be undertaken through these entities, the modalities of utilization of funds on such projects and programs and the monitoring and reporting mechanism.
- A company may also collaborate with other companies for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules.
- Only such CSR activities will be taken into consideration as are undertaken within India.
- Only activities which are not exclusively for the benefit of employees of the company and their family members shall be considered as CSR activity.
- Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
- Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track records of at least three financial years but such expenditure shall not exceed 5% of total CSR expenditure of the company in one financial year.
- Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
- In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.
♦ Activities which may be included by companies in their Corporate Social Responsibility Policies ( Amended Schedule VII)
(i) Eradicating hunger and poverty and malnutrition, promoting preventive healthcare and sanitation and making available safe drinking water;
(ii) Promoting education including special education and employment enhancing vocational skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
(iii) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
(iv) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;
(v) Protection of natural heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts
(vi) Measures for the benefits of armed forces veterans, war widows and their dependents
(vii) Training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports;
(viii) Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(ix) Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government.
(x) Rural development projects
GST and the expectation in the Union Budget
R.K Rengaraj, Advocate
Introduction : Goods and Service Tax is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. Currently, there are 160 countries in the world that have implemented GST. The latest global corporate tax rate study made by KPMG international has found out that the lowest company taxes among the developed economies are still found in the European Union countries. The study further revealed that Europe's indirect taxes are the highest in the world. Goods and Services Tax or Value added Tax rates in the countries of European Union average 19.5 percent, compared with 10.8 percent in Asia Pacific.GST in India: In India, GST is yet to be implemented.If implemented, it is expected to help build a transparent and corruption-free tax administration. GST will be levied only at the destination point, and not at various points. It is estimated that India will gain more than $15 billion a year by implementing the GST as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.
The delay in implementing the GST in India is linked with amendment in the constitution amendment.
The Constitution of India provides for a threefold division of functions and powers:
a) those exclusively assigned to the Union Government,
b) those exclusively assigned to state governments and
c) those concurrently assigned to the Union and the State Governments, with residuary powers with the Union Government.
It further provides for a clear division of fiscal powers between the Union and the states in order to effectuate these various functions. With regard to taxes, the principle that is adopted is that taxes which have an inter-state base are levied by the Union while those with a local base are levied by the states, with residuary powers belonging to the Union.
CST Compensation: Most of the Indian states favoured implementation of GST, but raised concerns with regard to safeguard of fiscal autonomy and compensation for revenue loss due to phasing out of the central sales tax. The Centre needs to recognise the need for independent compensation mechanism for revenue losses suffered by states. The central government should permit states to revise CST upwards to 4 per cent in absence of implementation of the GST. In order to allay apprehensions of states about future revenue loss on account of introduction of GST, there should be constitutionally mandate compensation mechanism.
The Centre on account of the reduction in the rate of the central sales tax (CST) from 4 per cent to 3 per cent in April 2007 and from 3 per cent to 2 per cent in June 2008 has not compensated fully and it is still an issue.
The original idea was to first reduce the rate and then to phase out the CST completely, before the initial target date of implementation of the GST in 2010. In the view of the states, while the implementation of GST has been delayed, the states have incurred losses on account of the reduction in the CST rates. The states believe therefore that the CST related compensation ought to continue until the time of introduction of the GST or, alternately, the rate of CST ought to be raised back to 4 per cent. The Centre's view is apparently that there has been inordinate delay in implementation of the GST and hence no compensation ought to be paid beyond 2011-12. The compensation methodology has itself been a constant source of disagreement between the Centre and the states, leading to delays in release of compensation for the past several years.
The Centre has apparently computed the compensation after netting off the increase in states revenues arising from the VAT rate increase from 4% to 5% and 12.5% to 14.5%. In fact, this has not been acceptable to the states, who apparently believe that the VAT rate increases are entirely in order and not part of the GST compensation discussion.In the previous Government, States had reservations about the Union finance minister having veto power on state GST, but they do not have any issues in giving him exclusive authority on central GST. On the Centre's proposal to give Constitutional backing to the GST Disputes Authority, the states said it should rather find a place in the GST legislation. The Authority, with three members recommended by the GST Council and approved by the Chief Justice of India, will ensure that states do not deviate from the agreed principles of GST.
Budget expectation: In the pre-budget consultation meeting with the Ministry of Finance, Confederation of Indian Industries (CII) has strongly urged for early implementation of GST as a sure fire means of lifting investor sentiment and putting the Indian economy back on track..
Conclusion: The new Finance Minister, Shri Arun Jaitley said that there is need for "rounding off corners" towards implementation of GST.In the author's opinionit is time todiscuss global scenario and the challenges for ushering in GST in India. Let us wait and see.
( ADVOCATE R.K RENGARAJ M.COM.,MBA., LL.B, Swamy Associates – Mail- renga42002@yahoo.co.in )
Cenvat credit on eligible inputs used in generation of electricity
J.K. Manghani
Inputs used in relation to generation of electricity (which is in turn used in manufacture of final products) are eligible inputs for availing the cenvat credit.The word "input" has been defined under Rule 2(g) of the erstwhile Cenvat Credit Rules, 2002 which were effective up to 09.09.2004 and also in Rule 2(k) of the Cenvat Credit Rules, 2004 which are effective from 10.09.2004.
Both of the above Rules have been notified under Section 37 of the Central Excise Act, 1944.
The Hon'ble Supreme Court of India in the case of Maruti Suzuki Ltd., Vs. Commissioner of Central Excise, Delhi-III [2009(240) E.L.T. 641 (S.C.) has delivered an important judgment analyzing the definition of inputs, both under the erstwhile Rules of 2002 and the present Rules of 2004.
The Hon'ble Apex Court, in order to establish "an input" to be "an eligible input", has set the following conditions to be satisfied:-
i) "Such input to be used in or in relation to manufacture of final product, within the factory";
ii) "Whether directly or indirectly" and
iii) "Whether contained in the final product or not".
Further, it has been held that the expression "used in or in relation to manufacture of final product", is not a standalone phrase, but to be read in entirety as "used in or in relation to manufacture of final product whether directly or indirectly and whether contained in the final product or not". The inputs falling in inclusive part must have nexus with manufacture of final product. Functional utility of item would constitute relevant consideration.
The provisions of erstwhile Rule 2 (g) of Cenvat Credit Rules, 2002 and Rule 2(k) of present Rules of 2004, have been analyzed by the Hon'ble Court, dividing the same in 3 parts namely,
i) Specific Part,
ii) Inclusive Part and
iii) Place of use.
The court has also held that all the above 3 parts of the said Rules should be satisfied to make "an input" as "an eligible input" for the purpose of availing Cenvat credit.
The Hon'ble Apex Court while analyzing specific part of the above Rules, has pointed out that goods used in or in relation to manufacture of final product qualify as "inputs". This presupposes that the element of "manufacture" must be present.
(1) While analyzing the Specific Part, the Hon'ble Court has referred the following judgments to further explain the said point of view:-
i) J.K. Cotton Spinning and Weaving Mills Co. Ltd. Vs. S.T.O. reported at 1965(16)STC 563 – In the said case the Apex Court had held that –
The expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer while converting raw material into finished goods. Further, where any particular process (generation of electricity) is so integrally connected with the ultimate production of goods, that for such process, manufacture of goods would be inexpedient, then, goods required in such process would fall within the expression "in the manufacture of goods".
ii) Union Carbide India Ltd Vs. Collector of Central Excise, Calcutta-1 reported at 1996 (86) E.L.T. 613 (Tri) – In the said judgment the Hon'ble Larger Bench of CEGAT observed that a wide impact of the expression "used in relation to manufacture" must be followed in its natural play.
According to the Special Bench of CEGAT – the purpose behind the above expression is to widen the ambit of the definition so as to attract all goods, which do not enter directly or indirectly into the finished product, but are used in any activity concerned with or pertaining to the manufacture of the finished product.
Electricity is an ancillary activity. It is an activity which is anterior to the process of manufacture of the final product. It is on account of the use of the above expression "used in relation to manufacture" that such an activity of electricity generation comes within the ambit of the definition because it is integrally connected with the manufacture of the final product.
iii) Collector of Central Excise, New Delhi Vs. M/s. Ballarpur Industries Ltd., reported at (1989) 4 SCC 566 – In the said judgment, the difference between the expression "used in manufacture" and "used as input (raw material)" was highlighted. In that judgment, it was held that undoubtedly the said two expressions are distinct and separate, but, when an ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process (like electricity generation) aids the making of an end product, then, the ancillary process gets integrally connected to the end product.
These words "whether directly or indirectly" and "whether contained in the final product or not" indicate the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indirect still such an item would stand covered by the definition of "input".
In order to get over this controversy in the above definition of "input" the Legislature has clarified that even if an item is not contained in the final product still it would be classifiable as an "input" under the above definition.
Moreover, the said expression viz, "used in or in relation to the manufacture of the final product" in the specific/substantive part of the definition is so wide that it would cover innumerable items as "input" and to avoid such contingency the Legislature has incorporated in inclusive part after the substantive part qualified by the place of use.
(2) While analyzing the inclusive part of the definition, the Apex Court has observed that, 'the words and phrases used in inclusive parts become relevant only when they are read with the expression "used in relation to manufacture of final product" in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is "used in or in relation to the manufacture of final product."
Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression, "used in or in relation to the manufacture" have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credit only when used in or in relation to the manufacture of final product.
Inputs used in generation of electricity is an ancillary activity which is anterior to process of manufacture of final product – the said activity comes within the ambit definition of input, because it is integrally connected with manufacture of final product (Rule 2(g) of Cenvat Credit Rules, 2002 and Rules 2(k) of Cenvat Credit Rules, 2004].
After analyzing the above legal positions, the Court has held as under:-
"Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms parts of the manufacturing activity and the "input" used in that electricity generation is an "input used in the manufacture" of final product.
This view is also expressed in para 9 of the judgment of this Court in the case of Collector of Central Excise Vs. Solaris Chemtech Limited reported at 2007 (214)E.L.T. 481 (S.C.).
Further, our view is supported by the observations of this Court in the case of Vikram Cement Vs. Commissioner of Central Excise, Indore – reported at 2006 (194) E.L.T. 3 (S.C.) which is quoted below:-
"It appears to us on a plain reading of the clause that the phrase "within the factory of production" means only such generation of electricity or steam which is used within the factory would qualify as an immediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase "within the factory of production" could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an input for the purposes of obtaining credit on the duty payable thereon"
Conclusion: In short, a manufacturer is entitled to cenvat credit on the eligible inputs used in generation of electricity to the extent to which they are using the generated electricity, within their factory for manufacture of finished products on which excise duty is discharged.
Service Tax on Restaurant Services – Clarification
Esha Agrawal
RESTAURANT SERVICE CLARIFICATIONHello everyone here i am again with an another article of mine on services provided by a restaurant in relation to food or beverages eating joint or mess other than those having the facility of air conditioned or central air heating in any part of the establishment at any time during the years
As we all know that supply of food or beverages ( in restaurant) is deemed sale ( as per article no. 366 of constitution of India) all deemed sales are outside the scope of service tax as they are liable to VAT, only service charges for supply of food or beverages is taxable under service tax , except the restaurant having the facility of air conditioned or central air heating in any part of the establishment at any time during the years, the restaurant who provide service in relation to food or beverages eating joint or mess having the facility of air conditioned or central air heating in any part of the establishment at any time during the years is liable to service tax.
There are so many doubts on this topic like a complex having both air conditioned and non air conditioned restaurant providing food from the common kitchen does service tax levy on non air conditioned restaurant ??????????????
The clarification is yes service tax is levied on the non air conditioned restaurant also because the restaurant is not separately demarcated, but if the complex having more than one restaurant which are clearly demarcated and separately named and food is provided from the common kitchen, only the service provided in air conditioned restaurant is liable to service tax , service provided in a non air conditioned restaurant or non centrally air heated restaurant will not liable to service tax and is treated as separate exempt service..
Another doubt in a hotel services provided by a restaurant in other areas like swimming pool or open area attached to the restaurant will liable to service tax ??????????????
The clarification is yes services provided in other areas attached to restaurant are also liable to service tax.
Another doubt whether service tax is leviable on goods sold on MRP basis as part of bill/invoice???????????
The reply is if the goods sold on MRP basis (fixed under legal metrology Act) they have to be excluded from the total bill to derive at the value of service portion .
One more doubt ,services provided in relation to serving of food or beverage by a canteen in factory covered under factories act 1948 having the facility of air conditioned or central air heating ???????
The clarification is No service tax on serving of food by canteen in factory on both the air conditioned canteen as well as non air conditioned canteen .
These doubts can be explained with the help of an example, suppose we take an example of a 5 star resort and spa in Goa named "Taj Exotica" having more than one restaurant , an air conditioned Italian food restaurant , a non air conditioned Goan food restaurant and an Indian food restaurant which has air conditioned as well as non air conditioned part not clearly demarcated, but the food is sourced to all the restaurant from the common kitchen, the resort is also having a swimming pool where people can sit and enjoy food, sales counter are also in the resort where goods are sold eg cigarettes, handloom, costumes etc
The Italian food restaurant (air conditioned) is liable to service tax as the restaurant is serving food or beverages having the facility of air conditioned , another restaurant Goan food(non air conditioned) service tax is not leviable as restaurant is not having the facility of air conditioned, another restaurant serving Indian food( both air conditioned as well as non air conditioned) tax is leviable on the whole restaurant air conditioned as well as non air conditioned because the non air conditioned part is not clearly demarcated and separately named from the air conditioned part , the swimming pool area of the hotel from where the food is sourced through common kitchen is also liable to service tax, now the shops in the resort where goods are sold on MRP basis (if fixed under legal metrology act) are not liable to service tax and value of goods are excluded to derive at the value of service portion .
Another example of chotiwala foods and restaurant in Haridwar , the hotel is having two section air conditioned as well as non air conditioned not clearly demarcated and separately named , the service tax is levied on the whole restaurant because the restaurant is not clearly demarcated and separately named .
So this is the treatment of restaurant service
Hope you enjoyed reading the article and gain some knowledge from this. If you have any queries please ask me i will try to solve it, you can mail me at agrawalesha6@gmail.com.
Thanks for reading!!!!!!!!
(Esha Agrawal – CA FINAL, M.COM., PGDBA)
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