Small Steps to Greatness – for Organizational and Personal Leadership
Why this Article?: This article is aimed to bring some smallest changes in our lives which may lead to long lasting impact on the whole organization we own, we lead, we serve, or the organization where you are holding some managerial or leadership position. Not only for leaders and top management, but these small changes may even prove to be very effective for all those living on this earth. No matter what level what position you hold in any organization, but I am confident that if taken seriously, this discussion can really go a long way in changing our lives forever at workplace and in society.
The Inspiration for this article: The inspiration to write this article came from a talk delivered by 'Bryan Stevenson', a criminal lawyer in America fighting for justice to poor and the talk was hosted on TED.com and received standing ovation from all the listeners. He said one sentence which touched my heart very deep. "We will ultimately not be judged by our technology, we won't be judged by our design, we won't be judged by our intellect and reason. Ultimately, you judge the character of a society, not by how they treat their rich and the powerful and the privileged, but how they treat the poor and underprivileged, because it's in that nexus we will actually begin to understand WHO WE ARE."
Having said this, let's begin the journey of change with small steps.
Human Behavior Based on you position: Start with a simple Question, remember the days when you were a simple living person, not holding any great position in life, not at any level, may be doing job for some few thousand rupees per month as a junior or some small position or struggling in life for a break or good job or setting up good business. Also try to remember the behavior of people around you at that point of time. Now, at this moment (20th May, 2014), wherever you are, try to recollect how the same people have started behaving with you. Wait for a moment to realize the difference and go ahead and read further. I bet you have already realized what I wanted to convey.
Yes, our behavior with people changes with their progress and their social status, their income levels, their assets possession, their wealth statements. The position they hold matters to us!!!! (In fact, lately with the breakthrough in technology and advent of materialistic world around us, now it has started to matter much more than before, so unlucky we are to live in this kind of world, we are going farther from our inner human character, do we even try to realize this?)
Are we being human: Am surprised to see the different type of world around me. Are we still human? I feel lost sometimes and sad too. Anyways, my point is that we have evolved as 'Human Beings' but we forgot what it means 'Being Human'. Our brains became smarter but our hearts became dumber as the time passed. We say that we have evolved. I don't think so. We have still long way to go.
Let's try to think what small change we can bring in our life.
I wanted to write an article about a small but touchy experience that I had. I go a small restaurant 'Chhaaya' located in Fort Area, Mumbai almost everyday where I see many waiters every time, some or the other comes up to me and takes order every day. One fine day I thought out of my human qualities that let me ask name of that waiter and he did not even understood the question itself. He asked 'What?', I said little loudly "What's your name? He said smilingly "Bajrangi". At that time I understood that nobody asks him his name, nobody is interested, and hence he did not understood my question. He must have thought am ordering him to bring something. He is so used to be treated as servant that he forgot that somebody may even ask him his name. The article I wanted to write was titled as "HE IS NOT A WAITER, HE IS BAJRANGI"
And that day onwards, he smiles at me every time I go there and his behavior is totally different with me than the rest of the customers. Does than ring a bell in you about human behavior? Am not a behavioral scientist but I don't need to be a behavioral scientist in order to conclude that "The small steps towards an attempt to becoming human again worth much more and has effect much wider than the incentive programs, talent management programs, knowledge seminars, motivational lectures, pay packages and all those stuffs that we do for our employees. What we need to at this moment is organization wide cultural change"
You may ask, "Rajesh, How we can do tha?" I knew it, and thank God I have an answer to your question. Now let's think what we can do and how we can be the change we want to see.
Where Can we start:
(i) Let's treat each and every person equally as human beings (regardless of the title they hold on their business card, or Job titles, or size of their pocket),
(ii) Smile at them without thinking what position he must be holding, what income he must be earning, lets throw away that mask we wear every day.
(iii) Forget what others will think about you when you talk with goodness to those working below the line. It's none of your business what others think.
(iv) Wherever you are in your workplace, treat everyone as human beings. All of them including your colleagues or subordinates or peons in office or pantry boys or sweepers. (On a lighter note, it's always compulsory to give smile to your boss, but when you try to give smile to somebody below you, do it genuinely without any pressure. That will precisely define the character of your soul).
It will make you feel great about yourself. I felt being human again when I asked the name of that waiter. It made him feel good about himself, and in the process you will touch the hearts of other people. And winning hearts of people is very important for your successful life and successful organizations. (Why Narendra Modi became Prime Minster? Do you think it's just because of the development agenda?, No, he shown the world that he genuinely cares for human beings. He won hearts before winning the position). People won't mind bringing you to the top if you are good at winning their hearts. The secret to inspiring other's actions is winning their hearts.
(v) Whenever you go out in hotels or restaurants for eating or any other places where people serve you, give smile to those who are serving you. Tell them good evening or good afternoon. (Surprise them, your simple acts of kindness may make someone's day, you never know). Wish them a nice day. These all are small acts of kindness which makes us feel human again. There are literally 'N' number of ways in which you can do that. Just email me in your reply those innovative ways in which you did this or you can think of doing this.
These moments are precisely the moments that make us feel the spark of soul and bring real joy and happiness. So, after all what we do for others is nothing but what we do for ourselves. What goes around comes around. Law of Karma works precisely.
Organizational Impact: Now, what precisely can be an organization wide impact of these simple things? Once you spread a good idea around, people starts feeling it. Just like a disease spreads our through virus, goodness also spreads like a viral fever. At whatever level you may be working, there will be at least one or two persons below you. Start being nicer to them, be human again. Slowly, you will realize the change in their behavior towards you. Slowly people around you will start realizing the different you (don't stop if anyone criticizes you or becomes skeptical about you being nice. This reminds me of a famous Quote which said "No monument has ever been built in this world in the name of Critics", so don't think the criticisms are important).
There is No Quick Fix: Don't think something will happen overnight and your organization will become great in a year or two. It takes time to spread new idea of Being Human again but we have come very far from being human that it may take some time to reach back that old stage of humanity.
This reminds me of a nice poem titled "Keep the eyes on the prize, hold on".
Determination to change our life and our organization is the responsibility of the leader. Things won't be as easy as we assume it to be, but it's worth working for, it's worth putting in little more. "Sometimes, working on a bigger purpose will make you Tired, Tired and Tired. But, that's the reason why you need to be Brave, Brave and Brave"
I will conclude this article with closing remark "Keep your eyes on the prize, hold on"
References:
- TED TALK of Bryan Stevenson http://www.ted.com/talks/bryan_stevenson_we_need_to_talk_about_an_injustice
- TED Talk on Why good leaders make you feel safe http://www.ted.com/talks/simon_sinek_why_good_leaders_make_you_feel_safe
(Written by CA Rajesh Pabari, reach me at carajeshpabari@gmail.com or +919022780919)
Loans & Investments under Companies Act, 2013
CA Praveen Mittal
Provisions related to Loans and Investments under Companies Act, 2013General Powers of board
With respect to borrowing of Monies – the board of directors of the company are empowered to borrow monies by means of resolution passed at a meeting of the Board. Such power of the Board may also be delegated to any committee of directors, the managing director, the manager, or any other principal officer [Section 179]
With respect to Loan and Investment – for making investment, giving loan or guarantee or security board resolution with the consent of all the directors present at the meeting is required [Section 186]
Restrictions on Powers of board
(a) As per section 180 of the Companies Act, 2013, SPECIAL RESOLUTION of the company is required in case if the money to be borrowed together with the money already borrowed exceeds the paid share capital and free reserves of the company. However, the amount of temporary loans obtained from the company's bankers in the ordinary course of business will not be included in the moneys borrowed
Temporary loan for this purpose means loans repayable on demand or within six months from the date of the loan, such as cash credit arrangements, discounting of bill, etc. but does not include loan raised for the purpose of financial expenditure of a capital nature
(b) As per section 185 of the Companies Act, 2013, no company is authorized directly or indirectly to advance any loan to or give any guarantee or provide any security in connection with any loan taken by the following persons: -
- Any of its director or any partner or relative of such director;
- Any director of its holding company or any partner or relative of such director;
- Any firm in which any such director or relative is partner;
- Any private company of which any such director is a director or member;
- Any body-corporate at a general meeting of which not less than 25% of total voting power may be exercised or controlled by any such director, or by two or more such directors, together;
- Any body-corporate, the board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company;
(c) However, section 185 shall not apply in the following cases: -
- If a loan is given to MANAGING or WHOLE TIME director as a part of the conditions of service extended by the company to all its employees or pursuant to a scheme approved by the members by a SPECIAL RESOLUTION;
- If the company is in the business of providing loans and in respect of such loan interest is charged at the bank rate declared by RBI;
- In case of loan, guarantee or security given by holding company to subsidiary company or with respect to loan to subsidiary company, provided that such loan is utilized by subsidiary company for its principal business activities;
Note: - as per Circular No. 13 / 94 / CL – VI / 67, dated 24th February, 1971 in case if loan is given by holding company to subsidiary company and subsequently it ceases to be holding – subsidiary companies then also the exemption would continue to apply
(d) As per section 186 of the Companies Act, 2013, prior approval by means of SPECIAL RESOLUTION and also prior approval from public financial institution where any term loan is subsisting, is required by the company in case if its gives directly or indirectly any loan or guarantee or provides any security or invests in securities, exceeding 60% of aggregate of its paid up share capital, free reserves and securities premium account, or 100% of aggregate of its free reserves and securities premium account, whichever is more;
(e) No Company shall, unless otherwise prescribed, make investment through not more than two layers of investment companies. The term layer in relation to a holding company means its subsidiary or subsidiaries;
General restriction towards company
- Rate of interest to be charged by the company for giving loan should be equal to or more than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan;
- No company shall give loan, guarantee, security or invest in case if it is in default in repayment of deposits or payment of interest thereon;
Disclosure requirements
- The Company is required to disclose in its Annual Accounts the full particulars of such loan, guarantee or security and its purpose of utilization;
Penalties
- In contravention of section 185 – the company shall be punishable with fine ranging between Rs.5,00,000/- to Rs.25,00,000/-. Also the concerned director shall be punishable with imprisonment for six months or fine ranging between Rs.5,00,000/- to Rs.25,00,000/- or with both;
- In contravention of section 186 – the company shall be punishable with fine ranging between Rs.25,000/- to Rs.5,00,000/-. Also every officer in default shall also be punishable with imprisonment for two years and fine ranging between Rs.25,000/- to Rs.1,00,000/-;
Secretarial Issues
- Every company is required to keep a register in form MBP – 2 for the purpose of giving loan, guarantee, security or making investment;
- Register of Investments not held in its own name by the Company shall be in Form No. MBP – 3;
One Person Company – Concept, Incorporation , Compliance requirement
CA Neeraj Bansal
Concept of One Person Company:The concept of one Person Company in India is brought from the foreign countries. This is brought into India for the smooth running and to form a new legal entity by an individual. Before applicability of the Companies act 2013, an individual legally can form only his sole proprietorship in India and no other option remain to him. Before the applicability of Companies act 2013, Individual had to search a reliable, genuine, and honest partner to form a private limited company.
Now, with the applicability of the Companies act 2013, the requirement of two or more person is not required. Now a person who wishes to incorporate a private limited company can form individually without the involvement, share of any other individual. This is really a great concept introduced by the concept in the interest of the new entrepreneur who want to start the business by forming private limited company but could not do the same. Now 'One Person Company' can be formed.
Incorporation:
As per Section 2 (62) of the companies act 2013 ""One Person Company" means a company which has only one person as a member"
The following are some other features of the One Person company:-
- One Person company (OPC) is exempted from the requirement of preparing Cash Flow Statement [Sec 2(40)]
- The memorandum of One Person Company shall indicate the name of the other person who shall, in the event of the subscriber's death/ incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar of Companies (form INC-3).
- The words ''One Person Company'' shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved [Sec 12(3)(d)]
- An individual can incorporate maximum five number of 'One Person Company'
Compliance requirement in 'One Person Company':
- 'One Person Company' is required to file the copy of Financial statement within 180 days from the closure of the financial year [ Sec 137(1)]
- 'One Person Company' is not required to hold the Annual General Meeting (AGM)
- The provisions of section 98 and sections 100 to 111 (both inclusive) shall not apply to a 'One Person Company' [Sec (122)(1)]
- In case of 'One Person Company' an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member.[Sec(152)(1)]
- 'One Person Company' is required to hold any two Board meeting during a calendar year and one meeting in each half of the calendar year and gap between two meetings is not more than 90 days [Sec(173)(5)].
Forms for Incorporation of 'One Person Company':
- Application for Reservation of Name- Form INC-1
- Consent of Nominee – Form INC-3
- Application for Incorporation- Form INC-2
- Notice of Situation or change of Situation- Form INC-22
- Appointment of Directors and key general Managerial person and changes – Form DIR -12
Conclusion:
This is the good step by the government which is brought from the foreign. If we see it by the view of income tax provisions, the 'one person company' is to be taxed with the higher rate as the other private limited companies and the dividend distribution tax under 2(22)(e) is also applicable on the 'One person Company'. So to promote the new model of the company, government should give some tax benefits so that people attract to form the company under this new model called 'One Person Company'.
(Author can be Reached at cacsneerajbansal@gmail.com)
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| (New York, New York, May 21, 2014) – As today's global economy becomes increasingly interconnected, the International Auditing and Assurance Standards Board (IAASB) is pleased to note that the number of jurisdictions using, or committed to using, the clarified International Standards on Auditing (ISAs) has passed 100—marking an important achievement in global convergence. The ISAs were thoroughly redrafted and revised during the IAASB's Clarity Project, which finished in early 2009. Since then, the IAASB has monitored the uptake of the clarified ISAs. With the recent addition of several African countries – a development noted by IAASB Chairman Prof. Schilder during his recent speech in Cameroon in May – there is significant use of the clarified ISAs across six continents. "We have seen a steady increase in the use of the Clarified ISAs over the years, with the ISAs also now translated into many languages. This demonstrates the importance the global community attaches to a set of global auditing standards that can be used for high-quality audits in both the private and public sectors," noted Prof. Schilder. About the IAASB The IAASB develops auditing and assurance standards and guidance for use by all professional accountants under a shared standard-setting process involving the Public Interest Oversight Board, which oversees the activities of the IAASB, and the IAASB Consultative Advisory Group, which provides public interest input into the development of the standards and guidance. The structures and processes that support the operations of the IAASB are facilitated by the International Federation of Accountants (IFAC). About IFAC IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. It is comprised of 179 members and associates in 130 countries and jurisdictions, representing approximately 2.5 million accountants in public practice, education, government service, industry, and commerce. | ||||
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RBI issues Guidelines for import of gold under 20:80 scheme
RBI/2013-14/600
A.P. (DIR Series) Circular No.133
A.P. (DIR Series) Circular No.133
May 21, 2014
To
All Scheduled Commercial Banks which are Authorized Dealers (ADs) in
Foreign Exchange/ All Agencies nominated for import of gold
Foreign Exchange/ All Agencies nominated for import of gold
Madam/ Sir,
Import of Gold by Nominated Banks / Agencies / Entities
Attention of Authorised Persons is drawn to the Reserve Bank's A.P. (DIR Series) Circular No. 25 dated August 14, 2013; and the subsequent circulars, on the captioned subject.
2. The Government of India and Reserve Bank of India has been receiving representations from the jewelers, bullion dealers, AD banks, and trade bodies to rationalise the guidelines for import of gold. Taking into account such representations and in consultation with the Government of India, it has been decided to modify the guidelines for import of Gold by the nominated banks / agencies / entities. These revised guidelines which will come into force with immediate effect are as under:
3. Star Trading Houses / Premier Trading Houses (STH/PTH) which are registered as nominated agencies by the Director General of Foreign Trade (DGFT) may now import gold under 20:80 scheme subject to the following conditions:
- The STH/PTH should have imported gold prior to the introduction of 20:80 scheme. STH / PTH should get the required verification done by the Department of Customs at any port where they have imported gold consignment in the past.
- The first lot of gold under this scheme would be based on the highest monthly import during any of the last 24 months prior to the RBI's notification dated August 14, 2013, subject to a maximum of 2000 Kgs.
- As in the case of other nominated agencies, the eligible quantity may be imported by STH / PTHs from any port, subject to their eligibility limit / maximum quantity allowed to them.
- For proper compliance, before import, they must submit the import plan, port-wise and quantity-wise, to the concerned Customs office, where the verification of the figures of past performance was done. This information will be sent to all the other ports from which imports are permitted. The overall discipline of exporting 20% of each imported consignment before the next consignment is imported will be equally applicable to such STH/PTH importers.
4. Further, it has been decided to permit the nominated banks, to give Gold Metal Loans (GML) to domestic jewellery manufacturers out of the eligible domestic import quota of 80% to the extent of GML outstanding in their books as on March 31, 2013.
5. A revised working example of the operations of 20:80 scheme envisaged in terms of the revised instructions is given in the Annex.
6. All other instructions will remain unchanged
7. Authorised dealers may please bring the contents of this circular to the notice of their constituents and customers concerned.
8. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(C D Srinivasan)
Chief General Manager
Chief General Manager
Annex
Revised working example of the operations of 20/80
scheme for import of gold
scheme for import of gold
1. A Nominated Bank / Agency / any other entity, ABC, imports say 100 kg of gold, which shall be routed through custom bonded warehouses only. If considered necessary, the lot can be procured through two invoices – one for exporters (i.e. 20%) and the other one for domestic users (80%).
2. Out of the above import of 100 kg, 20 kg gold held in the bonded warehouse can be got released, in part or full, to be made available to the exporters of gold against an undertaking to Customs Authorities as is the practice now.
3. The balance 80 kg can be sold / lent in part or full to domestic entities engaged in jewellery business / bullion dealers/ banks operating the Gold Deposit Scheme (GDS) and Gold Metal Loan (GML). The sale of imported gold will be against full upfront payment, except in the case of GML, where nominated banks can give GML to domestic jewellery manufacturers to the extent of GML outstanding in their books as on March 31, 2013. In other words, no credit sale of gold in any form will be permitted for domestic use, except for GML. In case, the Nominated Bank itself is operating the Gold Deposit Scheme and extend Gold Metal Loans out of gold mobilized under GDS, the bank will be permitted to use, out of 80 kg, a portion for replenishing gold given as GML.
4. Next lot of import of 100 kg of gold by ABC shall be permitted by the Customs Authorities only after the proof of export (i.e. 20% of the imported lot) is submitted.
5. Import of gold in the third lot onwards will be lesser of the two:
i) Five times the export for which proof has been submitted; or
ii) Quantity of gold permitted to a Nominated Agency in the first or second lot.
ii) Quantity of gold permitted to a Nominated Agency in the first or second lot.
Note: The same procedure is to be followed by the refineries and by any other entity importing gold in any other form / purity and in the case of import of Gold Dore also.
* First lot of gold import will not exceed 20% of the maximum of the imports done in any of the previous three financial years since the end of the preceding financial year'.
RBI allows advance up to a maximum tenor of 10 years for execution of long term supply contracts for export of goods
RBI/2013-14/597
A.P. (DIR Series) Circular No.132
A.P. (DIR Series) Circular No.132
May 21, 2014
To
All Category – I Authorised Dealer Banks
Madam/ Sir,
Export of Goods – Long Term Export Advances
Attention of Authorised Dealer Category – I (AD Category I) banks is invited to the sub-regulation (2) of Regulation 16 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, notified vide Notification No.FEMA.23/RB- 2000, dated 3rd May 2000, as amended from time to time, in terms of which prior approval of the Reserve Bank is required to be obtained by an exporter for receipt of advance where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment. Further, in terms of A.P. (DIR Series) Circular No.81 dated February 21, 2012 AD Category- I banks have been permitted to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the 'export agreement' provides for the same.
2. In view of requests received from exporters, it has been decided to permit AD Category- I banks to allow exporters having a minimum of three years' satisfactory track record to receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long term supply contracts for export of goods subject to the conditions as under:
a) Firm irrevocable supply orders should be in place. The contract with the overseas party /buyer should be vetted and clearly specify the nature, amount and delivery timelines of products over the years and penalty in case of non- performance or contract cancellation. Product pricing should be in consonance with prevailing international prices.
b) Company should have capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed.
c) The facility is to be provided only to those entities, who have not come under the adverse notice of Enforcement Directorate or any such regulatory agency or have not been caution listed.
d) Such advances should be adjusted through future exports.
e) The rate of interest payable, if any, should not exceed LlBOR plus 200 basis points.
f) The documents should be routed through one Authorized Dealer bank only.
g) Authorised Dealer bank should ensure compliance with AML / KYC guidelines and also undertake due diligence for the overseas buyer so as to ensure it has good standing / sound track record.
h) Such export advances shall not be permitted to be used to liquidate Rupee loans, which are classified as NPA as per the Reserve Bank of India asset classification norms.
i) Double financing for working capital for execution of export orders should be avoided.
j) Receipt of such advance of USD 100 million or more should be immediately reported to the Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, 5th Floor, Amar Building, Mumbai under copy to the concerned Regional Office of the Reserve Bank of India as per the format given in Annex – I.
3. In case Authorized Dealer banks are required to issue bank guarantee (BG) / Stand by Letter of Credit (SBLC) for export performance, the following guidelines may also be adhered to:
a) Issuance of BG / SBLC, being a non-funded exposure, should be rigorously evaluated as any other credit proposal keeping in view, among others, prudential requirements based on board approved policy. Such facility will be extended only for guaranteeing export performance.
b) BG / SBLC may be issued for a term not exceeding two years at a time and further rollover of not more than two years at a time may be allowed subject to satisfaction with relative export performance as per the contract.
c) BG / SBLC should cover only the advance on reducing balance basis.
d) BG / SBLC issued from India in favour of overseas buyer should not be discounted by the overseas branch / subsidiary of bank in India.
e) Authorised Dealer bank should duly evaluate and monitor the progress made by the exporter on utilisation of the advance and submit an Annual Progress Report to the Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, 5th Floor, Amar Building, Mumbai under copy to the concerned Regional Office of the Reserve Bank of India in format as per Annex – II within a month from the close of each financial year.
4. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
5. The directions contained in this circular have been issued under Sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions I approvals, if any, required under any law.
Yours faithfully,
(C D Srinivasan)
Chief General Manager
Chief General Manager
ANNEX I
Reporting of Long term Advance of USD 100 million & more
Name and Address of the Exporter:
PAN of the exporter:
Name, address and relationship with the overseas supplier from whom long term advance has been availed of:
Company review:
| Nature of business | Number of years the party has been dealing with the bank | Details of existing facilities with the Bank | Export to total domestic sales ratio (last three years average) |
Details of long term advance:
| Total amount of contract/orders placed & period | Total advance to be received | Date of receipt of Advance | Tenor | Rate of Interest, if any | Details of BG/SBLC issued, if any |
Place:
Date:
Date:
Authorised Signatory:
Authorised Dealer Bank:
Address:
Seal:
Authorised Dealer Bank:
Address:
Seal:
Progress Report to be submitted by Authorised Dealer Bank on utilization
of Long term export Advances
of Long term export Advances
(For the year ended March 31, …….)
Name and Address of the Exporter:
Name and address of the overseas supplier from whom long term advance has been availed of:
Name of the Regional Office of Reserve Bank of India to which Report is being submitted:
Details of utilization of long term export advance:
| Total export advances received | Projected export performance for the year ended 31.3… | Actual exports performed | Comments/ reasons for shortfall | Export outstanding as on 31.3… | Details of export advance used to adjust the domestic loan, if any, |
Details of bank guarantee/SBLC issued:
| Total amount for which BG has been issued | Whether invoked | Reasons for invocation |
Place:
Date:
Date:
Authorised Signatory:
Authorised Dealer Bank:
Address:
Seal:
Authorised Dealer Bank:
Address:
Seal:
Write a will to ensure your legacy does not get mired in legal disputes
Our last week's article on Tax Implications of receiving Gifts invited a lot of feedback from our readers, and to be honest we received a total of 108 queries on multifarious aspects of receiving gifts. This was highest feedback we received so far on any of our articles. We have replied to most of them; however some of the queries involve complications and shall be replied in due course.
As I was thinking what should be the topic of current week's newsletter, I was reminded of one particular client of mine who expired 2 years ago. Mr. Sharma expired at an age of 47, which by far is not old enough. He was survived by his wife and 3 children. He was a regular client of mine and always sought advice on Tax planning, investment and retirement planning. He was an avid reader and understood most of the income tax provisions, I shared with him. On one of our discussions, he sought my advice on estate heritance planning, i.e. how his estate should be divided among his family members after his demise. I advised him to write a Will, which he neglected saying he is still young for it. He died almost 4 months later.
It was a sad loss for his family. For the next almost six months his family struggled hard to access what was rightfully theirs. They were unable to lay hands on the financial assets of Mr. Sharma, who passed away.
The emotional trauma of losing him was followed by despair at not being able to withdraw the money lying in his bank account or access his other investments. This upheaval has been sparked by a single act of omission on the part of Mr. Sharma's writing a will.
Mr. Sharma didn't leave a will and had not named a nominee, so, she and her kids have been running from pillar to post to prove that they are the only legal heirs of the deceased. Mr. Sharma had a substantial amount of money in his bank account, but it cannot be withdrawn till the bank is satisfied that there are no other claimants to these funds.
His wife submitted copies of the death certificate and ration card as well as a letter of indemnity, but the bank is demanding more documents.
The point which we wish to make across is timely writing of Will by every family head. Don't think you will have sufficient time later on. Read on to understand more on this…
Writing a will
Any adult who wants to distribute his assets can write a will. The assets can include property, gold, financial investments, art and artefacts, even hard cash lying at home.
If you think that only the super-rich need to write wills then you should realize that it is not so.
Whether you are a daily wage earner or a tycoon, you have the right to dispose of the assets you own according to your wish, a will is an instrument that allows you to do so.
Contrary to perception, it is not necessary to write it on a stamp paper or even get it registered. You can write a will on plain paper and it will be as legally valid as one prepared by a lawyer. All it should do is identify you as the testator (or the person who is making the will), list out your assets and specify how these are to be distributed among the beneficiaries.
Whether you type it out or write it down, it is a legal document for all practical purposes as long as it is signed by you and attested by two witnesses.
For most people, making a will can be a simple, do-it-yourself exercise. The only requirement is that the will should be legible. If a person is old and frail, he should avoid writing it himself and get it typed to avoid disputes in the future.
However, if there is a complication in the ownership of assets and wealth, you may need the help of a legal professional to draft the will. Such a person will ensure that there are no loopholes or ambiguity in the language that may lead to disputes later on.
More importantly, he will make sure that the distribution is within the ambit of the law. When it comes to making a will, people try to experiment, but the wishes of the testator should be legally enforceable. Therefore, consulting a professional on this matter is important.
Legal viability
A will cannot override the natural succession of ancestral wealth. In other words, a person cannot will away the entire inherited property the way he wants to. He can pass on only his share to anybody he wants, but the remaining property can be willed only to the legal heirs. Suppose a Hindu man inherits Rs 50 lakh from his father. If he has four legal heirs, then he has only a 20% share in that amount. The balance belongs to the four legal heirs. He can will his own share (Rs 10 lakh) as he wants, but cannot distribute the balance Rs 40 lakh to somebody other than the four legal heirs.
In case you want to bequeath certain assets to people other than the natural heirs, you would need to mention the reason for doing so. This would foreclose the chances of any objection from other beneficiaries.
A will has to be attested by at least two witnesses and it is important to choose them carefully. They should be completely reliable and preferably much younger than you are in order to ensure that they are alive when your will is being executed.
In one of the legal dispute related to asset distribution under a will, the deceased had willed everything to one of his children. The other siblings filed an objection but the sole beneficiary could not prove the validity of the will because the witnesses could not be located. The matter was resolved only after the beneficiary agreed to split the assets with the other siblings.
Such cases bring into focus the role of the executor of the will. The executor is supposed to oversee the distribution of your assets according to your will. Here again, you need to be careful while choosing an executor.
Not only should the executor be a reliable person, but someone your heirs will be willing to listen to. If the asset distribution is not equitable, it can lead to squabbles, and unless the executor can resolve the differences, the matter may end up in court.
This is also the reason legal experts advise that the will should be registered. This is not mandatory, but it puts a stamp of authenticity on the document. If you want to get the will registered, you can get it registered with a sub-registrar.
To make it ironclad, use a stamp paper to make the will. One copy of the will is filed in the registrar records and the original is given back to the testator. If a will is drafted properly and subsequently registered, any objections would lack teeth.
Is gifting a better option?
It can be argued that instead of going through the rigmarole of making a will and apportioning assets among one's heirs, one can simply gift them during one's lifetime. However, gifting has its own limitations. For one, the process of gifting is irrevocable, that is, once the asset is given, it becomes the property of the receiver. Experts say it is risky for a person to give away all his assets during his lifetime and then be at the mercy of the beneficiaries.
On the other hand, an individual can change his will any number of times, deleting names and adding new ones as per his wish. If there is a minor change, it can be done by filing a codicil instead of rewriting the entire will. A codicil is a supplementary document which specifies the changes in the will. One of the reasons people postpone making a will is the misconception that it cannot be altered. This is not true; you can make any number of changes. The latest will supersede all previous documents.
Appoint a nominee
One seamless option of transferring assets to your heirs is to make them nominees. All financial investments (mutual funds, bank deposits, bonds, etc) offer this facility. However, while a nomination ensures a smooth transfer of assets, it does not make the nominee the sole owner of those assets. The other legal heirs of the individual can stake a claim to those assets.
In a case that came up before the Supreme Court in 1983, a life insurance policyholder died without writing a will, leaving behind his mother, wife and son. His wife was the nominee of the insurance policy, but his mother and his son filed petitions, both demanding a one-third share in the insurance amount. The court ruled in their favour, stating that the nomination only indicates that the person is authorised to receive the amount but is not the sole owner of that sum. Few people are aware of this fact. Most believe that the nominee will also be owner of the assets.
What if you still don't write a Will.
If there is no will, the estate of the deceased is distributed in accordance with the law of succession. However, such cases usually end up in court or are settled after acrimonious negotiations between the legal heirs. There is also a cost attached. If you apply for a succession certificate from the court because there's no will, you need to pay up to 3% of the value of the assets. This is why you should settle these issues during your lifetime.
To Summarise
A will is a legal document that clearly demarcates what should go to whom and bypasses all succession laws. It reduces the chances of dispute and lessens emotional distress. So, in case you have not thought about succession, it's time to stop procrastinating and start penning your legacy.
(Author- XPERT Consulting – Tax Consultants, E: contact@xpertconsulting.biz, www.xpertconsulting.biz)
Place of Provisioning of Services Rules, 2012 (POPS Rules, 2012)
CA Heena Gupta
Place of Provisioning of Services Rules, 2012 (POPS Rules, 2012)Applicable from 01.07.2012, Section 66B of the Finance Act, 1994 provides that service tax shall be leviable on the value of service provided or agreed to be provided by one person to another within taxable territory. Thus, only services rendered in taxable territory is taxable. Hence, it is essential to determine the place where the services are provided or agreed to be provided.
Empowered by section 66C of the Finance Act, 1994, the Central Government has notified Place of provision of Services Rules, 2012 vide Notification No. 28/2012.
Rule 1 provides that these rules shall come into force on 01.07.2012.
Rule 2 provides definitions which are discussed at relevant places.
Rule 3:- Place of provision generally
- Generally the place of provisioning of services is the location of service recipient.
- It is the default rule. Rule 4 to 12 provides specific provisions for specified services. Where the service gets covered under rule 4 to 12, the provisions mentioned under rule 4 to 12 shall apply. In all other cases, this rule shall apply.
- This rule further provides that in case location of service recipient is not available in ordinary course of business, place of provisioning of services shall be the location of service provider.
Following other things should be kept in mind while applying this rule:
- Determining location of Service Recipient (Rule 2(i) of Place of Provisioning of Services Rules, 2012)
| Where service recipient has single registration | Location of premises which is registered |
| Where service recipient not covered above: | |
| Service recipient has a business establishment | Location of such business establishment |
| Service recipient has fixed establishment other than business establishment, where services are used | Location of such fixed establishment |
| Where services are used at more than one establishment | Location of establishment which is most directly related to use of service. |
| Absence of such places | The usual place of residence of service recipient |
Similar rules are prescribed for determination of location of service provider under rule 2(h) of the POPS rules, 2012.
- Meaning of Ordinary course of business
It implies that the service provider need not make any extra efforts to determine the address of service recipient if in the normal course of business such address is not being obtained.
- Business Establishment
- Place where essential decisions regarding general management are adopted
- Place where administrative functions of business are carried out.
- Any organization can have only one business establishment.
- It can be head office or factory or workshop.
- Fixed Establishment
1. Place which has permanent presence of human and technical resources to provide or receive a service.
- Meaning of usual place of residence
| In case of body corporate | The place where it is incorporated/legally constituted |
| In case of individual | The place where the individual spent most of his time during the period in question. |
Rule 4:- Place of provision of performance based services
- The place of provision of following services shall be the location where the services are actually performed:
(a) Services in respect of goods that are required to be made physically available by the service recipient to the service provider, or to a person acting on behalf of service provider, for the provision of services.
(b)Services provided to an individual, either service recipient or a person acting on behalf of service recipient, which requires the physical presence of individual and the service provider at the time of performance of services.
- It is provided that in cases of services are provided from a remote location by way of electronic means, the place of provision of service shall be the location where the goods are situated at the time of provision of service(1st Proviso to rule 4(a)).
Example: An IT firm located in Bangalore provides repair service in respect of software, to a company at its establishment in Malaysia by way of electronic means, the place of provision of service shall be Malaysia.
- It is further provided that provisions contained in rule 4(a) shall not apply to in respect of goods that are temporarily imported in India for repairs, reconditioning or re-engineering for re- export, subject to conditions as may be specified(2nd Proviso to Rule 4(a)).
- Examples of services provided in respect of goods are repairing, reconditioning, storage and warehousing, courier services, cargo handling services, etc.
- Examples of services provided to individual are cosmetic services, personal security service, health and fitness services, photography services, classroom teaching services, etc.
Rule 5:- Place of provision of services relating to immovable property
- The place of provision of services directly in relation to an immovable property shall be the place where the immovable property is located or intended to be located.
- Following services provided with regard to specific immovable property will be considered as services directly related to immovable property:
(a) Services provided by experts and estate agents
(b)Provision of hotel accommodation by a hotel, inn, guest house, club or campsite by whatever name called,
(c) Grant of rights to use immovable property i.e. renting
(d)Services for carrying out or co-ordination of construction work, including Architects or Interior decorators.
- Some examples of services which are not related with immovable property:
(a) Advice or information relating to land prices or property markets because they do not relate to specific sites.
(b)Services of a tax return preparer for making a return by using figures provided by a person in respect of rental income from immovable property as this service is not directly related to the immovable property.
(c) Repair and maintenance of machinery which is not permanently installed. This is a service related to goods.
Rule 6:- Place of provision of services relating to events
- It provides that in case of admission to, or organization of an event, the place of provisioning shall be the place where the event is actually held.
- The events covered by the rule are cultural, artistic, sporting, scientific, educational, entertainment event, celebration, conference, fair, exhibition or similar events. The list is very exhaustive and would cover all types of events which can be possibly held.
- This rule can be divided as:
(a) Services by way of admission to an event
(b)Services by way of organization of an event
(c) Services ancillary to admission to such event
- It may be noted here that the service by way of admission to an entertainment event is exempt from service tax as mentioned u/s 66D i.e. negative list. Services of admission to all other events are very much taxable.
- "Organization" includes preparation of place for holding of an event, arrangement of facilities, etc.
- Ancillary Services to admission includes services which are obtained to enjoy the event. E.g. person hiring binocular to view horse racing.
Rule 7:- Place of provision of services provided at more than one location
- This rule is applicable where service in question is covered under rule 4, 5 and 6 and is provided at more than one location, including a location in taxable territory.
- In such cases, the place of provision of services shall be the location of taxable territory where the greatest proportion of service is provided. This is applicable even if a part of service is rendered in taxable territory. Service tax would be payable on the entire value of service provided. Example:
A coaching institute organizes a study tour to UK, US and India for its students. The study tour is for 10 days out of which 7 days are spent in UK and US. As per this rule, the place of provision of service would be India.
- However this rule is not intended to capture insignificant portion of service rendered in any part of taxable territory like mere issue of invoice, which is not service actually performed.
Rule 8:- Place of provision of services where provider and recipient are located in taxable territory
- The place of provision of service would be the location of service recipient where service recipient and provider both are located in taxable territory.
- This rule will override rule 3, 4, 5 and 6. Since if place of provision of a service falls under both rule 3,4,5 or 6 and rule 8, then rule 8 shall apply due to the application of rule 14. Rule 8 will not override rule 9, 10, 11 or 12.
Rule 9:- Place of provision of specified services
- The place of provision of following services shall be the location of service provider:
(a) Services provided by a Banking company, or a Financial Institution or a Non- Banking Financial company, to account holders
- Rule 2(b) defines "Account" to mean an account which bears an interest to the depositor, and includes a non-resident external account and a non-resident ordinary account.
- Banking services provided to persons other than accountholders are not covered under this rule. E.g. place of provision of service of making DD for non-account holders would be as per rule 3.
- Place of provision of services to current accountholders are not covered here; they shall be covered under default rule 3.
- Further services to accountholders which bear interest can be categorized as follows:
| Services that are provided in the ordinary course of business | Services that are not provided in the ordinary course of business |
| POPS – As per Rule 9 | POPS – As per Rule 3 |
(b)Online information and database access or retrieval services
Rule 2(l) defines 'online information & database access/retrieval services' to mean providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network e.g. web based services like matrimony services, social networking sites, online subscription of newspapers, weather reports, etc.
Following are not covered:
1. Sale/purchase of goods etc. over the internet
2. Telecommunication services provided over the internet including fax, audio conferencing, video conferencing and telephony
3. A service which is rendered over the internet, such as architectural drawing or management consultancy through email
4. Repair of software, or of hardware, through the internet, from a remote location
(c) Intermediary services
- Rule 2(f) defines 'intermediary services' to mean a broker, any agent or any other person, by whatever name called, who arranges or facilitates a provision of a service(hereinafter called the 'main service') between two or more persons(it doesn't include a person who provides service on his own account).
- Thus an intermediary is involved with two supplies at any time:
1. The supply between the principal and the third party, and
2. The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.
- Example : Travel agents and commission agents for services but not commission agents for goods
- This rule does not apply to the provider of main service.
(d)Services consisting of hiring of means of transport, up to a period of one month
- Rule 2(j) defines 'means of transport' to mean any conveyance designed to transport goods or persons from one place to another.
- Racing cars and containers are not means of transport.
- Example: A call centre of MNC(Haryana) has hired 20 Tata Sumos from Mr. A(Delhi) for a period of one month
POPS – Rule 9 shall be applicable, hence POPS shall be Delhi
If period of hire is more than one month
POPS – Rule 3 shall be applicable, hence POPS shall be Haryana
Rule 10:- Place of provision of Goods Transportation Services
- This rule is applicable for services of transportation of goods by any means of transport (Aircraft, rail, vessel, road)including services of Goods Transport Agency (Service of transportation of goods by road)
Excluding service by mail or courier
- POPS of GTA service shall be the location of person liable to pay service tax. It may be noted here that in case of service by GTA, the person liable to pay tax is the person who pays to the transporter for transportation of goods. The obligation to pay to GTA shall arise from the contract entered into between the consignor and consignee.
- POPS for Goods transportation services other than GTA shall be the destination of goods.
Example 1
Mr. X (Chennai) imported goods to Mr. Y (USA). Services of shipping company (USA) taken by Mr. X for bringing the goods to Gujarat Port. Here SP is Shipping Company (Outside Taxable Territory) and SR is Mr. X (Within Taxable Territory). Applying Rule 10, POPS shall be destination of goods i.e. Gujarat.
Example 2
ABC, a GTA located in Delhi, transports a consignment of new motorcycles from the factory of XYZ Ltd.(Haryana), to the premises of Mr. A, a dealer of J&K. As per mutually agreed terms between ABC and XYZ, the dealer in J&K shall pay freight.
SP is ABC located in Delhi, SR is Mr. A located in J&K
Since Mr. A is not one of the specified categories of person as mentioned u/s 68(2), reverse charge mechanism is not applicable and hence the person liable to pay service tax is ABC, GTA.
Therefore POPS shall be location of ABC i.e. Delhi.
Rule 11:- Place of Provision of Passenger Transportation Service
- The POP of services of passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey.
- This rule is applicable for service of passenger transportation by all modes, be it road, rail, air or sea.
- Rule 2(d) provides definition of continuous journey as follows:
It means a journey for which
- A single or more than one ticket or invoice is issued at the same time, either
üBy one service provider or
üThrough one agent acting on behalf of more than one service provider, and
- Which involves No Stopover between any of the legs of the journey for which one or more separate tickets or invoices are issued;
- Rule 2(g) provides the definition of leg of journey as follows:
It means a part of the journey that
- Begins where passengers embark or disembark the conveyance,or
Where it is stopped to allow for its servicing or refueling, and
- Ends where it is next stopped for any of those purposes;
- CBEC Education Guide provides the meaning of stopover as follows:
It means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time.
All stopovers do not cause a break in continuous journey. Only such stopovers will be relevant for which one or more separate tickets are issued.
Rule 12:- Place of Provision of Service provided on board a conveyance
- The POP of service in respect of services provided on Board conveyance during the course of passenger transportation shall be the first scheduled point of departure of the conveyance.
- Examples are on-board service of movies/music/video/games on demand, beauty treatment, etc.
- The conveyance for passenger transportation can be bus, train, aircraft, truck, vessel, etc.
- In case value of service is included in the fare for transportation of passenger as a trade practice, it will be considered as naturally bundled service u/s 66F and therefore it shall be taxable for service which provides the essential character of service. In this case, essential character is transportation of passengers and hence on board service will not be considered as separate service at all.
- The on-board service shall be taxable only when value of service is not included in the fare for transportation of passengers.
Example:
A video game or a movie-on-demand is provided as on-board entertainment during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi flight.
As per Rule 12, POPS = First Scheduled point of journey= Bangkok (Outside Taxable Territory)- Service tax not leviable
Rule 13:- Power to notify description of services or circumstances for certain purposes
- The CG has been empowered to notify any description of service or any circumstances in which the place of provision shall be the place of effective use and enjoyment of a service.
- This power is basically to enable the CG to issue notifications to avoid the hardship to any service provider which can be caused because of place of provision of service rule.
- At present, no service has been notified.
Rule 14:- Order of Application of Rules
- As per this rule, where the POP is determinable under more than one rule, the rule that occurs later among the rules that merit equal consideration will be applicable for determination of POPS.
Example
An architect based in Mumbai provides his service to an Indian Hotel Chain (which has business establishment in New Delhi) for its newly acquired property in Dubai.
| Service Provider | Service Receiver |
| Architect(Mumbai) | Hotel Chain(Delhi) |
| Within Taxable territory | Within Taxable territory |
Two Rules equally apply here:
Rule 5: POPS- Location of Immovable property- Outside Taxable territory- No Service tax
Rule 8: POPS- Location of Service Receiver- within Taxable territory- Service tax leviable
As per Rule 14, POPS shall be as per rule 8, i.e. Delhi (within taxable territory)
(Author can be reached at caheenagupta @ gmail.com)
CPC(TDS) – Transaction based Report for NRI deductees
CPC(TDS) has introduced a new feature on TRACES for generating Transaction Based Report (TBR) in respect of deductees reported in 27Q TDS Statements. The report provides with a summary of transactions in respect of NRI Deductees who have not reported their PANs (PAN Not Available)
Please refer to the following relevant details in respect of TBR:
- The feature is available only in respect of NRI deductees, who have been reported in Form 27Q of TDS Statements
- The deductee with whom the transaction has been entered into, has reported PAN Not being Available
- The report is available for FY 2013-14 onwards
- The summary of transactions includes the following key information, besides others:
- Nature of Remittance,
- Amount Credited / Paid,
- Country of Remittance,
- Amount of Tax deducted
- Reason for higher Rate of deduction of Tax (PAN Not Available)
- To download the report, you are requested to navigate to "Transaction Based Report" under "Downloads" menu
- After completing details for FY and Quarter, KYC needs to be completed for submitting request for downloads
- The report will be made available under "Requested Downloads" menu. Please note that the report will be made available in Zipped file format, which needs to be extracted using the PDF Generation utility for TBR.
- TBR zipped file is password protected, which is the TAN of the deductor.
- The reports can also be digitally signed while downloading or you may chose to continue without Digital Signature
A guide to Car Buying
The influx of numerous automobile companies in India has resulted in much more variety and choice for the people of this nation. Power, mileage, design, etc., each company is known for its own specialty. For example if you desire power, there is Honda and Ford offering you brute power and enhanced pickups. Hyundai and Maruti-Suzuki have managed to become middle class household favorites and maintain the "value for money" tag with them.
So how do you finalize your next car in the driveway? The answer to this million dollar question is explained in the next few lines and steps. It's better to get a pen and paper alongside you for it shall help you in crossing out options and listing extra requirements in a much more organized manner.
Step 1: Decide the budget
Most people enter a car showroom with a decided budget in their mind but end up buying a vehicle, costing a couple of lakhs more. And then this afterwards haunts you every month when it's time to take out your hard earned money for paying the EMI's.While deciding the budget do consider two factors – purchase price, running cost, and maintenance cost
Purchase price is the price you pay to purchase the vehicle. This is the one time cost and you can either pay it in lump sum or installments. Do not get fooled by the price quoted on brochures by manufacturers. Accessories come at extra price and can increase the price of the car by 0.5L – 1.5L.
Finance Cost – If you purchase the car on loan the nearest bank branch, you will have to pay the interest on the loan amount. This will essentially drive up your total cost of ownership. More importantly as you pay EMIs, money available for consumption will reduce.
Running Cost – A big factor in deciding whether you should purchase diesel or petrol car. Government has been steadily increasing the price of diesel every year. But it is not going to catch up with petrol prices in near future. So far as there is a difference in these prices, running cost will be a big factors in deicing which car to buy.
Maintenance Cost – Diesel cars need more maintenance than petrol cars. After 5000KM Maruti Swift Petrol Cost Rs.5300 as service charges while diesel version costs Rs.6500.
Diesel Or Petrol – Diesel engines are more powerful than petrol engines and hence the diesel cars need to be sturdier than petrol cars. For this reason, diesel cars are expensive. The good part is that these cars have lower running cost as diesel is cheaper than petrol. I have given an equation below to help you make decide which car you should buy
Cost of ownership for 5 years = Purchase Price + 5*365*number KM you plan to run daily*difference in price per KM of petrol and diesel car considering difference fuel price and mileage + 5*365*(maintenance cost of diesel car per KM – maintenance cost of petrol car per KM) [I have considered the discounting factor here but you get the logic]
Maruti swift diesel has cost per KM of 3.65 while petrol version has cost per KM of 7.12
Step 2: Decide Car Type
For those who don't know much, basically there are 3 types of cars you can buy.
This is an important decision as it largely depends on your daily travel.
Hatchback – The smaller looking cars are called Hatchbacks (like Santro, Wagonr, Alto). These are good to seat 4 or 5 people. They are also the cheapest – starting from 1.4 lac upto 8L+ (Volkswagen Polo GT) Generally hatchbacks are more fuel efficient than sedan and SUV since these engines have lower capacity engines.
Sedan – The cars having an extended boot or what Indian's call "Dikki" are called Sedans (like Honda city, swift dZire). While most of my friends started with a hatchback when they got married, they quickly upgraded to premium hatchback or sedan once they had kids. A hatchback can make you feel stuffy inside if you have a family of 4. They are more expensive – start from 4.7L upto 25L (ignoring premium brands like Audi and BMW) Then can seat upto 5 people.
Special Utility Vehicle (SUV) – An expensive category, SUVs are more powerful and are generally diesel cars. Prices start from 7L (Ford Ecosport). They can seat from 5 to 9 people.
If your majority travel is in the city, commuting to office, a sedan and hatchback are preferable as they don't require much parking space. However if you have a large family and go out frequently, it might be a good idea to buy an SUV. But experienced auto-journalists often advice that one hatchback is a must for each household as their maintenance is easier, and can be used for daily jobs as well. Sedans give a luxurious appeal to the person and nowadays most sedans are competing with hatchbacks as they have increased mileage.
Step 3: Get an overview
After you have decided on the external aspects that are type and looks, it's time to get down to some technical aspects. There are various websites and video hubs which provide you with ample of information regarding cars and bikes. You could also switch on the TV and watch automobile shows tuning into news channels.
However the key aspect here is to actually comprehend what the specs mean. It's useless to boast of horsepower and torque of a car unless you have knowledge about it. So some of the key aspects you must keep in mind, especially if you are Indian driver, are:
However the key aspect here is to actually comprehend what the specs mean. It's useless to boast of horsepower and torque of a car unless you have knowledge about it. So some of the key aspects you must keep in mind, especially if you are Indian driver, are:
1) Ground Clearance: If too much, you will feel nauseous and unstable. If too low, probably your car's going to end up having extra repair expenses. Ground Clearance by definition is the difference in height between your lowermost point of the chassis (i.e. in most cases the fuel tank) and the road. A ground clearance about (160-185)mm is just about right for Indian roads. With bumpy Indian roads, full of speed breakers, ground clearance is a major point while selecting a car.
Even if you are eyeing the luxurious segments of Mercedes, Audi and BMW, you should definitely consider the ground clearance aspect as these high performance cars have low ground clearances due to stability at higher speeds.
Even if you are eyeing the luxurious segments of Mercedes, Audi and BMW, you should definitely consider the ground clearance aspect as these high performance cars have low ground clearances due to stability at higher speeds.
2) Chassis Dimensions: Chassis or body dimension is a very important factor that a buyer must take into consideration as it affects the space inside the car, the legroom, headroom and comfort. Also it's decisive in calculating the road tax.
3) Mileage: Well if you are an Indian buyer, this will most probably be on top priority while buying the car. Mileage or kilometers driven per liter of fuel is also the efficiency of the car. Nowadays cars can notch up mileages up to 20kmpl both in petrol and diesel but here diesel always performs better and is advantageous when it comes to the running cost of the vehicle.
4) Boot space – The space around your feet. If you do not have enough boot space you will not feel comfortable driving long distance. Head room is important for the same reason.
5) Wheel Size – If the roads on which you drive are bumpy, you will have a more comfortable drive in SUVs because of the larger wheel size.
6) Turning radius: Radii of the circle circumscribed when the car turns at its maximum capacity
7) Engine Capacity and Power - More engine cc means more power: This is definitely a wrong notion. If you want to see the power of the car, there are only two ways to find out. First, go for a test drive. Nothing is better than a test drive to judge a car. If you don't have that much time, check out the bhp of the car mentioned in the specs in units Horse power. More the horse power more is the pickup and more is the power.
8) After Sale Services: A key aspect which is often neglected. After-sale services and the maintenance cost should be kept in mind. It has been the reason for failure of good companies such as Fiat in India. Here is where companies like Maruti and Hyundai have benefitted and still continue to do so. Locate service centers near your residence/office, of the manufacturer before buying the car as it might benefit you while giving your car for service.
Step 4: Go for a test Drive
Going on a test drive is a best way to understand if you would be comfortable driving the car and if the drive quality is good enough. Going to showroom to test drive the car is also an option. But that way you only get to drive it for 1km or so and that too in a new car. A better way is to ask a friend or friend's friend who owns that same car. I have found this to be much more reliable as you can ask the owner more questions about the maintenance, mileage, etc.
When you have done all the research work, it's finally time to get the feel of it. Go to your nearest showroom and grab the keys. Now while taking the test drive, do keep in mind the following factors:
1) Comfort: Comfort means steering height, driving view, ease of gearshift, and location of the center and side mirrors. Stretch yourself into a comfortable position, both in the front and back seat and ensure there's enough space. Never compromise on comfort.
2) Turning: Try to go on a track where you can take a U-turn to check the turning radius and ease of handling while turning the car.
3) Pickup: Concentrate more on the pickup than the top speed. Possibility is that you wouldn't get chances to cruise at 100-140kmph in the city but you will surely need a quick 0-60kmph for overtaking on city roads.
When to buy –
Buying cars during festive seasons is a good idea as they are numerous schemes and offers availed at that time like cash back, and free accessories.
Recommended cars
Hatchback
a) Petrol: Hyundai i10 grand, maruti Suzuki Swift, maruti Suzuki wagonR, Hyndai Santro.
b) Diesel: Maruti Suzuki Swift, Maruti Suzuki Ritz, Tata Indica, Fiat Punto.
Sedan
a) Petrol: Honda City, Hyundai Verna Fluidic, Honda Amaze, Nissan Sunny, Maruti Suzuki Swift Dzire
b) Diesel: Honda City, Maruti Suzuki Swift dZire, Honda Amaze, Tata Manza.
SUV
Toyota Innova, Tata Safari, Mahindra XUV-500, Toyota Fortuner, Ford Endeavour, Renault Duster, Ford Eco-sport
The above mentioned vehicles are among best buys in their respective segments. Each car provides either mileage or power, sometimes also with the extra bonus of super comfort and luxury. The key factor while selection of a car is to list of priorities in order, as in practicality it's very tough to get all features in budget. Happy Buying!
Written by Ramesh. He runs the website – allbanksifsccode.in
Download TCS Certificates in Form 27D from CPC(TDS) website
CPC(TDS) provides us with the new feature of downloading Form 27D, the Tax Collection Certificate for Deductees forming part of TCS Statements, filed in the form of 27EQ.
Please refer to the following relevant details for the above functionality
- Form 27D is Tax Collection Certificate in respect of deductees, reported in Form 27EQ Statements.
- Please refer to the provisions of Section 206C(5) of the Income Tax Act, 1962 :
- Every person collecting tax in accordance with the provisions of this section shall within [such period as may be prescribed from the time of debit] or receipt of the amount furnish to the buyer [or licensee or lessee] to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed.
- Please note the following provisions of Rule 37D of Income Tax Rules, 1962:
- The certificate of collection of tax at source under sub-section (5) of section 206C to be furnished by the collector shall be in Form 27D.
- The certificate referred to in sub-rule (1) shall specify:-
- valid permanent account number (PAN) of the collectee;
- valid tax deduction and collection account number (TAN) of the collector;
- (1) book identification number or numbers where deposit of tax collected is without production of challan in case of an office of the Government;
- (2) challan identification number or numbers in case of payment through bank;
- receipt number of the relevant quarterly statement of tax collected at source which is furnished in accordance with the provisions of rule 31AA.
- The certificate in the Form No. 27D referred to in sub-rule (1) shall be furnished to the collectee within fifteen days from the due date for furnishing the statement of tax collected at source specified under sub-rule (2) of rule 31AA.
- To download the certificates, you are requested to navigate to the "Downloads" menu.
- After completing details for FY and Quarter, KYC needs to be completed for submitting request for downloads.
- The report will be made available under "Requested Downloads" menu. Please note that the report will be made available in Zipped file format, which needs to be extracted using the PDF Generation utility for Form 27D.
IT : Provision for bad debt and leave salary will not be part of book profit
■■■
[2013] 40 taxmann.com 469 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'G'
SICOM Ltd.
v.
Joint Commissioner of Income-tax*
RAJENDRA SINGH, ACCOUNTANT MEMBER
AND AMIT SHUKLA, JUDICIAL MEMBER
AND AMIT SHUKLA, JUDICIAL MEMBER
IT APPEAL NOS. 7901 & 7955 (MUM.) OF 2003, 2337, 3194, 4719 & 5094 (MUM.) OF 2004
AND 5152 TO 5154 & 6586 TO 6588 (MUM.) OF 2005
[ASSESSMENT YEARS 1997-98 TO 2002-03]
AND 5152 TO 5154 & 6586 TO 6588 (MUM.) OF 2005
[ASSESSMENT YEARS 1997-98 TO 2002-03]
MAY 22, 2013
VI. Section 115J of the Income-tax Act, 1961 - Minimum alternate tax [Provisions for bad debts] - Assessment year 2000-01 - Whether since provisions for bad debts and leave salary cannot be treated as unascertained liability, same has to be excluded - Held, yes [Para 77] [In favour of assessee]
74. In ground No. 3, the Revenue has challenged the exclusion of provision of bad debt while working out book profit under section 115J.
75. The Assessing Officer has added back the provisions for bad debt and provisions for leave salary in the computation of book profit.
76. Before the learned Commissioner (Appeals), it was pleaded that the provisions for doubtful debt does not represent any provision created in respect of any liability and the same is, therefore, not includible in the book profits. In support of this, reliance was place on the judgment of the jurisdictional High Court in CITv. Echjay Forgings (P.) Ltd. [2001] 251 ITR 15/116 Taxman 322. Likewise, the judgment of Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC) the provisions of leave salary is also not an unascertained liability, therefore, the same was also to be excluded from the book profit. Relying upon this decision, the learned Commissioner (Appeals) excluded the said provisions for bad debt and leave salary.
77. Before us, it has been admitted by both parties that now this issue stands covered by the judgment of the hon'ble Supreme Court in CIT v. HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409/174 Taxman 118. In view of the admitted position of law declared by the hon'ble Supreme Court in the aforesaid case, we affirm the findings given by the learned Commissioner (Appeals) and hold that the provisions for bad debt and leave salary cannot be included in the computation of book profit and the same has to be excluded. Thus, ground No. 3, is treated as dismissed.
Central Excise
Cutting and slitting of jumbo rolls of self-adhesive rolls does not amount to manufacture u/s 2(f) of the CEA, 1944 - if the legislature wanted to connote this activity as manufacture it would have included CETH 4811 and 8546 in the Third Schedule or added a chapter note in the respective chapters of the CE Tariff - no merit in Revenue appeal, hence dismissed: CESTAT
THE CCE, Belapur dropped a jumbo duty demand by holding that cutting and slitting ofjumbo rolls or log rolls of self-adhesive rolls of Chapter 48 and 85 would not amount to 'manufacture'.
Aggrieved of this jumbo largesse, the Committee of Chief Commissioners directed filing of appeal before the CESTAT.
In the appeal memorandum it is mentioned that by undertaking the process of cutting and slitting there are changes in the dimensions of the product both in terms of width and length so as to make it suitable for use as adhesive tapes by the users. Therefore, a new commodity has emerged which has a distinctive name, character and use and, therefore, the process amounts to 'manufacture'.
But ,this amount to 'manufacture'. as per judgement delivered by the High courts and INCOME TAX TRIBUNALS FOR THE PURPOSE OF CLAIMING EXEMPTION U/S 80IB OF THE IT ACT.
Test of unjust enrichment not satisfied where refund amount is shown as 'expenditure' and not as 'claims receivable'
We are sharing with you an important judgment of the Hon'ble Mumbai CESTAT in the case of Hindustan Petroleum Corporation Limited Vs. Commissioner of Central Excise, Mumbai-II [2014-TIOL-658-CESTAT-MUM] on the following issue:
Issue-:
Whether the test of unjust enrichment satisfied where the claimant has treated refund amount as 'expenditure' and not as 'claims receivable'?
Facts & background:
Hindustan Petroleum Corporation Limited ("the Appellant") utilized HSD/ Naptha captively for generation of electricity to be consumed with in the refinery. The Department was of the view that the Appellant was not eligible for the benefit of captive consumption Notification No. 67/95-CE as electricity was not excisable. The Appellant paid duty of Rs.2.33 crores after clearance of the goods and an amount of Rs.5.17 crores was paid on monthly basis.
The original authority confirmed the above duty demands but the Tribunal set aside the orders of the original authority vide Order dated July 15, 2005. The Revenue challenged the order of the Tribunal and the Bombay High Court dismissed the appeal in February, 2008. Thereafter, the Appellant filed the refund claim on May 19, 2008.
On February 4, 2009, a Show Cause Notice was issued to the Appellant proposing to reject the refund claim on the ground that the refund claim was filed much after the period of one year from the date of CESTAT order. By order dated April 9, 2009, the refund claim was rejected on account of time-barred.
The Appellant challenged the said decision and the lower appellate authority held that the payment of duty during the period of dispute should be held as "under protest" and therefore, the question of time bar would not apply. However, the refund claim was rejected on account of unjust enrichment on the ground that the claimant did not submit any evidence to show that the incidence of duty was not passed on to other person. Accordingly, the Commissioner (Appeals) ordered that the amount of refund be credited to the consumer welfare fund.
Therefore, the Appellant filed an appeal before the Hon'ble Mumbai Tribunal.
Held:
The Hon'ble Tribunal held that the payment of duty by the Appellant cannot be considered as payment under protest at all since the payment of duty was not on account of any directions from the court or appellate authority. Further, the Appellant did not follow the procedure prescribed for payment of duty under protest.
The Tribunal further observed that refund claim became due from the first order of the Tribunal in 2005. However, the refund claim was filed 3 years after the said order. Hence, refund claim has been filed much after the stipulated period of one year and is time-barred.
Moreover, the Tribunal observed that the refund claimed was not reflected in the books of account of the Appellant as claims receivable. This implied that the duty paid was shown as expenditure and formed part of Profit and loss account of the Appellant. Therefore, the Hon'ble Tribunal held that it is a settled position in law that where the Appellant has itself treated the refund amount due as expenditure and not as "claims receivable", the Appellant cannot be said to have passed the test of unjust enrichment.
Therefore, the contention of the Appellant was rejected and the case was decided in favour of the Revenue.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
Invisible capital : For Cost Accountants in Practice – PART 3
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In my last article which I wrote about Developing Invisible capital : For Cost Accountants in Practice – PART 2 I discussed about process of practicing and developing the process for the same. I am continuing that series into the segment of use of technology in the profession of Cost Accounting and practicing which will create a competitive advantage for practicing . We all know that what we mean by big data analysis but as cost accountants we need to get a better hand regarding the subject. In my previous articles I have been discussing about use of technology to improve either cost accounting or the profession of practicing. Over here I will depict both the pictures. I will breaking the process into several articles so that it doesn't get confusing at the same time you can adopt different angles of the Big Data Analysis in the profession.
Big data analysis helps cost management decision making to new heights. In this article I would focus more on linking the analytical part with the better cost management tools which would help the mid level and senior level professionals to develop better decision making. We often eliminate products which don't find a significant market and hence the product reaches the end of the life cycle. This leads to a substantial loss of business and brand equity of an organization.
The extensive research and development cost associated with the product development also gets into toss and finally the company becomes desperate to prove its brand value to the end user through desperate moves of a new product launch. This is one of the most problems of every company across every economy. Big Data analysis helps to identify the drop of product sales and also saves the product from getting into the trap of ending life cycle very early. It has been found that life cycle of a product can be saved if proper metrics and analytical skills are being deployed. First we need to create set of questions based upon which the process of data analysis should travel.
· When the sales growth pricked up?
· What offerings were offered during the product launch?
· When those offerings and promotion schemes were withdrawn?
· What type of pattern regarding the season, age segment of consumer buying the product?
· Analyzes the process of promotion and the affect thereto.
Based on these when we develop the process of the data analysis we get many interesting facts figures regarding the product life cycles. The biggest advantage of BIG data analysis in these cases is that the concept of planned obsolescence, where products are intentionally designed with a short lifespan, will no longer benefit a company or its bottom line gets exposed. The organization process and foul plays of the competitor are exposed. Coming back to the story, big data analysis identifies the rationales with logical reasoning's behind the product life cycle failures and raises above the assumption theories. Longevity of the product is the key focus and requirement of data analysis involvement in this process. Big data analysis can lead to creation of better target costing and better pricing of products increasing revenue for the organization. Improvement in supply chain management through deployment of big data analysis which would reduce the inventory cycle and also block the loopholes of abnormal loss can increase the efficiency of the raw material pricing which finally increases the better pricing of the product. Cost Accounting and Cost Accountants can create revolution in the efficiency of the organization through Big Data Analysis.
In our earlier case where we figured out the failure behind product life cycle coming to an quick end, the same could find out the target consumers for the product and combining big data analysis report for better raw material prices, the end product could be made more efficient in terms of pricing. This combination would lead to revival and efficient product life cycle.
Big data analysis is now going to be the next level for academic education and I find that schools and colleges should introduce compulsory courses on statistical analysis and other areas where the level of knowledge of the student and future executives are empowered for making and developing better decision and products and process. Cost Accountants should adopt Big Data Analysis in their practicing field since this will improvise the advisory business module and would create a competitive advantage of the same.
In my research I find that in many foreign universities like Harvard university one of the prestigious universities has already launched course in data science which last year attracted 400 students, from the schools of law, business, government, design, and medicine, as well from the College, the School of Engineering and Applied Sciences (SEAS), and even MIT. Further the Harvard School of Public Health (HSPH) will introduce a new master's program in computational biology and quantitative genetics next year, likely a precursor to a Ph.D. program. In SEAS, there is talk of organizing a master's in data science. This is place where I repeatedly discuss about learning and hence we need to learn the Big Data Analysis. We cost accountants needs to do some courses on statistical which would give us the edge for understanding the subject as well as get into the BIG DATA Analysis. We need to learn and adopt technological innovation and create break through cycles in profession as well as in practising. Big Data would create revolution to the profession of Cost Accounting if implemented. So dont be the late to catch on but be the first to strike the difference.
Also Read-
Indraneel Sen GuptaGlobal Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Management, ICWAI (Final)
neel19414@gmail.com
Add-on finance courses for finance professionals in present competitive finance era
Just as we choose various add-ons while shopping or while ordering at any eating joint to suit our taste and make it better, big MNC's also look for candidates who has other add-ons in their job applicant in the form of additional qualifications to suit them best for their job. Those additional qualifications in a particular field helps job applicant as well as companies to sort out the best man required for the job.
Gone are the days when a single professional degree would serve good in the competitive business environment. In this era of globalization, the companies are not restricting themselves to offer their products and services to local cities/state and even countries. Today new businesses are setup with a vision of keeping their footsteps at global level and the existing one's have already expanded their global footprint. For example: Tata Industries is the biggest conglomerate in the world in the terms of the varities of services and products they offer with such a huge presence.
At every level of business i.e. from being a startup to big conglomerate, one thing that is pre-requisite is effective availability and management of finance via best possible way. To achieve such objective, every business needs man power who can effectively and efficiently perform this role. This is where finance professionals come handy, who has expertise in it.
In the current scenario a lot of things is expected from a finance professional. He should possess great working knowledge of his field and one who can make cheaper funds available to the business in the dynamic environment and also manage it effectively so as to maximize business's return and thereby create value for the shareholders n promoters.
Many courses are available in market for gaining such expertise. Most common are being a Chartered Accountant or an MBA in finance. But due to the increase in the complexity of managing finance not only at the domestic front but also at international level, the need of the hour is to enhance these skills by opting finance courses which can take a finance professional to expert level in his area of chosen finance field.
Various full time, part-time, online and even distance learning courses(Domestic as well as International) are available and one can choose either of these as per their suitability and time. One who wants to gain international exposure can definitely go for CFA (Chartered Financial Analyst) or FRM (Financial Risk Manager). These courses are highly recognized by big MNCs in every country and they are willing to pay very high salaries to such professionals. For more detail please refer to below-mentioned links.
At domestic front, NSE- National Stock exchange also provides various certification courses. Most common of it is- NCFM. In this particular course they allow applicant to pursue modules of their choice and gain expertise in that particular field. For example, one who is interested in Mutual Funds can opt for Mutual Fund- Beginner's Module or/and for Mutual Fund- Advanced Module. Similar options are available for various options. For more detail please refer to below-mentioned links.
In nutshell- To cope up with the present complexities of modern business and to take your carrier to a new high, a finance professional is required to have other expert qualifications over and above his/her own primary qualification and for that these certifications are of great helpful.
Links:
- https://www.cfainstitute.org/Pages/index.aspx
- http://www.garp.org/frm/frm-program.aspx
- http://www.nseindia.com/education/content/module_ncfm.htm
(Pratyush Harlalka, CA FINAL Student. - e-mail: capratyush2517@gmail.com )
Increase in limit of cash investment in MFs from Rs.20,000/- to Rs.50,000/-
Presently cash transactions in Mutual Funds are allowed to the extent of Rs.20,000/- per investor, per mutual fund, per financial year. It has been decided by SEBI to increase this limit from Rs.20,000/- to Rs.50,000/- per investor, per mutual fund, per financial year subject to compliance with applicable Acts, Rules and Regulations.
However, repayment in the form of redemptions, dividend, etc. with respect to aforementioned investments shall continue to be paid only through banking channel.
Relevant SEBI Circular is as follows :-
CIRCULAR
CIR/IMD/DF/10/2014 , Dated- May 22, 2014
All Mutual Funds/Asset Management Companies (AMCs)/
Trustee Companies/Boards of Trustees of Mutual Funds
Sir/ Madam,
Subject: Circular on Mutual Funds
A. Cash investments in Mutual Funds
- SEBI, vide circular no. CIR/IMD/DF/21/2012 dated September 13, 2012, had permitted cash transaction in mutual funds to the extent of `20,000/- per investor, per mutual fund, per financial year.
- In partial modification to para I (1) of the aforesaid circular, it has been decided to increase the limit of cash transactions in mutual funds from the existing limit of
20,000/- per investor, per mutual fund, per financial year to50,000/- per investor, per mutual fund, per financial year, subject to (i) compliance with Prevention of Money Laundering Act, 2002 and Rules framed there under, the SEBI Circular(s) on Anti Money Laundering (AML) and other applicable AML rules, regulations and guidelines and (ii) sufficient systems and procedures in place.
B. Investment/Trading in Securities by Employees of Asset Management Companies and Trustees of Mutual Funds
- Please refer to SEBI circular dated May 08, 2001 and circular dated July 11, 2003, on guidelines for Investment/Trading in Securities by Employees of Asset Management Companies (AMCs) and Trustees of Mutual Funds.
Considering that since the issuance of aforesaid guidelines, liquid schemes have emerged as a distinct category of Mutual Fund scheme having features similar to that offered by Money Market Mutual Fund (MMMF) schemes, thus, in partial modification to aforesaid circulars, it has been decided that -
a. In point 1.1 (iii) of the guidelines for Investment/Trading in Securities by Employees of Asset Management Companies (AMCs) and Trustees of Mutual Funds, along-with MMMF schemes, Liquid schemes shall be added in list of securities to which the aforesaid guidelines do not apply.
b. In point 3 of the aforementioned guidelines, along-with MMMF schemes, transaction in Liquid schemes shall be exempted from being reported by employees to compliance officer within 7 calendar days from the date of transaction.
c. In Point 3.2 of the aforesaid guidelines, which mentions various situations wherein employees of AMC & Trustees of Mutual Funds shall not purchase or sell units of any schemes, term 'liquid scheme' shall be included along-side MMMF schemes.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Yours faithfully,
RAJESH GUJJAR
Deputy General Manager
Tel no.: 022-26449232
Email: rajeshg@sebi.gov.in
Deputy General Manager
Tel no.: 022-26449232
Email: rajeshg@sebi.gov.in
Companies exclusively listed on De-recognized/Non-operational Stock Exchanges
CIRCULAR
CIR/MRD/DSA/18/2014 , Dated- May 22, 2014
To
The Managing Directors/Chief Executive Officers/ Officiating Executive Directors of All the Stock Exchanges
Dear Sir/Madam,
Sub: Companies exclusively listed on De-recognized/Non-operational Stock Exchanges.
1. SEBI vide circular dated May 30, 2012 (Exit Circular) issued guidelines in respect of exit options to stock exchanges. In terms of these guidelines, if the stock exchange is not able to achieve the prescribed turnover of Rs 1000 Crore on continuous basis or does not apply for voluntary surrender of recognition and exit before the expiry of two years from the date of SEBI circular dated May 30, 2012, SEBI shall proceed with compulsory de-recognition and exit of the stock exchanges, in terms of the conditions as may be specified by SEBI.
Applicability
2 . The provisions of this Circular are applicable for all those stock exchanges which have not achieved the prescribed turnover of Rs. 1000 Crore on continuous basis on or before May 30, 2014.
Directions to Stock Exchanges to deal with companies exclusively listed on non-operational stock exchanges
3. In line with the above provisions, the following shall be applicable:-
i. The exclusively listed companies of such non-compliant stock exchanges may opt for listing in nation-wide exchanges after complying with listing norms of main board or the diluted listing norms, if any, on or before the exit of the exchange, either on voluntary or compulsory basis. Nation-wide stock exchanges shall facilitate the listing of these companies on priority basis in a time bound manner. For this purpose, these nation-wide stock exchanges shall immediately create a separate dedicated cell to expedite processing the listing requests from such companies.
ii. Such exclusively listed companies may also opt for voluntary delisting before the de-recognition of the stock exchanges by following the existing delisting norms of SEBI in terms of SEBI (Delisting of Equity Shares) Regulations, 2009. Nation-wide stock exchanges shall provide a platform to these companies to facilitate reverse book building for voluntary delisting using their platform.
iii. With a view to facilitate voluntary delisting, if they so desire, it is clarified that for such companies as referred to at Para 2(ii) above, the requirements of 'Mnimum Public Shareholding' prescribed in Rules 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 and Clause 40A of the Listing Agreement, shall not be applicable.
iv. In case of companies exclusively listed in the non-operational stock exchanges that are not traceable or where the data available is more than three years old, the process of inclusion in list of companies identified as 'Vanishing' (maintained by Ministry of Corporate Affairs) may be initiated by the respective stock exchanges.
v. As per the 'Exit Circular' the exclusively listed companies, which fail to obtain listing on any other stock exchange, which do not voluntary delist or which are not considered as 'Vanishing companies', will cease to be listed company and will be moved to the dissemination board by the existing stock exchange. It shall be the responsibility of the exchanges which are being derecognized either on voluntary or compulsory basis, to place their exclusively listed companies on the dissemination board. These exchanges shall ensure that the database of the exclusively listed company is transferred to SEBI and to those stock exchanges on whose dissemination board, the shares of these companies are available.
4. This circular is issued in exercise of powers conferred under Section 11 (1) and 11(2) (j) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
5. This circular is available on SEBI website at www.sebi.gov.in.
Yours faithfully,
Sunil Kadam
General Manager
Ph: +91 2226449630
Email: sunilk@sebi.gov.in
General Manager
Ph: +91 2226449630
Email: sunilk@sebi.gov.in
No tax-free income – No Disallowance U/s. 14A r.w. Rule 8D – HC
CA Sandeep Kanoi
Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/- made by the Assessing Officer was in order.
Full Text of the Judgment is as follows:-
HIGH COURT OF JUDICATURE AT ALLAHABAD
INCOME TAX APPEAL No. – 88 of 2014
Commissioner Of Income Tax
Vs.
M/S. Shivam Motors (P) Ltd.
Counsel for Appellant :- Shambhu Chopra
Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice
Hon'ble Dilip Gupta, J.
This appeal under Section 260-A of the Income Tax Act, 1961 arises from a decision of the Lucknow Bench of the Income Tax Appellate Tribunal dated 12 November 2013. The Assessment Year to which the appeal relates is AY-2008-09. Three questions have been framed by the Revenue in this appeal of which, the following two, as submitted by the learned counsel, would be sufficient to cover the controversy:
"1. Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT (A) in allowing the interest of Rs.1,72,78,000/- of earlier years in the A.Y. 2008-09 on the basis of a supplementary agreement without considering that liability for such payment flowed from the original agreement with NEL and as per the system of accounting followed by the assessee was payable in years in which it accrued.
3. Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT(A) in deleting the disallowance of Rs.2,03,752/- u/s. 14A ignoring the fact that there is difference of opinion of various courts on the view taken by the ITAT that in the absence of tax free income, no disallowance u/s 14A is permissible."
The assessee is a dealer of Tata Motors for the territory of Bilaspur and surrounding districts. The vehicles of the Company were being supplied to the assessee on credit of 45 days. The assessee would make payment to the Company when the sale proceeds were realised. Eventually the balance due and outstanding remained unpaid.
On 30 March 2000, an agreement was entered into by which a financial arrangement was made between the assessee, Tata Motors Ltd. (TML) and a Company by the name of Niskalp Investments & Trading Company Ltd. Under the arrangement, a loan of Rs.4.80 crores was provided to the assessee by Niskalp on an interest of 12% per annum. The loan was utilized by the assessee to pay the outstanding dues of TML. Under the financial arrangement, the assessee was to pay interest at 12% per annum. The assessee did not, at any point of time, pay the amount of interest under the agreement dated 30 March 2000. On the contrary, as the Tribunal noticed, the assessee was agitating the issue as regards the rate of interest. The notes of account to the balance-sheet contained a specific observation of the auditors of the assessee that no provision has been made in the accounts in respect of interest on dues relating to supply of vehicles which had been converted into a term loan from Niskalp, which had resulted in understating the loss by the same amount. The issue as regards the payment of interest by the assessee to Niskalp was eventually resolved by a supplementary agreement dated 12 April 2007. Under the supplementary agreement, the rate of interest was reduced from 12% to 6% on a reducing balance method with effect from 1 April 2000.
The relevant part of the agreement which has been extracted in the order of the Tribunal reads as follows:
"G. In or about March 2007, the Borrower approached the Lender and requested the Lender to grant additional concessions and reliefs in respect of the amounts payable in respect of the Loan Agreement. Accordingly, the Borrower has requested the Lender to grant relief and concessions as set out hereinunder:
(i) to reduce interest rate @6% per annum on reducing balance method with effect from 1st April, 2000.
(ii) All the payments made after 1st April 2000 against the Finance Facilities to adjust against principal amount.
(iii) To waive penal/additional interest.
(iv) To accept the repayment in Revised Monthly Installments ("RMIs") towards repayment of the outstanding dues in 36 monthly installments of Rs.10,94,000/- each with effect from April 2007 till March 2010, and
(v) The liability in respect of the accrued interest @6% p.a. due and payable on the revised principal amount of Rs.229.32 lacs for the period starting from 1st April, 2000 till repayment of the principal amount will be paid by the Borrower in three equal installments commencing from April 2010 to June 2010. The Revised Monthly Installment (RMI) include the part of amount to be adjusted against interest payment. Accordingly, the differential amount of interest liability arising out of computation of recovery of principal amount first against RMI determined on the basis of part payment of principal amount and interest will be computed at the end of tenure or in or about April 2010 when the appropriate amount of rebate may be considered on the basis of tract record of payment of RMI on stipulated dates till March 2010."
On the basis of the agreement, the assessee debited interest amount of 1.72 crores under the head of interest in Schedule 17 to the profit and loss account. The Assessing Officer made a disallowance of a claim of interest of 1.72 crores on the ground that the assessee had followed the mercantile system of accounting and hence, the liability in terms of payment of interest could be quantified and made in the corresponding assessment year. The CIT (A) deleted the disallowance observing that the liability to pay interest to Niskalp was not a statutory liability but a contractual liability; there was a serious disagreement between the assessee and Niskalp regarding the rate of interest and to resolve it, a meeting had been held on 10 May 2002 by the Directors of the Company and the Management of the Tata Group. This impasse continued till 2007 when a fresh agreement was entered into on 12 April 2007. The CIT(A) held that liability to pay interest was crystallized only upon the execution of the agreement on 12 April 2007. This view has been affirmed by the Tribunal which has observed as follows:
"12. Turning to the facts of the case, we find that in the instant case the liability was not statutory liability. Admittedly, it was a contractual liability. Though it accrued at the time of execution of first agreement through which loan was obtained by the assessee but that liability was disputed by the assessee by raising a dispute with regard to rate of interest through various correspondences and auditors notes attached to the balance sheet. Finally the dispute was resolved in the impugned assessment year through a supplementary agreement through which the rate of interest was reduced from 12% to 6% per annum besides other terms of payments. Therefore, the contractual liability is finally accrued on its crystallization in the impugned assessment year, and on the basis of the said agreement the assessee has made debit entry to the profit & loss account. Since the contractual liability has been crystallized in the impugned assessment year, the entries passed by the assessee in its accounts is in accordance with law and no disallowance can be made on the ground that the assessee has been following mercantile system of accounting and the debit entries are to made in corresponding assessment years. We have carefully examined the order of CIT(A) and we find that he has adjudicated the issue in right perspective following the judicial pronouncements rendered on the subject. Since we find no infirmity in his order, we confirm the order of CIT(A)."
The contention of learned counsel appearing on behalf of the Revenue is that the liability of the assessee, which had followed the mercantile system accounting, to pay interest had arisen under the agreement dated 30 March 2000.
Both the CIT(A) and the Tribunal have noted that initially an agreement was entered on 30 March 2000 under which the outstanding dues of the assessee to TML in the amount of Rs.4.80 crores was squared off by the grant of a loan from Niskalp to the assessee for that purpose. However, the issue as regards the payment of interest remained unresolved because though the contractual agreement stipulated interest of 12% per annum, the assessee had disputed this amount consistently and no interest was paid. Eventually, it was only on the execution of a supplementary agreement on 12 April 2007 that the liability to pay interest @6% per annum was agreed upon and in pursuance whereof, the assessee debited an amount of Rs.1.72 crores towards interest in the year in question.
In this view of the matter, we do not find any reason to interfere with the order of the Tribunal. The judgment of the Supreme Court in Rotork Controls India P. Ltd. Vs. Commissioner of Income Tax [2009] 314 ITR 62 (SC) upon which reliance was placed by the learned counsel appearing on behalf of the Revenue involved a situation where the assessee had issued a warranty. For the assessment year in question, the provision for warranty was disallowed by the Assessing Officer on the ground that it was merely a contingent liability. The Supreme Court held that the present value of a contingent liability, like the warranty expenses, if properly ascertained on accrual basis, could be an item of deduction under Section 37. Though, the principle of estimation of the contingent liability is not a normal rule, it would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee.
This decision will really not carry the case of the department any further. In the present case, it was not a statutory liability of the assessee but a contractual dispute with the assessee under the agreement dated 30 March 2000 which eventually was resolved and the liability was crystallized only when the subsequent agreement dated 12 April 2007 was made. Consequently, there is no reason to interfere with the order of the CIT(A) and of the Tribunal.
As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/- made by the Assessing Officer was in order.
No substantial question of law would hence arise. For these reasons, we are of the view that the appeal by the Revenue does not give rise to any substantial question of law.
The appeal shall, accordingly, stand dismissed.
Order Date :- 5.5.2014
(Dr. D.Y. Chandrachud, C.J.)
(Dilip Gupta, J.)
IT: Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be appropriately deductible, even though such an employee was son of a director
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[2014] 45 taxmann.com 123 (Delhi)
HIGH COURT OF DELHI
Kostub Investment Ltd.
v.
Commissioner of Income-tax*
S. RAVINDRA BHAT AND RAJIV SHAKDHER, JJ.
IT APPEAL NO. 10 OF 2014†
FEBRUARY 25, 2014
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Education expenses) - Assessing Officer disallowed certain expenditure claimed by assessee-company on higher education of one 'D', an employee of company, who was son of directors, for undertaking an MBA course in UK - Assessee submitted that 'D' wished to pursue an MBA after serving for an year with company and committed himself, by signing a bond to work for further five years tenure after finishing his MBA - 'D' was a brilliant student and company was in need of Manager who would study market and, therefore, Board of Director took decision to send 'D' for pursuing MBA from UK - Whether since expenditure claimed by assessee to fund higher education of its employee had an intimate and direct connection with its business, it was deductible under section 37(1) - Held, yes [Paras 8 and 10] [In favour of assessee]
FACTS
| ■ | The assessee had claimed certain amount as expenses incurred under the head 'education and training expenses'. These expenses had been incurred by the assessee on higher education of one 'D', an employee of the company, who happened to be the son of a director, for undertaking an MBA course in the UK. | |
| ■ | The assessee explained that 'D' was working with the assessee. Since he was a brilliant student and the company was in need of manager (marketing) who could study the mood of the investment market and the prospectus and take decision with respect to it, the Board of Directors in the meeting took a decision to send 'D' for pursuing the course of MBA from UK and to incur the expenditure. It was further stated that 'D' signed a bond that he would serve the assessee company at least for 5 years and in the breach of bond he would return the money spent. | |
| ■ | The Assessing Officer, however, refused to accept the assessee's contentions and rejected the deduction under section 37. | |
| ■ | On appeal, the Commissioner (Appeals) and the Tribunal upheld the disallowance in the appellate proceedings. | |
| ■ | On appeal to the High Court: |
HELD
| ■ | There can be no doubt that the burden of showing that expenditure would be wholly and exclusively for the purpose of business under section 37(1) is upon the assessee and that personal expenditure cannot be claimed as business expenditure. The question is whether these twin requirements are said to have been satisfied in the circumstances of this case. The first is what are the materials on record? The assessee furnished its resolution authorizing disbursement of the expenses to fund 'D' MBA. It secured a bond from him, by which he undertook to word for five years after return within a salary band and he had in fact worked after graduating from the University for about a year before starting his MBA course. In Natco Exports (P.) Ltd. v. CIT [2012] 345 ITR 188/206 Taxman 491/20 taxmann.com 570 (Delhi), the student had applied directly when she was pursuing her graduation. There was a seamless transaction as it were between the chosen subject of her undergraduate course and that which she chose to pursue abroad. In the present case, the facts are different. 'D' was a commerce graduate. The assessee's business is in investments and securities he wished to pursue an MBA after serving for an year with the company and committed himself to work for a further five years after finishing his MBA. There is nothing on record to suggest that such a transaction is not honest. Furthermore, the observation in Natco Exports (P.) Ltd. (supra) with respect to a policy appears to have been made in the given context of the facts. The Court was considerably swayed by the fact that the Director's daughter pursued higher studies in respect of a course completely unconnected with the business of the assessee. Such is not the case here. 'D' not only worked but - as stated earlier - his chosen subject of study would aid and assist the company and is aimed at adding value to its business. [Para 8] | |
| ■ | Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deductions under section 37, and foist personal expenditure, such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern. As to whether the assessee would have similarly assisted another employee unrelated to its management is not a question which has to consider. But that it has chosen to fund the higher education of one of its Director's sons in a field intimately connected with its business is a crucial factor cannot ignore. It would be unwise for to require all assessees and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e., children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class - unrelated to the management - would qualify for deduction under section 37(1). There is no intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent. [Para 9] | |
| ■ | In view of the above discussion, the expenditure claimed by the assessee to fund the higher education of its employee to the tune of Rs. 23,16,942 had an intimate and direct connection with its business, i.e.,dealing in security and investments. It was, therefore, appropriately deductible under section 37(1). [Para 10] | |
| ■ | The Assessing Officer is, thus, directed to grant the deduction claimed. The impugned order of the lower authorities are hereby set aside. The appeal is allowed in the above terms. No costs. [Para 11] |
CASES REFERRED TO
Natco Exports (P.) Ltd. v. CIT [2012] 345 ITR 188/206 Taxman 491/20 taxmann.com 570 (Delhi) (para 5), Sakal Papers (P.) Ltd. v. CIT [1978] 114 ITR 256 (Bom.) (para 6), CIT v. Kohinoor Paper Products [1997] 226 ITR 220/92 Taxman 316 (MP) (para 6), CIT v. Ras Information Technologies (P.) Ltd. [2011] 12 taxmann.com 158/200 Taxman 305 (Kar.) (para 6) and Mustang Moulding (P.) Ltd. v.ITO [2008] 115 ITD 402 (Mum.) (para 7).
Ms. Prem Lata Bansal , Ram Avtar Bansal and Naman Nayak for the Appellant. Sanjeev Sabharwal and Ruchir Bhatia for the Respondent.
ORDER
S. Ravindra Bhat, J. - The present appeal is directed against an order of the Income Tax Appellate Tribunal ("ITAT") dated 09.01.2012, and involves decisions on the following question of law framed at the time of admission:
'Did the Tribunal fall into error of law in holding that the appellant's claim that the amount has been spent during the Assessment Year 2006-07, for the higher education of Sh. Dushyant Poddar, a son of its Director, was not liable as "business expenditure" under Section 37 of the Income Tax Act?'
2. For the year under consideration, the appellant company (hereinafter referred to as assessee) filed its return declaring loss at Rs. 2,08,72,440/- under the normal provisions and book profit at Rs. 1,35,42,270/- under Section 115JB of the Income Tax Act, 1961 ("the Act"),on 24.11.2006. In the Profit and Loss Account annexed to the return of income, assessee had claimed a sum of Rs. 23,16,942/- as expenses incurred under the head "Education & Training Expenses". These expenses had been incurred by the assessee on higher education of Shri Dushyant Poddar, an employee of the company, who happens to be the son of the Directors Shri Lalit Poddar and Smt Saroj Poddar, for undertaking an MBA Course in the U.K.
3. During the assessment proceeding, the Assessing Officer ("AO") required the assessee to justify its claim with respect to the said expenses. The assessee produced the extract from the minutes of the meeting of the Board of Directors dated 10.02.2005 in which decision was taken to send Dushyant Poddar for further study in U.K. and also the Employment Bond entered into with him. The assessee explained to the AO that Dushyant Poddar was a Graduate having completed his B.Com (H) from Delhi University and working with it (i.e. the assessee) for a salary of Rs. 10,000/- p.m. Since he was a brilliant student and the company was in need of Manager (Marketing) who could study the mood of the investment market and the prospects taking into consideration the economy of India and other advanced countries and an individual who could also take decisions with respect to investment in shares and securities, the Board of Directors in the meeting held on 10.02.2005 took a conscious decision to send Dushyant Poddar for pursuing the course of MBA from U.K. and to incur the expenditure up to the extent of Rs. 30 lakhs on his study and training.
4. The assessee also stated in the resolution that on coming back to India after completion of the studies, Dushyant Poddar will serve the assessee company at least for 5 years on a remuneration as mutually agreed with the Board of Directors subject to minimum of Rs. 10,000/-and maximum of Rs. 25,000/- p.m. The assessee relied on a resolution of the Board of Directors to say that in the event of breach of bond, suitable action for recovery of the amount would be taken against Dushyant Poddar. He also furnished the bond, as required. Eventually, Dushyant Poddar was sent to U.K for further study. The assessee incurred an expenditure of Rs. 23,16,942/- during the year under consideration.
5. The AO in his order refused to accept the assessee's contentions and rejected the argument that the sum of Rs. 23,16,942/- could be claimed as a deduction under Section 37 of the Act. Aggrieved by this disallowance, the assessee carried the matter in appeal. The CIT (Appeals) upheld the disallowance in the appellate proceedings. The CIT examined the bond furnished by Dushyant Poddar and observed that it was on plain paper and the other query - as to what was the employee's response to the University's query with respect to funding for education - remained unanswered. The CIT (Appeals) also was influenced by the fact that the bond was executed on 01.04.2005 after Dushyant Poddar had been selected for completing his MBA from the U.K. University. In view of these reasons, the assessee's appeal was rejected. The further appeal to the ITAT was dismissed by the impugned order. In the impugned order, the ITAT relied upon the reasoning of the previous decision of this Court in Natco Exports (P.) Ltd. v. CIT [2012] 345 ITR 188/206 Taxman 491/20 taxmann.com 570, particularly the observations that while claiming such deductions, a distinction has to be made between personal expenditure and that which is incurred for the purpose of business. The ITAT's view - that in the absence of any policy in the company to fund the higher education - the applicant's aspirations can be believed, except in the case of benefit accruing to Dushyant Poddar, the son of a Director. In these circumstances, the disallowance was upheld.
6. In support of the appeal, the assessee argues that the requirement spelt out in case Natco Exports (P.) Ltd. (supra) has to be seen contextually. In that case, the course opted for by the employee-daughter of a Director - had no relation with the assessee's business. She, unlike Dushyant Poddar, had not taken-up employment with the assessee company and had chosen to apply for higher educational studies directly from the University. It was in the context of such facts that the decision in Natco Exports (P.) Ltd.case (supra) was rendered. Learned counsel relied upon a judgment of the Bombay High Court in Sakal Papers (P.) Ltd. v. CIT [1978] 114 ITR 256 for the proposition that even in the absence of commitment or contract or bond, an expenditure which is otherwise proper cannot be disallowed to the company, especially when it can result in the trainee securing a degree that would be of assistance to the assessee. Likewise, the expenditure incurred for pursuit for higher studies by a partner which can yield beneficial results to the company was held to be business expenditure under Section 37 in CIT v. Kohinoor Paper Products [1997] 226 ITR 220/92 Taxman 316 (MP). Learned counsel also relied upon the decision of the Karnataka High Court in CIT v.Ras Information Technologies (P.) Ltd. [2011] 12 taxmann.com 158/20 Taxman 305.
7. Learned counsel for the revenue relied upon Natco Exports (supra) and submitted that the onus to show that the expenditure would accrue to the advantage of the assessee's business has to be discharged first and that while doing so, expenditure which is otherwise personal cannot be generally allowed to be deducted. It was submitted that in Natco Exports (P.) Ltd. case (supra), the decision of the Bombay High Court inSakal Papers (P.) Ltd. case (supra) was noticed and the Court further held that Sakal Papers (P.) Ltd.(supra) stood distinguished by Mustang Mouldings (P.) Ltd. v. ITO [2008] 115 ITD 402 (Mum.). It was submitted that given these decisions and the fact which emerged from a cumulative reading of the AO and the CIT (Appeals), the impugned order cannot be termed as erroneous and does not call for interference.
8. This Court has considered the materials on record. There can be no doubt that the burden of showing that expenditure would be wholly and exclusively for the purpose of business under Section 37(1) is upon the assessee and that personal expenditure cannot be claimed as business expenditure. The question is whether these twin requirements are said to have been satisfied in the circumstances of this case. The first is what are the materials on record? The assessee furnished its resolution authorizing disbursement of the expenses to fund Dushyant Poddar's MBA. It secured a bond from him, by which he undertook to work for five years after return within a salary band and he had in fact worked after graduating from the University for about a year before starting his MBA course. In Natco Exports (P.) Ltd. (supra), the student had applied directly when she was pursuing her graduation. There was a seamless transition as it were between the chosen subject of her undergraduate course and that which she chose to pursue abroad. In the present case, the facts are different. Dushyant Poddar was a commerce graduate. The assessee's business is in investments and securities. He wished to pursue an MBA after serving for an year with the company and committed himself to work for a further five years after finishing his MBA. There is nothing on record to suggest that such a transaction is not honest. Furthermore, the observation in Natco Exports (P.) Ltd. (supra) with respect to a policy appears to have been made in the given context of the facts. The Court was considerably swayed by the fact that the Director's daughter pursued higher studies in respect of a course completely unconnected with the business of the assessee. Such is not the case here. Dushyant Poddar not only worked but - as stated earlier - his chosen subject of study would aid and assist the company and is aimed at adding value to its business.
9. Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deductions under Section 37, and foist personal expenditure, such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern. As to whether the assessee would have similarly assisted another employee unrelated to its management is not a question which this Court has to consider. But that it has chosen to fund the higher education of one of its Director's sons in a field intimately connected with its business is a crucial factor that the Court cannot ignore. It would be unwise for the Court to require all assessees and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class - unrelated to the management -would qualify for deduction under Section 37(1). We do not see any such intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent.
10. In view of the above discussion, having regard to the circumstances of the case, this Court is of the opinion that the expenditure claimed by the assessee to fund the higher education of its employee to the tune of Rs. 23,16,942/- had an intimate and direct connection with its business, i.e. dealing in security and investments. It was, therefore, appropriately deductible under Section 37(1).
11. The AO is thus directed to grant the deduction claimed. The impugned order and that of the lower authorities are hereby set aside. The appeal is allowed in the above terms. No costs.
SONAM †Arising out of order of Tribunal, dated 9-1-2012.
IT : Where in case of a charitable trust, it is found that provisions of section 13(1)(c)(ii) read with section 13(3) are not followed, trust would lose its exemption in entirety, with result that assessment of its income will be made according to provisions of Act
IT : Where assessee-trust, advanced certain money for purchase of land to a person prohibited under section 13(3), in view of fact that sale agreement was cancelled after a long time of paying advance money without assigning any reason and without charging any interest on said advance money, it being a case of violation of section 13(1)(c), assessee's claim for exemption under section 11 was to be rejected
IT : Where in case of a trust cost of asset has been allowed as deduction by way of application of income; then depreciation on same asset cannot be allowed in computation of income of trust
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[2014] 43 taxmann.com 300 (Delhi)
HIGH COURT OF DELHI
Director of Income-tax (Exemption)
v.
Charanjiv Charitable Trust*
S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
IT APPEAL NOS. 321 TO 323 OF 2013†
MARCH 18, 2014
Section 13, read with section 11, of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption (Benefit to prohibited persons - Sub-section (1)(c)) - Assessment years 2006-07 and 2007-08 - Whether where in case of a charitable trust, it is found that provisions of section 13(1)(c)(ii) read with section 13(3) are not followed, trust would lose its exemption in entirety, with result that assessment of its income will be made according to provisions of Act - Held, yes - Assessee, a charitable trust, was granted registration under section 12A - Assessee filed its return declaring nil income - Assessing Officer noted that assessee in furtherance of its objects to open a school, entered into agreements with APIL for purchase of land and paid 95 per cent of price as advance money - However, even after lapse of more than one year from date of agreement to sell, sale was not completed and no registered document was executed - Assessing Officer took a view that real motive of assessee was to advance its surplus monies to APIL without charging any interest and since APIL was a prohibited person within meaning of section 13(3), provisions of section 13(1)(c)(ii) were attracted with result that assessee could not be allowed exemption under section 11 - Whether, on facts, and in absence of any explanation as to why sale agreement was cancelled after a long time of paying advance money, impugned finding recorded by Assessing Officer was to be upheld - Held, yes - [Paras 24 and 27] [In favour of revenue]
Section 32, read with section 11, of the Income-tax Act, 1961 - Depreciation - Allowance/rate of (In case of trust) - Assessment years 2006-07 and 2007-08 - Whether where in case of a trust cost of asset has been allowed as deduction by way of application of income, then depreciation on same asset cannot be allowed in computation of income of trust - Held, yes [Para 30] [In favour of revenue]
FACTS
| ■ | The assessee was a Charitable Trust which was granted registration under section 12A. In respect of the assessment year, it filed a return of income declaring Rs. Nil as its income. | |
| ■ | The Assessing Officer noted that the assessee in furtherance of its objects to open a school, entered into agreements with APIL on for purchase of the land and paid 95 per cent of the price as advance money. | |
| ■ | However even after the lapse of more than one year from the date of the agreement to sell, the sale was not completed and no registered document was executed and in respect of the delay, there was no explanation. | |
| ■ | The assessing officer took the view that the real motive of the assessee was to advance its surplus monies to APIL without charging any interest and since APIL was a prohibited person within the meaning of section 13(3), provisions of section 13(1)(c)(ii) were attracted with result that assessee could not be allowed exemption under section 11. | |
| ■ | The Assessing Officer further found a debit balance in the name of 'C' Educational Society. | |
| ■ | According to the assessee, the said society was formed only with the object of establishing a university in Chhattisgarh, which was in conformity with the objects of the trust. It was thus explained that the advancing of the money to the said society without charging any interest did not in any manner violate the provisions of section 13(1)(c)(ii). | |
| ■ | The Assessing Officer did not accept the explanation and held that the Trust was not entitled to the exemption in respect of amount debited in account of 'C' Educational Society. | |
| ■ | In the course of the assessment proceedings, the Assessing Officer also noted that the assessee claimed to have received donation from two persons namely 'J' and 'P'. | |
| ■ | The Assessing Officer finding that there was no specific direction given by donors that the donation would be a corpus donation, said amount was to be added to assessee's income under section 68. | |
| ■ | The Assessing Officer also disallowed depreciation on certain assets on the ground that the cost of those assets was allowed as application of the income of the trust for charitable purposes and allowance of depreciation of those assets would amount to double allowance which is not permissible. | |
| ■ | The Tribunal in its consolidated order held that there was no violation of the provisions of section 13(1)(c)(ii) read with section 13(3) either on account of the monies belonging to the assessee having been advanced to APIL without any interest or security or on account of the existence of debit balances in the account of 'C' Educational Society. | |
| ■ | So far as the advances made to APIL were concerned, the Tribunal accepted that they were made for acquisition of plots for the objects of the trust and were not advances made without any interest or security so as to attract the provisions of section 13(1)(c)(ii)/13(3). | |
| ■ | The Tribunal's finding in the assessee's appeal with respect to the addition made under section 68 was that the assessee had successfully demonstrated the identity of the donors, the source of the payment, the PAN numbers, original confirmation, etc. and in the light of the documentary evidence, which were not examined by the Assessing Officer by making further inquiries, the impugned addition was not sustainable. | |
| ■ | As regards the assessee's ground claiming allowance of depreciation, the Tribunal held that the assessee was entitled to claim depreciation on the cost of the assets, the investment in which was already allowed as application of income. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Firstly, it is necessary to take up the fundamental question as to whether the assessee was ineligible for the exemption under section 11 on the ground that there was contravention of the provisions of section 13(1)(c)(ii) read with section 13(3). It is necessary to briefly notice the statutory provisions in this regard. Section 11 exempts any income derived from property held under trust wholly for charitable or religious purposes to the extent to which it is applied to such purposes in India, to the extent of 85% of such income. Charitable purposes are defined in section 2(15). | |
| ■ | There is no dispute that the objects pursued by the assessee fall within the said definition. Even if the objects of a trust satisfy the definition of 'charitable purpose' as per section 2(15), it does not automatically confer exemption to the trust; it has to further get itself registered under section 12A. This condition is also satisfied in the present case since the assessee was registered under section 12A on 28-5-1976. | |
| ■ | There are further conditions for being eligible to the exemption. Section 13(1) enumerates instances under which the provisions of section 11 granting exemption will not operate. One such instance is furnished by clause (c)(ii) which says that if any part of the income or any property of the trust is, during the relevant previous year, used or applied directly or indirectly for the benefit of any person referred to under sub-section (3), the exemption will not be allowed. | |
| ■ | Sub-section (3) enumerates the prohibited persons and there is no dispute that the assessee's case falls within clause (e) of sub-section (3). There is another provision which one has to notice and that is section 13(2) which in clauses (a) to (h) thereof sets out illustrative instances where the income or property of the trust may be deemed to have been used or applied for the benefit of a prohibited person. [Para 21] | |
| ■ | It is also to be noted that even if there is only one instance of application or use of the income or property of the trust directly or indirectly for the benefit of any prohibited person, the trust will lose the exemption in respect of its entire income. Therefore, if in respect of the monies paid either to APIL or to 'C' Educational Society, it is found that the provisions of section 13(1)(c)(ii) read with section 13(3) are not followed, the trust would lose its exemption entirely, with the result that assessment of its income will be made according to the provisions of Act. [Para 22] | |
| ■ | Coming to the facts relating to monies advanced to APIL, it is difficult to see how the assessee-trust can advance about 95 per cent of the price of the land allegedly purchased by it for its objects and not insist on the lands being conveyed to it within reasonable time or within the time which it normally takes. If the trust is quite serious about pursuing its objects of running schools/dispensaries, it should have insisted on conveyance of the lands within a reasonable period of time or at least stipulated for interest or adequate compensation or damages in case of failure to honour the alleged agreements. | |
| ■ | The assessee pointed out that no advances were given in the previous year relevant to the assessment year 2006-07 and that they were all given in the earlier years and were only refunded in the accounting year ended on 31-03-2006. This argument is bereft of any merit and in fact reinforces the contention of the revenue that the monies were lying with APIL for a longer period without any interest or security, even taking into account the amounts refunded by APIL in the relevant previous year. | |
| ■ | Moreover, the Tribunal failed to take note of the fact that the assessee had taken contradictory stands before the Assessing Officer on a crucial aspect i.e. possession of the land. In its letter dated 26-11-2008 the assessee admitted that though payment of Rs.8,60,16,000/- had been made to APIL, possession of the land was not taken. But in its letter dated 18-12-2008 the assessee filed copies of the agreement dated 18th and 24th March, 2004 to show that they contained clauses to the effect that physical possession of the plots had been handed over by APIL and explained that these clauses were overlooked by it while making submissions vide letter dated 26.11.2008. | |
| ■ | It is difficult to believe how the assessee could forget or could have overlooked that it had taken possession of the land and admit to the contrary in its letter dated 26.11.2008, if in fact and truth it had taken possession of the land pursuant to the relevant clauses in the agreements. Even if it is accepted for the sake of argument that the assessee had taken physical possession of the lands, there is no explanation as to why the agreements were cancelled, except a vague statement in the letter dated 26.11.2008 that it changed its mind due to "various factors". | |
| ■ | The assessee is a trust; surely, such decisions are expected to be taken formally in meetings of the trustees with reasons for the decisions being discussed and minuted. No minutes were produced; a vague statement is made that the trust changed its mind due to various factors, without being specific. The amount advanced is quite substantial and particularly when it is admitted that the amount was advanced to a prohibited person within the meaning of section 13(3), it was the burden of assessee to establish beyond any doubt or suspicion that the advance was made bona fide and with the genuine object of acquiring land for the pursuit of the objects of the trust. | |
| ■ | Further, even though APIL accepted the request for cancellation of the agreements by letter dated 21-04-2005, the entry reflecting the cancellation of the agreement was passed in the assessee's account only after almost a year i.e. on 31-03-2006 which is the last day of the relevant accounting year. This fact will have to be noted and appreciated keeping in view the whole perspective and not in isolation. Even if the agreements were cancelled on 21-04-2005, there is no explanation why further amounts of Rs.80 lakhs and Rs.75 lakhs were advanced to APIL on 29-11-2005 and 13-12-2005 respectively. These amounts also did not bear any interest nor was any security taken. [Para 24] | |
| ■ | The assessee would, however, contend that the chart set out in the order of the Tribunal would show that the account between the assessee and the APIL is a running account and if the entries are taken as a whole it would be seen that it is APIL which is funding the assessee and not the other way round. It was again submitted that in the 12 month period ended on 31-03-2006, no monies flowed out from the assessee to any prohibited person. This latter submission has already been dealt with. | |
| ■ | As to the contention that it is only a running account between the assessee and the APIL, one is unable to give effect to the submission since section 13(1)(c)(ii) read with section 13(2) does not appear to make any distinction between a running account where there is inter-flow of funds and a case of pure advance. Section 13(2) makes it clear that the instances listed in its clauses (a) to (h) are only illustrative and without prejudice to the generality of the provisions of section 13(1)(c). The prohibition is on the use or application of any part of the income or property of the trust, during the relevant previous year, for the direct or indirect benefit of any prohibited person. | |
| ■ | When funds of assessee trust are lying with APIL - even though they were not advanced in the relevant accounting year - and no interest or security is taken, it is a case of direct use of the funds for the benefit of a prohibited person. Clause (a) of section 13(2) says that even if the income or property of the trust continues to remain lent to any prohibited person for any period during the relevant previous year without security or interest, it would be a case of deemed misapplication. | |
| ■ | This shows that it is not necessary that there should be any advance payment to the prohibited person in the relevant accounting year. At this juncture it is relevant to point out a crucial aspect. The provision makes reference to income or property of the trust being "lent" or continued to be "lent" to any prohibited person. If the funds of the assessee had been given to APIL without any agreement to sell being entered into there would have been no defence to the assessee as that would have been a clear case of monies lent or continue to be lent without interest or security. | |
| ■ | It is only in order to get out of the clutches of the said clause that the assessee appears to have conceived of a device and entered into documentation with APIL to make it appear as if the monies were not "lent" to APIL, but were given for the purpose of acquiring lands under agreements to sell, for the objects of the trust. This explains why the assessee admitted before the Assessing Officer in its first letter that it had not taken possession of the lands, but resiled from that position in its second letter, realising its faux par, citing some clauses in the agreements. Taking possession of the lands has not been established as a fact by adducing evidence. [Para 25] | |
| ■ | The argument of the assessee that the Commissioner (Appeals) and the Tribunal have entered concurrent findings of fact which should not normally be disturbed unless they are perverse is technically correct; however, the revenue rightly submitted that the findings of the Commissioner (Appeals) (for the assessment year 2006-07) and the Tribunal are superficial and have not taken note of the normal course of human conduct and probabilities. | |
| ■ | A little probing or scratching of the surface was all that was required on the part of the Tribunal to find out the truth about the claim of the assessee. The Tribunal has chosen, erroneously - to ignore the normal course of human conduct and probabilities of the case and has preferred to be led simply by the documentation presented by the assessee. Each and every objection taken by the Assessing Officer has been attempted to be explained away by the assessee and the Tribunal overlooked that the facts have to be looked at cumulatively and as a whole; it failed to realise that and the real transaction between the assessee and APIL is not just an aggregate of the several component parts thereof; the authenticity of the transaction has to be examined by keeping in view the conspectus of the facts without missing the woods for the trees. [Para 26] | |
| ■ | In the aforesaid view of the matter, it is held that the findings of the Tribunal on this aspect cannot be upheld. In the result, the findings of the Assessing Officer is upheld that in advancing said amount to APIL assessee committed a violation of the provisions of section 13(1)(c)(ii) read with section 13(2) and section 13(3). The trust was accordingly not eligible for the exemption under section 11. [Para 27] | |
| ■ | It is further necessary to examine whether the advance made to 'C' Educational Society can be said to be in violation of the aforesaid provisions. On this aspect one is unable to find fault with the approach of the Tribunal. The amounts were advanced by the assessee to the society which in turn deposited them with the State Government for the purpose of establishing a private University. The relevant documentary evidence is on record and has been noticed and relied upon by the Tribunal. It is only after the judgment of the Supreme Court that the position became certain that entities established outside the State of Chhattisgarh cannot be permitted to open private universities in the State. The monies were thereafter returned to the assessee. | |
| ■ | On these facts it is not possible to question the correctness of the view taken by the Tribunal. It is thus opined the Assessing Officer was not right, as held by the Tribunal, in denying the exemption under section 11 on the ground that by advancing monies to 'C' Educational Society the assessee committed a violation of section 13(1)(c)(ii) read with section 13(2) and section 13(3). [Para 28] | |
| ■ | Coming to the applicability of section 68 in respect of the donations received from 'J' and 'P' in the previous year relevant to the assessment year 2006-07, so far as the 'J' is concerned, the Tribunal has deleted the addition on the ground that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN number and by filing the confirmation letters. These were not pursued by the Assessing Officer by making further inquiries. The Tribunal, however, has overlooked that 'J', in some other proceedings made a statement on oath denying the fact that he made any corpus donations to the assessee trust. What he stated was that an amount of Rs.1.5 crores was payable to him by DLF in a tripartite dispute between him, APIL and DLF out of which a sum of Rs.1.5 crores was paid by DLF directly to the assessee as corpus donation of 'J'. | |
| ■ | The Tribunal has held that it is not possible to view the transaction with suspicion merely because some other entity, which owes money to 'J', had made the donation on behalf of 'J' in discharge of the debt to 'J'. It has also observed that 'J' was not cross-examined by the assessee on the statement said to have been made by him before another income tax authority in some other proceedings denying the making of the donation. | |
| ■ | The Tribunal has also found that the money has actually been given to the trust which has also used it. In these circumstances the Tribunal deleted the condition. The findings recorded by the Tribunal cannot be said to be perverse. Similarly in respect of the donation received from 'P', the Tribunal has noticed that the assessee was able to establish the identity of the donor and the source of the payment which was through account payee cheque, the PAN number and bank details. These details were not inquired into by the Assessing Officer and nothing adverse was found. It is in these circumstances that the Tribunal has deleted the addition. The findings of the Tribunal which are based on relevant material cannot be called perverse. [Para 29] | |
| ■ | So far as claim of depreciation is concerned, the judgment of this Court in DIT v. Vishwa Jagrati Mission [IT Appeal No. 140 of 2012 dated 29-3-2012]reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. It is accordingly held that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets. [Para 30] | |
| ■ | In the result, the revenue's appeal is partly allowed. |
CASES REFERRED TO
Escorts Ltd. v. UOI [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) (para 10), DIT v. Vishwa Jagrati Mission [IT Appeal No. 140 & 2012, dated 29-3-2012] (para 17) and Kamalyalal Punj Charitable Trust v. DIT (Exemption) [2008] 297 ITR 66/171 Taxman 134 (Delhi) (para 23).
N.P. Sahni for the Appellant. Ms. Shashi M. Kapila, R.R. Maurya and Pravesh Sharma for the Respondent.
ORDER
R.V. Easwar, J. - All the three appeals have been filed by the revenue under Section 260A of the Income Tax Act, 1961. They challenge the impugned order of the Tribunal passed on 30.04.2012 in three appeals filed before it, two by the assessee relating to the assessment years 2006-07 and 2007-08 and one by the revenue relating to the assessment year 2006-07. In other words, in respect of the assessment year 2006-07, there were cross-appeals before the Tribunal and in respect of the assessment year 2007-08, it was the assessee which was in appeal. All the appeals were disposed of by a common.
2. The brief facts giving rise to the present appeals are as follows.
The assessee is a Charitable Trust which was granted registration under section 12A of the Act on 28.05.1976. In respect of the assessment year 2006-07, it filed a return of income declaring Rs.Nil as its income. On 31.10.2006 this return was processed under Section 143(1). Subsequently a scrutiny of the return was initiated and notices under Sections 142(1) and 143(2) were issued. A sum of Rs.8,60,1600/- was shown by the assessee as the proceeds of the sale of assets, being land. It appears that M/s. Ansal Properties and Industries Ltd. (APIL) owned certain plots of land earmarked for schools, dispensaries, etc. The assessee in furtherance of its objects to open a school, entered into agreements with APIL on 18.03.2004 and 14.03.2004 for purchase of the land situated at Palam Vihar, New Delhi. In these agreements the assessee paid 95% of the price of the land to APIL and simultaneously obtained possession of the plots. It would appear that one of the conditions of the agreement was that in case the allotment of plots is cancelled later, the assessee will be liable for cancellation charges of 10% of the cost of plots. The advance paid by the assessee was recorded in books of accounts for the financial year 2004-05 and the amount so advanced was added to the list of fixed assets. In the assessee's books and as advances received in the books of APIL.
3. In April, 2005 the assessee cancelled the sale agreement and the monies paid to APIL were returned to the assessee in instalments. No cancellation charges were however levied by APIL. The entire amount of Rs.8,60,1600/- which was earlier paid was returned by APIL. In the course of the assessment proceedings, the AO doubted the genuineness of the transaction of projects of the plots. He noted the following features:—
| (i) | Even after the lapse of more than one year from the date of the agreement to sell, the sale was not completed and no registered document was executed and in respect of the delay, there was no explanation; | |
| (ii) | There was no evidence for taking possession of the land; | |
| (iii) | APIL did not declare any income by way of the transaction (i.e. sale of the land to the assessee) in the relevant year when the agreement to sell were executed which shows that even possession of the land was not parted with; and | |
| (iv) | Though the agreements were cancelled on 21.04.2005 the assessee-Trust made entries in its books for the cancellation only on 31.03.2006 i.e. the last date of the accounting year. |
4. The assessee's explanation was that the transactions were genuine, were duly entered into the books, that the payments were made through banking channels, that the plots were sought to be acquired in furtherance of the objects of the trust and there was nothing to suspect the motives of the assessee in entering into those transactions. This was, however, not accepted by the assessing officer who took the view that the real motive of the assessee was to advance its surplus monies to APIL without charging any interest and since APIL was a prohibited person within the meaning of Section 13(3), the provisions of Section 13(1)(c)(ii) were attracted with the result that the assessee could not be allowed the exemption under Section 11.
5. In the course of the assessment proceedings, the assessing officer also noted that the assessee claimed to have received corpus donation of Rs.1.5 crores from one S. Jagjit Singh, S/o. S. Bachan Singh through a pay order. Under Section 12(1) of the Act, all voluntary contributions received by a trust will be deemed to be income derived from property held under trust wholly for charitable purposes, except those contributions which are made with a specific direction that they shall form part of the corpus of the trust. The effect of Section 12(1) is that non-corpus donations which are treated as income derived from property held under trust will have to be subjected to the provisions of Section 13. Corpus donations, however, will not be treated as income derived from property held under trust and, therefore, the provisions of Section 13 will not be attracted. Having regard to the relevance of the corpus donations in the assessment of a trust, the assessing officer issued notice under Section 131 and got the statement of Jagjit Singh recorded by the Additional Director of Income Tax (Exemptions). It would appear that Jagjit Singh stated that he had some disputes with regard to the clearance of title to the land with DLF and in order to resolve the dispute, DLF was directed to pay Rs.1.5 crores to the assessee. He would, however, appear to have stated that there was no specific direction given by him that the donation would be a corpus donation. The assessing officer, on the basis of the statement of Jagjit Singh, invoked the provisions of Section 68 of the Act and added the amount of Rs.1.5 crores as the assessee's income. A similar addition was made in respect of another corpus donation of Rs.25 lakhs claimed to have been received from one Piyush Jain through an account payee cheque; the said donor failed to appear before the AO in response to the notice issued under Section 131.
6. In the course of the assessment proceedings the assessing officer found a debit balance of Rs.16,55,448/- in the name of Charanjiv Charitable Educational Society. It was explained that the said society was a charitable institution established in the State of Chhattisgarh by the trustees of the assessee. It was formed as a separate institution as the assessee desired to establish a private university in the State of Chhattisgarh whose laws did not permit any institution outside the State to establish any university in the State. According to the assessee, the said society was formed only with the object of establishing a university in Chhattisgarh, which was in conformity with the objects of the trust. It was thus explained that the advancing of the money to the said society without charging any interest did not in any manner violate the provisions of Section 13(1)(c)(ii) of the Act. Detailed written submissions were also filed before the assessing officer together with the correspondence with the government of Chhattisgarh in order to show that the debit balance in the account of the society was not any interest free advance and therefore there was no question of any application of the income or property of the trust directly or indirectly for the benefit of any prohibited person. The assessing officer did not accept the explanation and held that the Trust was not entitled to the exemption.
7. In respect of the assessment year 2007-08, the assessing officer took the same stand as he took in the assessment year 2006-07 on the question of exemption under Section 11 and for the same reasons. He also added an amount of Rs.25 lakhs claimed to have been received by the assessee from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Rs.9,06,000/- from M/s. Sun System Institute of Information Technology as corpus donations, disbelieving the assessee's version and invoking Section 68 of the Act. He also took steps to verify both the donations. M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. furnished the copy of the bank statement to show the payment made to the assessee and also furnished the copy of the receipt issued by the assessee, the PAN number and copy of the bank certificate confirming the payment made to the assessee. The assessing officer rejected the evidence on the ground that the donor never filed any return of income and did not submit its audited balance sheet as on 31.03.2006. Moreover, the assessee did not produce the Director of the donor company despite specific direction in this Court by the assessing officer. As regards the corpus donation from Sun System Institute of Information Technology the assessing officer took steps to verify the same and issued a letter under Section 133(6) calling for information but there was no compliance. He, therefore, added both the corpus donations under Section 68. The assessing officer also disallowed depreciation on certain assets on the ground that the cost of those assets was allowed as application of the income of the trust for charitable purposes and allowance of depreciation of those assets would amount to double allowance which is not permissible.
8. There was an appeal to the CIT (Appeals) in which the assessee challenged the findings recorded by the assessing officer. As regards the violation of the provisions of Section 13(1)(c)(ii) on the ground that the assessee advanced sums to APIL without charging any interest, the CIT (Appeals) examined the relevant agreements under which the amount was advanced and held that there were written agreements which were backed by bank transactions and other documentary evidence to show that the amount was advanced to APIL for purchase of land for setting up a school, that the giving of possession is evidenced by the agreements and the possession letters, that the payments were recorded in the books of accounts as for purchase of land and in these circumstances the assessing officer was not justified in holding that the provisions of Section 13(1)(c)(ii) read with Section 13(3) were attracted. As to the finding of the assessing officer that an adjustment entry was passed in the accounts of the assessee only on the last day of the financial year, he held that considering the totality of the circumstances and the evidence available, the accounting entry did not affect the genuineness of the transaction. There were other findings recorded by the CIT (Appeals) based on the accounts that the amount advanced by the assessee to the APIL did not represent any loan or advance but represented payments made towards purchase of plots reserved for school/ dispensary and, therefore, there was no question of charging any interest or security. He, therefore, held that there was no violation of provision of Section 13(1)(c)(ii) read with Section 13(3).
9. As regards the objection of the assessing officer based on the debit balance of Rs.16,55,448/- appearing in the assessee's balance sheet in the name of Charanjiv Educational Society on the basis of which he came to the conclusion that there was a violation of Section 13(1)(c)(ii) read with Section 13(2)(a)/ 13(3), the CIT (Appeals) held that the debit balance arose on account of the desire of the assessee to establish an educational institution (private university) in the State of Chhattisgarh. According to the law prevailing in Chhattisgarh, no society established outside that State could open a private university. In order to overcome this legal hurdle the assessee formed and registered a trust by name "Chirajiv Educational Society" as an independent unit in Chhattisgarh. The signatories to the trust deed were the trustees of the assessee. The object of the society was charitable and similar to the objects of the assessee trust. The assessee provided the funds to the aforesaid society for the purpose of meeting the expenditure required for establishing the private university. These funds were utilised by Charanjiv Educational Society for purchase of land, contribution to the endowment fund, etc. The society received permission from the Chhattisgarh government and also made the required payments in order to establish the private university. However, in the year 2005 the Supreme Court struck down Sections 5 and 6 of Chhattisgarh Niji Khsetra Vishwavidalaya Regulatory Commission (Sthapana Aur Viniyaman) Adhiniyam, 2002 as a result of which the Chhattisgarh government by letter dated June, 2006 informed the society that the project could not be fulfilled and returned the deposit of Rs.2 crores by account payee cheque which in turn was returned by the society to the assessee trust. The other amounts advanced by the assessee to the society were also returned as and when they were received back by the society. The establishment, legal and other expenses incurred by the society were to be made good by the assessee on closure of operations by the society in 2008 pursuant to the letter of the government. On these findings, the CIT (Appeals) held that there was no violation of the provisions of Sections 13(1)(d) read with Section 11(5) as this was not a case of deposit of funds of the trust in unauthorised modes. On the contrary, the amount was utilised for the purpose the educational object and no benefit was derived by the society or their trustees or any other interested party. In this view of the matter, the CIT (Appeals) held that the assessing officer was not justified in denying the exemption under Section 11 to the assessee on the ground that the funds of the assessee were utilised for the benefit of a prohibited person.
10. So far as the ground relating to depreciation is concerned, the CIT (Appeals) took note of the judgment of the Supreme Court in Escorts Ltd. v. Union of India [1993] 199 ITR 43/[1992] 65 Taxman 420 and held that in arriving at the real income of the trust, deduction for depreciation cannot be allowed if the capital expenditure incurred in acquiring the asset has been allowed as application of income, since allowance of depreciation in such a case would amount to double deduction. On the basis of this judgment the CIT (Appeals) upheld the disallowance of the depreciation.
11. As regards the addition made under Section 68 in respect of the donation received from Jagjit Singh, the CIT (Appeals) held after examining the relevant facts that the assessee had filed a confirmation letter from the donor which was found untrue on later inquiry. The CIT (Appeals) noted that the donor had denied the making of any donation and had made a statement to that effect before the ADIT (Investigation). On the basis of the denial, the CIT (Appeals) held that the source of the receipt of the amount of Rs.1.50 crores was not approved. He accordingly upheld the addition.
12. As regards the addition of Rs.25 lakhs under Section 68, stated to be received as corpus donation from Piyush Jain, the CIT (Appeals) after examining the evidence held that since the assessee failed to produce the donor or any proof of donation towards the corpus of the trust and even failed to demonstrate that the amount was received for a purpose other than the corpus, the amount was rightly added by the assessing officer.
13. In the appeal for the assessment year 2007-08 a different incumbent in the office of the first appellate authority, found himself unable to follow the decision taken by his predecessor in respect of the disallowance of the exemption under Section 11 on the ground of violation of Section 13(1)(c)(ii) read with Section 13(3). According to him, both in respect of the advances made to APIL and the debit balances in the account of Charanjiv Educational Society, there was a violation of the above statutory provisions disentitling the assessee from the benefit of exemption under Section 11. The addition made under Section 68 of the Act on account of corpus donations received from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Sun System Institute of Information Technology were also confirmed.
14. The matter reached the Income Tax Appellate Tribunal in cross appeals for the assessment year 2006-07. In the assessee's appeal the challenge was to the addition of Rs.1.50 crores and Rs.25 lakhs made under Section 68 and the addition of the development fund charges of Rs.59,58,384/- which represented the corpus of the trust which was obliged to be spent on the objects of the trust. In the appeal by the revenue, the decision of the CIT (Appeals) that there was no violation of the provisions of Section 13(1)(c)(ii) read with Section 13(3) of the Act was challenged. There was also a ground relating to certain amounts which were held by the CIT (Appeals) to be eligible for the benefit of Section 11(1)(d). The Tribunal in its consolidated order held that there was no violation of the provisions of Section 13(1)(c)(ii) read with Section 13(3) either on account of the monies belonging to the assessee having been advanced to APIL without any interest or security or on account of the existence of debit balances in the account of Charanjiv Educational Society. So far as the advances made to APIL are concerned the Tribunal accepted that they were made for acquisition of plots for the objects of the trust and were not advances made without any interest or security so as to attract the provisions of Section 13(1)(c)(ii)/ 13(3) of the Act. The findings of the Tribunal, summarised in paragraph 19.3 of its order, are as below:—
| "(a) | Assessee is a charitable institution, there is no change in it's objects. It carried on educational institutions and intended to further its objects by opening new schools and a university. | |
| (b) | APIL owned reserved educational plots and it's agreements to sale of such reserved plots with group educational trust do not carry any element of primary suspicion. | |
| (c) | The agreements are being held as colorable devise as they are not registered and therefore, cannot be considered evidence. Assuming even that agreements cannot be produced as evidence; the contemporaneous records for AY 2004-05; 2005-2006; bank accounts and other relevant evidence does support the explanation of the assessee. Besides its trite law that an evidence which may not be admissible in court of law can be admissible for income tax purposes. This is so as in income-tax proceedings there is no lis or adversarial proceedings between assessee and department. Income tax proceedings are not fettered by technical rules of evidence and evidence which has bearing on the subject matter and is primarily relied can be considered in income tax proceedings. The agreements and other record is complimentary to each other, corroborative to each other. In our considered view on the basis of contemporaneous evidence like account books, bank accounts and returns of income it cannot be held that assesses explanation in this behalf is unbelievable. Some minor issues here and there about posting a journal entry at the end of the year or difference in nomenclature cannot make a transaction colourable, which otherwise has corroborative evidence. | |
| (d) | From APIL copy of account in the assesses books it clearly emerges that more often than not APIL had credit balance, thus it has been providing monetary support to trust now and then. Therefore, a presumption cannot be drawn that APIL diverted the funds without proper justification for its use. | |
| (e) | Assessee debited 95% advance to asset acquisition a/c itself indicate that because of substantial advance and possession it treated the plots as its assets. Treatment of these amounts as advances in APIL books, does not militate against assessee's method of accounting. Both maintain independent accounts; assessee under Trust regulations and APIL under normal Company Law and commercial principles, method of accounting and revenue recognition principles. Therefore, the alleged variation in categorization of accounting in two different set of books will not convert valid transactions into colourable transactions. | |
| (f) | So far we have been unable to find any motivation on the part of APIL to clandestinely divert Trust Funds for its personal use. Before the agreements and after the termination of agreements APIL had interest free credit balance with assessee. On cancellation of plots their amount has been duly returned within reasonable time on running account basis. | |
| (g) | Revenue has an objection that possession of plots and valuable rights to insist for specific performance were vested in assessee, they have been relinquished. Apropos assessee contends that cancellation of plots was in the interest of trust as by that time it had moved on to better projects including a university. Since no cancellation charges were to be levied, it terminated the agreements. In our view every entity has a right to carry on its objectives in the manner it best considers. Revenue cannot step in the shoes of the trustee in these matters. If the explanation is prima facie convincing and reasonably corroborated by record, evidence and explanation; the same should not be rejected on ipse-dixit. | |
| (h) | In view of the foregoings we see no reason to interfere with the finding of ld. CIT (A) which have been arrived at after due consideration of evidence, record, explanations and case laws mentioned above. Revenues reliance on the case of Kanhaya Lal Punj Trust (supra) has been rightly distinguished and held to be not applicable to the assesses case in view of the contemporaneous evidence." |
15. So far as the debit balances in the account of Charanjiv Educational Society is concerned, which was one of the grounds of the assessing officer to deny the exemption under Section 11 is concerned, the finding of the Tribunal is as under:—
"21. Apropos revenue ground about debit balances against CES also we see no infirmity in the order of CIT(A). It has been held that assessee in furtherance of its objects intended to open a university at Chhatisgarh, proper formalities were completed, due to Supreme Court order the object could not be achieved in the hands of the assessee. Therefore, it formed this charitable society with same objects and trustees and incurred the expenses which are shown as advance to CEC. In our view, even if the same amount was donated to CEC in place of advance, in that eventuality also it would have been allowed as application to objects. CIT (A) rightly dismissed this ground which had no merit."
16. We are leaving out the finding of the Tribunal relating to the corpus donations treated by the assessing officer as not being eligible for the benefit of Section 11(1)(d) since no question has been raised before us by the revenue on this point.
17. The Tribunal's finding in the assessee's appeal with respect to the addition made under Section 68 is that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN numbers, original confirmation, etc. and in the light of the documentary evidence, which were not pursued by the assessing officer by making further inquiries, and, therefore, the assessee has discharged the onus of establishing the identity and creditworthiness of the donors as also the genuineness of the donations. The additions of Rs.1.50 crores and Rs.25 lakhs were accordingly deleted. As regards the assessee's ground claiming allowance of depreciation in computing the real income for the purpose of determining the application of income despite the investment in the assets having been allowed as application of income, the Tribunal, purporting to follow a judgment of this Court in DIT v. Vishwa Jagrati Mission [IT Appeal No.140 of 2012, dated 29.03.2012], held that in the light of this judgment the assessee was entitled to claim depreciation on the cost of the assets, the investment in which was already allowed as application of income.
18. We are leaving out the finding of the Tribunal in relation to the treatment accorded to the development fund charges of Rs.59,58,384/-recovered during the year and directly credited to the corpus of the trust because no question of law has been raised on this aspect before us.
19. In the appeal by the assessee for the assessment year 2007-08, the Tribunal took the same view so far as the claim for exemption under Section 11 is concerned. It also deleted the additions made under Section.
20. The following substantial questions of law are framed:—
ITA Nos.321/2013 & 323/2013 (assessment year 2006-07)
| (i) | (a) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that there was no violation of Section 13(1)(c)(ii) read with Section 13(3) of the Income Tax Act, 1961 in respect of the transactions which the assessee had with M/s. APIL and Charanjiv Educational Society and consequently in holding that the assessee was entitled to the exemption under Section 11? | |
| (b) Was such decision perverse? | ||
| (ii) | Whether the Tribunal was right in law in holding that the assessee was entitled to depreciation on the assets, the cost of which has been allowed as deduction as application of income? | |
| (iii) | Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the addition of Rs.1.50 crores and Rs.25 lakhs received from Jagjit Singh and Piyush Jain respectively, by invoking Section 68 of the Act? |
ITA No.322/2013 (assessment year 2007-08)
| (i) | (a) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that there was no violation of Section 13(1)(c)(ii) read with Section 13(3) of the Income Tax Act, 1961 in respect of the transactions which the assessee had with M/s. APIL and Charanjiv Educational Society and consequently in holding that the assessee was entitled to the exemption under Section 11? | |
| (b) Was such decision perverse? | ||
| (ii) | Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the addition of Rs.25 lakhs and Rs.9.06 lakhs being amounts claimed to have been received by the assessee as corpus donations from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Sun System Institute of Information Technology respectively by invoking Section 68 of the Act? |
21. We may first take up the fundamental question as to whether the assessee was ineligible for the exemption under Section 11 on the ground that there was contravention of the provisions of Section 13(1)(c)(ii) read with Section 13(3) of the Act. It is necessary to briefly notice the statutory provisions in this regard. Section 11 exempts any income derived from property held under trust wholly for charitable or religious purposes to the extent to which it is applied to such purposes in India, to the extent of 85% of such income. Charitable purposes are defined in Section 2(15). There is no dispute that the objects pursued by the assessee fall within the said definition. Even if the objects of a trust satisfies the definition of "charitable purpose" as per Section 2(15), it does not automatically confer exemption to the trust; it has to further get itself registered under Section 12A. This condition is also satisfied in the present case since the assessee was registered under Section 12A on 28.05.1976. There are further conditions for being eligible to the exemption. Section 13(1) enumerates instances under which the provisions of Section 11 granting exemption will not operate. One such instance is furnished by clause (c)(ii) which says that if any part of the income or any property of the trust is, during the relevant previous year, used or applied directly or indirectly for the benefit of any person referred to any sub-section (3), the exemption will not be allowed. Sub-section (3) enumerates the prohibited persons and there is no dispute that the assessee's case falls within clause (e) of sub-section (3). There is another provision which we have to notice and that is Section 13(2) which in clauses (a) to (h) thereof sets out illustrative instances where the income or property of the trust may be deemed to have been used or applied for the benefit of a prohibited person.
22. It is also to be noted that even if there is one instance of application or use of the income or property of the trust directly or indirectly for the benefit of any prohibited person, the trust will lose the exemption in respect of its entire income. Therefore, if in respect of the monies paid either to APIL or to Charanjiv Educational Society, it is found that the provisions of Section 13(1)(c)(ii) read with Section 13(3) of the Act are not followed, the trust would lose its exemption entirely, with the result that the assessment of its income will be made according to the provisions of the Act.
23. With the above prefatory observations we may examine the facts of the case relating to the monies advanced to APIL. Before the assessing officer the assessee submitted that the agreements were entered into with APIL in the financial year 2003-04 for purchase of land in Palam Vihar and advance of Rs.86,01,600/- was made. In its letter dated 26.11.2008 written to the assessing officer, the assessee admitted that though payment was made possession was not taken by the trust. The payment was, however, treated as application of income (towards charitable purposes) in the said financial year. In the same letter it was further averred that due to various reason the assessee changed its mind and the agreements were cancelled; the amount was refunded to the assessee in the financial year relevant to the assessment year 2006-07. The refunded amount was reduced from the fixed assets to which they had been debited. Having said this, in its subsequent letter dated 18.12.2008 the assessee appears to have changed its stand. In this letter it was admitted that though no registered deeds were executed but possession of the plots were given to the assessee in the financial year 2003-04. The attention of the assessing officer was drawn to the clauses 16 and 20 of the agreements dated 18.03.2004 and 24.03.2004 which stipulated that on receipt of 95% of the amount, physical possession of the plots was handed over to the assessee by APIL. It was explained that these clauses were unfortunately overlooked by the assessee and the attention of the assessing officer was not drawn to that in the earlier letter. The assessee also enclosed copies of its letter dated 31.3.2005 to APIL and the reply of APIL dated 21.04.2005. It is significant that these letters had not been filed with the assessing officer along with the assessee's earlier letter. The assessing officer dealt with the assessee's submissions in both the letters and noted that there was a significant change in the assessee's stand vis-a-vis taking over possession of the land. He issued summons to APIL under Section 131 of the Act in response to which APIL submitted that no income from the transaction was shown in its return for the assessment year 2004-05. Apparently the assessing officer was of the view that in case possession of the land had been handed over to the assessee in the financial year 2003-04 by APIL, as claimed by the assessee in the subsequent letter dated 18.12.2008, the provisions of Section 2 (47)(v) of the Act which defines "transfer" inclusively for the purpose of levying capital gains, would be applicable and capital gains would have been declared by the APIL but in view of APIL's reply, the assessing officer concluded that possession of the land was not given to the assessee. He further noted that the amount of Rs.8,60,16,000/- continued to remain with APIL for the whole of the next financial year i.e. 2004-05 without any progress in the transaction. No sale deed was signed for more than one year even assuming that there were agreement to sell entered into in the month of March, 2004. He found it unusual that the assessee would part with 95% of the price of the land without even taking possession of the same and would wait for such a long period without getting the sale registered in its name. He also found it unusual that it was on the last day of the financial year 2004-05 that the assessee claimed to have written to APIL cancelling the deal which was accepted by the letter dated 21.04.2005. The assessing officer also noticed that even though APIL agreed on 21.04.2005 to cancel the agreements, the copy of the ledger account of APIL in the books of the assessee did not reveal any corresponding entry made on the said date; the entry reflecting the cancellation of the agreement to sell was passed in the accounts only on 31.03.2006. He further noted from the account that even after cancellation of the deal two cheques for Rs.80 lakhs and Rs.75 lakhs were given to APIL on 29.11.2005 and 13.12.2005 for which there was no explanation. On these facts and relying upon certain authorities including the judgment of this Court in Kanahya Lal Punj Charitable Trust v. DIT (Exemptions) [2008] 297 ITR 66/171 Taxman 134 (Delhi) the assessing officer took the view that there was a violation of Section 13(1)(c)(ii) read with Section 13(2) read with Section 13(3)(e). These findings were not accepted either by the CIT (Appeals) who decided the appeal for the assessment year 2006-07 or by the Tribunal.
24. Counsel for the revenue submitted that the findings of the Tribunal are perverse and have been recorded by taking into account irrelevant considerations and by ignoring relevant material. We are inclined to agree. The statutory provisions which we have referred to have to be applied stringently by having regard to their object, viz., to prevent misuse of the exemption provision. It is difficult to see how the assessee-trust can advance about 95% of the price of the land allegedly purchased by it for its objects and not insist on the lands being conveyed to it within reasonable time or within the time which it normally takes. If the trust is quite serious about pursuing its objects of running schools/ dispensaries, it should have insisted on conveyance of the lands within a reasonable period of time or at least stipulated for interest or adequate compensation or damages in case of failure to honour the alleged agreements. Counsel for the assessee pointed out that no advances were given in the previous year relevant to the assessment year 2006-07 and that they were all given in the earlier years and were only refunded in the accounting year ended on 31.03.2006. This argument is bereft of any merit and in fact reinforces the contention of the revenue that the monies were lying with APIL for a longer period without any interest or security, even taking into account the amounts refunded by APIL in the relevant previous year. Moreover, the Tribunal failed to take note of the fact that the assessee had taken contradictory stands before the assessing officer on a crucial aspect i.e. possession of the land. In its letter dated 26.11.2008 the assessee admitted that though payment of Rs.8,60,16,000/- had been made to APIL, possession of the land was not taken. But in its letter dated 18.12.2008 the assessee filed copies of the agreement dated 18th and 24th March, 2004 to show that they contained clauses to the effect that physical possession of the plots had been handed over by APIL and explained that these clauses were overlooked by it while making submissions vide letter dated 26.11.2008. It is difficult to believe how the assessee could forget or could have overlooked that it had taken possession of the land and admit to the contrary in its letter dated 26.11.2008, if in fact and truth it had taken possession of the land pursuant to the relevant clauses in the agreements. Even if it is accepted for the sake of argument that the assessee had taken physical possession of the lands, there is no explanation as to why the agreements were cancelled, except a vague statement in the letter dated 26.11.2008 that it changed its mind due to "various factors". The assessee is a trust; surely, such decisions are expected to be taken formally in meetings of the trustees with reasons for the decisions being discussed and minuted. No minutes were produced; a vague statement is made that the trust changed its mind due to various factors, without being specific. The amount advanced is quite substantial and particularly when it is admitted that the amount was advanced to a prohibited person within the meaning of Section 13(3), it was the burden of assessee to establish beyond any doubt or suspicion that the advance was made bona fide and with the genuine object of acquiring land for the pursuit of the objects of the trust. Further, even though APIL accepted the request for cancellation of the agreements by letter dated 21.04.2005, the entry reflecting the cancellation of the agreement was passed in the assessee's account only after almost a year i.e. on 31.03.2006 which is the last day of the relevant accounting year. This fact will have to be noted and appreciated keeping in view the whole perspective and not in isolation. Even if the agreements were cancelled on 21.04.2005, there is no explanation why further amounts of Rs.80 lakhs and Rs.75 lakhs were advanced to APIL on 29.11.2005 and 13.12.2005 respectively. These amounts also did not bear any interest nor was any security taken.
25. Counsel for the assessee would, however, contend that the chart set out in the order of the Tribunal would show that the account between the assessee and the APIL is a running account and if the entries are taken as a whole it would be seen that it is APIL which is funding the assessee and not the other way round. It was again submitted that in the 12 month period ended on 31.03.2006, no monies flowed out from the assessee to any prohibited person. This latter submission has already been dealt with by us supra. As to the contention that it is only a running account between the assessee and the APIL, we are unable to give effect to the submission since Section 13(1)(c)(ii) read with Section 13(2) does not appear to make any distinction between a running account where there is inter-flow of funds and a case of pure advance. Section 13(2) makes it clear that the instances listed in its clauses (a) to (h) are only illustrative and without prejudice to the generality of the provisions of Section 13(1)(c). The prohibition is on the use or application of any part of the income or property of the trust, during the relevant previous year, for the direct or indirect benefit of any prohibited person. When funds of assessee trust are lying with APIL - even though they were not advanced in the relevant accounting year - and no interest or security is taken, it is a case of direct use of the funds for the benefit of a prohibited person. Clause (a) of Section 13(2) says that even if the income or property of the trust continues to remain lent to any prohibited person for any period during the relevant previous year without security or interest, it would be a case of deemed misapplication. This shows that it is not necessary that there should be any advance payment to the prohibited person in the relevant accounting year. At this juncture it is relevant to point out a crucial aspect. The provision makes reference to income or property of the trust being "lent" or continued to be "lent" to any prohibited person. If the funds of the assessee had been given to APIL without any agreement to sell being entered into there would have been no defence to the assessee as that would have been a clear case of monies lent or continue to be lent without interest or security. It is only in order to get out of the clutches of the said clause that the assessee appears to have conceived of a device and entered into documentation with APIL to make it appear as if the monies were not "lent" to APIL, but were given for the purpose of acquiring lands under agreements to sell, for the objects of the trust. This explains why the assessee admitted before the assessing officer in its first letter that it had not taken possession of the lands, but resiled from that position in its second letter, realising its faux par, citing some clauses in the agreements. Taking possession of the lands has not been established as a fact by adducing evidence.
26. The argument of the counsel for the assessee that the CIT (Appeals) and the Tribunal have entered concurrent findings of fact which should not normally be disturbed unless they are perverse is technically correct; however, we are in agreement with the submission of the counsel for the revenue that the findings of the CIT (Appeals) (for the assessment year 2006-07) and the Tribunal are superficial and have not taken note of the normal course of human conduct and probabilities. A little probing or scratching of the surface was all that was required on the part of the Tribunal to find out the truth about the claim of the assessee. The Tribunal has chosen, erroneously - this we say with respect - to ignore the normal course of human conduct and probabilities of the case and has preferred to be led simply by the documentation presented by the assessee. Each and every objection taken by the assessing officer has been attempted to be explained away by the assessee and the Tribunal overlooked that the facts have to be looked at cumulatively and as a whole; it failed to realise that and the real transaction between the assessee and APIL is not just an aggregate of the several component parts thereof; the authenticity of the transaction has to be examined by keeping in view the conspectus of the facts without missing the woods for the trees.
27. In the aforesaid view of the matter, we hold that the findings of the Tribunal on this aspect cannot be upheld. We uphold the findings of the assessing officer and hold that in advancing the amount of Rs.8,60,16,000/- to APIL the assessee committed a violation of the provisions of Section 13(1)(c)(ii) read with Section 13(2) and Section 13(3) of the Act. The trust was accordingly not eligible for the exemption under Section 11 of the Act for both the years.
28. It is further necessary to examine whether the advance made to Charanjiv Educational Society can be said to be in violation of the aforesaid provisions. On this aspect we are unable to find fault with the approach of the Tribunal. The relevant facts have already been noticed by us. The amounts were advanced by the assessee to the society which in turn deposited them with the Chhattisgarh government for the purpose of establishing a private University. The relevant documentary evidence is on record and has been noticed and relied upon by the Tribunal. It is only after the judgment of the Supreme Court that the position became certain that entities established outside the State of Chhattisgarh cannot be permitted to open private universities in the State. The monies were thereafter returned to the assessee. On these facts it is not possible to question the correctness of the view taken by the Tribunal. We are accordingly of the view that the assessing officer was not right, as held by the Tribunal, in denying the exemption under Section 11 on the ground that by advancing monies to Charanjiv Educational Society the assessee committed a violation of Section 13(1)(c)(ii) read with Section 13(2) and Section 13(3) of the Act.
29. It is now necessary to examine the other two questions of law. We may take up the applicability of Section 68 in respect of the donations received from Jagjit Singh and Piyush Jain in the previous year relevant to the assessment year 2006-07. So far as the Jagjit Singh is concerned, the Tribunal has deleted the addition on the ground that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN number and by filing the confirmation letters. These were not pursued by the assessing officer by making further inquiries. The Tribunal, however, has overlooked that Jagjit Singh, in some other proceedings made a statement on oath denying the fact that he made any corpus donations to the assessee trust. What he stated was that an amount of Rs.1.5 crores was payable to him by DLF in a tripartite dispute between him, APIL and DLF out of which a sum of Rs.1.5 crores was paid by DLF directly to the assessee as corpus donation of Jagjit Singh. The Tribunal has held that it is not possible to view the transaction with suspicion merely because some other entity, which owes money to Jagjit Singh, had made the donation on behalf of Jagjit Singh in discharge of the debt to Jagjit Singh. It has also observed that Jagjit Singh was not cross-examined by the assessee on the statement said to have been made by him before another income tax authority in some other proceedings denying the making of the donation. The Tribunal has also found that the money has actually been given to the trust which has also used it. In these circumstances the Tribunal deleted the condition. The findings recorded by the Tribunal cannot be said to be perverse. Similarly in respect of the donation received from Piyush Jain, the Tribunal has noticed that the assessee was able to establish the identity of the donor and the source of the payment which was through account payee cheque, and give the PAN number and bank details. These details were not inquired into by the assessing officer and nothing adverse was found. It is in these circumstances that the Tribunal has deleted the addition. The findings of the Tribunal which are based on relevant material cannot be called perverse.
30. So far as the claim of depreciation is concerned the decision of the Tribunal cannot be countenanced. The Tribunal has overlooked that the cost of the assets has already been allowed as a deduction as application of income, as held by the CIT (Appeals) as well as the assessing officer. It was their view that allowing depreciation in respect of assets, the cost of which was earlier allowed as deduction as application of income of the trust, would actually amount to double deduction on the basis of the ruling of the Supreme Court in Escorts Ltd. (supra). In respect of the additions to the fixed assets made during the previous year relevant to the assessment year 2006-07, the CIT (Appeals) held that since the cost of the assets was not allowed as a deduction by way of application of income, depreciation should be allow. The CIT (Appeals) has thus made a distinction between assets the cost of which was allowed as deduction as application of income and assets, the cost of which was not so allowed. The Tribunal has not kept this distinction in view, but has proceeded to rely upon a judgment of this Court in Vishwa Jagrati Mission (supra). In the judgment of this Court the question was whether the income of the assessee, which was a charitable trust, should be computed on commercial principles and if so, whether depreciation on fixed assets used for charitable purposes should be allowed as a deduction. This Court noticed that there was a consensus of judicial opinion on this aspect and held, after referring to those authorities as well as a circular of the CBDT issued on 19.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd.(supra) on the ground that in Escorts Ltd. (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets was held allowable under general principles of taxation, as it would amount to double deduction. The judgment of this Court in Vishwajagrati Mission (supra) reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets.
31. In ITA No.322/2013, which relate to the assessment year 2007-08 the issues are consequential. In that year the assessing officer denied exemption to the trust under Section 11 on the ground that there was a violation of Section 13(1)(c)(ii) read with Section 13(3) arising out of the advances given to APIL and Charanjiv Educational Society. His attention would appear to have been drawn to the order of the CIT (Appeals) in respect of the assessment year 2006-07 in which both the issues were decided in favour of the assessee and it was held that the exemption under Section 11 cannot be denied on the aforesaid grounds. The assessing officer, however, proceeded to complete the assessment by denying the exemption under Section 11 since the department had filed an appeal before the Tribunal against the order of the CIT (Appeals) for the assessment year 2006-07. While computing the income of the assessee, the assessing officer made several additions and disallowances and determined taxable income Rs.3,64,64,753/-. By virtue of the order of the Tribunal for the assessment year 2007-08, the trust has been given the exemption under Section 11 of the Act. The Tribunal further held that since the trust is eligible for exemption under Section 11, the additions made under Section 68 of the Act have to be examined on the yardstick applicable to donations received by a charitable trust. It then proceeded to examine those additions and deleted the same. Since we have reversed the order of the Tribunal on the question of exemption under Section 11 for the assessment year 2006-07.
32. In line therewith, we hold that the Tribunal was not right in law in holding that the assessee was entitled to the exemption under Section 11 in respect the assessment year 2007-08. So far as the decision of the Tribunal in respect of the corpus donations are concerned, which have been added under Section 68, the Tribunal has deleted the addition of Rs.25 lakhs in respect of the corpus donation received from M/s. Kuber Swamy Ashutosh Consultants Pvt. Ltd. and Rs.9.06 lakhs received from M/s. Sun System Institute of Information Technology Pvt. Ltd. (total Rs.34.06 lakhs). The Tribunal has examined the evidence and deleted them. No perversity has been pointed out in its decision to do so.
33. In the result both aspects of the first substantial question of law which is common to both the assessment years 2006-07 and 2007-08 are answered in the negative, in favour of the revenue and against the assessee. The second question of law relating to the assessment year 2006-07 is also answered in the negative, in favour of the revenue and against the assessee. The third question of law for the assessment year 2006-07 and the second question of law for the assessment year 2007-08 are decided in the affirmative, in favour of the assessee and against the revenue. The appeals of the revenue are accordingly partly allowed.
SUNIL † Arising out of order of Tribunal, dated 30-4-2012.
IT: Where remittance were received from two Thai companies, but credit entries were made in name of two NRI Individuals and immediate foreign remitter's explanation was absent, initial burden showing genuineness of transaction was not discharged
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[2014] 45 taxmann.com 119 (Delhi)
HIGH COURT OF DELHI
Bon Sales (P.) Ltd.
v.
Commissioner of Income-tax*
S. RAVINDRA BHAT AND RAJIV SAHAI ENDLAW, JJ.
IT APPEAL NO. 142 OF 2013
FEBRUARY 20, 2014
Section 68 of the Income-tax Act, 1961 - Cash credit (Foreign remittances) - Assessment year 1996-97 - Assessee received certain amount from two different NRIs - During course of enquiry assessee explained same to have been received for purchase of a land for said NRIs - Assessing Officer found that as per foreign exchange remittance and certificates, impugned amount was sent by two companies of Thailand, but credit entries were made in name of NRI individuals - He, therefore, treated said amount as unexplained - Assessee failed to collect any evidence or show whether two companies which remitted amounts, were substantially owned by said two NRI individuals or that they had any substantial shareholding in companies in question - Whether since immediate foreign remitter's explanation was absent, genuineness of transaction could not be said to have been shown in discharge of initial burden placed on assessee by section 68 - Held, yes [Paras 10 and 11] [In favour of revenue]
FACTS
| ■ | During relevant assessment year the assessee received two amounts from two different non-resident Indians. During the course of enquiry, the assessee explained same to have been received for purchase of land on behalf of these NRI's. | |
| ■ | The Assessing Officer found that as per foreign exchange remittance and certificate impugned amount had not been sent by two persons but was sent by two companies of Thailand. Since credit entry which was made in the name of NRI individuals remained unexplained, he made addition under section 68. | |
| ■ | On appeal, the Commissioner (Appeals) on taking into fact that sale deed were in name of said NRI individuals deleted addition. | |
| ■ | On further appeal, the Tribunal though accepted evidence of sale deeds as genuineness of transaction, remanded matter back to Assessing Officer to re-examine matter and also to afford an opportunity to assessee to prove whether said to companies were owned by two NRI's and, if it was not so, how assessee had made credit entries in its books of account when foreign remittance was made to its by these two companies. | |
| ■ | In remand proceeding, the assessee produced affidavits of one person who facilitated transaction and also affidavit of said two NRI purchasers to establish identity of persons. | |
| ■ | The Assessing Officer rejected the assessee's explanation and confirmed addition on ground that the assessee was unable to collect any evidence or show whether the two companies which had remitted the amounts were substantially owned or any substantial shareholding in them was owned by the said two NRI individuals. | |
| ■ | On appeal, the Commissioner deleted addition by accepting the assessee's submission. | |
| ■ | On further appeal, the Tribunal directed the addition of these amount and restore the order of the Assessing Officer. | |
| ■ | On appeal: |
HELD
| ■ | The remand in the first round of the litigation was on a narrow and pointed aspect, i.e. the identity of the remitter companies. No doubt, the affidavits of the purchasers (of the property), in support of the assessee's assertions as well as the affidavit of the person who facilitated transaction, to some extent, advance its case. At the same time, the immediate foreign remitters' explanation is absent. The assessee contends with some vehemence that being foreign nationals or concerns, it was not possible to secure their confirmations or affidavit and future, they are beyond the pale of jurisdiction of the Indian authorities. Whilst that may be so, this Court cannot help notice that when asked to produce materials in support of its contention after the remand, the assessee was able to secure affidavits of the person who facilitated transaction as well as the alleged purchasers. When the scope of remand itself is narrow and limited, in proving of entire chain of transactions leading to the remittance to the assessee, the missing link was also an aspect which had to be established. This becomes critical because the monies were immediately remitted to the assessee by the two Thai companies. [Para 10] | |
| ■ | There is no need for any authority for the proposition that the scope of enquiry of lower authority or Court in the face of a remand is confined to the points required of it to return a finding. Having regard to this aspect, it was not now open for the latter to contend that the requirement was unreasonable. The assessee did not appeal against the remand nor seek dilution of points on which the Tribunal recollected finding after due enquiry. In these circumstances, it is now not open for the assessee to state that even though it could afford explanations by way of affidavits of the two individuals and the foreign national, its inability to secure any confirmation or documentary proof in support of its contention that the two foreign remitters did not have any independent transaction carries no consequence. Since this aspect goes to the root of the second requirement under section 68, this Court is of the opinion that the genuineness of the transaction alleged by the assessee cannot be said to have been shown by it in discharge of the initial burden placed on it by section 68 of the Income-tax Act. [Para 11] |
CASES REFERRED TO
CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi) (para 7), CIT v. Divine Leasing Finance Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440 (Delhi) (para 7), CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] (para 8), CIT v. Dwarkadishish Investment (P.) Ltd. [2011] 330 ITR 298/[2010] 194 Taxman 43 (Delhi) (Para 8), CIT v. Oasis Hospitalities (P.) Ltd.[2011] 333 ITR 119/198 Taxman 247/9 taxmann.com 179 (Delhi) (para 8) and CIT v. Victor Electrodes Ltd. [2010] 329 ITR 271/[2012] 20 taxmann.com 680 (Delhi) (para 8).
Ajay Vohra and Ms. Kavita Jha for the Appellant. Rohit Madan and Ruchir Bhatia for the Respondent.
JUDGMENT
S. Ravindra Bhat, J. - The assessee in this appeal questions the decision of the Income Tax Appellate Tribunal (ITAT) by which the Revenue's appeal was allowed for the assessment year (AY) 1996-97.
2. The substantial question of law framed for consideration by this Court is as follows:
"Did the Tribunal fall into an error in holding that the assessee had not discharged the initial onus cast upon it under Section 68 and furnishing satisfactory explanation in respect of the total amount of Rs. 29,70,900/- in the facts and circumstances of the case?"
3. The assessee company was engaged in manufacturing of cotton buds and cotton balls. Since its business was not running profitably, it took up the business of consultancy in real estate development. During the concerned assessment year, the Assessing Officer (AO) noted that the assessee had received two amounts from two Non-Resident Indians (NRIs). The first was from Vinay Kumar Kedia (an amount of Rs. 14,97,400/-), and the second was from Sh. Narottam Singh (an amount of Rs. 14,73,410/-). During the course of enquiry, the assessee said that these amounts were received for purchase of land on behalf of these NRIs. The AO observed that the foreign exchange remittances and certificates disclosed that the amounts had not been sent by two persons but by two companies, namely M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. He, therefore, queried that since the remittance were received from two companies, how the credit entries could be made in the books of accounts of the assessee in the name of NRIs remained unexplained. Since nothing was forthcoming, the AO treated it as unexplained and assessed/brought them to tax under Section 68 of the Act. The CIT, upon appeal, considered the issue in the light of the evidence pertaining to the sale deed through which these lands were purchased in the names of Sh. Vinay Kumar Kedia and Sh. Narottam Singh. The CIT accordingly deleted the additions. The Revenue's appeal to the Tribunal was successful. On 20.08.2004, the Tribunal noticed that the assessee had produced substantial evidence to prove the creditworthiness of the creditors. Yet, the main question remained unanswered even in the order of the CIT. The AO's query was that the foreign remittance to the assessee was made by two companies but the assessee had credited the remitted amounts in favour of Sh. Vinay Kumar Kedia and Sh. Narottam Singh. The AO's doubt led to the query as to how these credit entries could be made in the name of two individuals when the remittance were received from two companies. This query remained unanswered by the assessee. The Tribunal took note of the sale deeds placed on record to establish the genuineness of the transaction. However, since the AO had doubted the basis of the credit entries which had not been cleared before the Tribunal, the matter was remitted for consideration to the AO again.
4. This time round, the AO, in the order, noted the Tribunal's direction. The AO observed that as far as the production of those two individuals was concerned, the assessee's explanation was that since they lived abroad, it was not possible to comply with such a requirement. The assessee was also unable to collect any evidence or show whether the two companies which had remitted the amounts were substantially owned or any substantial shareholding in them was owned by the said two individuals. The assessee again repeated before the AO the assertion that it had purchased land on behalf of the two persons and they were duly registered in their names. The AO rejected the assessee's explanations and confirmed the addition yet again.
5. The assessee's appeal was successful. The order of the appellate Commissioner allowing the assessee's claim was premised on the affidavits of one Ms. Rosna Singjirakul as well as that of Sh. Vinay Kumar Kedia and Sh. Narottam Singh, the two purchasers. The CIT was satisfied as to the link in the chain of transactions that led to the two individuals. The CIT, therefore, held that in substance the amounts deposited with the assessee pertained to the said two Sh. Vinay Kumar Kedia and Sh. Narottam Singh and had been received by way of advance for the cost of land that was purchased by them from the appellant in the subsequent years. The CIT (Appeals) also noted that the assessee had received commission and development charges which were credited to the P&L account in the subsequent years and taxed accordingly.
6. The Tribunal accepted the Revenue's appeal. Its reasoning is premised upon the previous remand order where according to it the directions were clear that the AO had to afford an opportunity to the assessee to prove whether the two companies were owned by Sh. Vinay Kumar Kedia and Sh. Narottam Singh and the link between the two. The inability expressed by the assessee to do so, and its exclusive relevance on affidavits filed before the AO, according to the Tribunal, were not sufficient or adequate explanation as to avoid the income being added under Section 68. It accordingly directed the addition of those amounts, restoring the order of the AO.
7. In the present appeal, it is contended that the assessee did all that was expected of it and indeed lawfully required of it in the remand proceedings. Learned counsel, Sh. Ajay Vohra, argued that by producing the affidavits of the three individuals, i.e. the lady - Ms. Rosna Singjirakul, who facilitated the transaction and the two individuals who were the ultimate purchasers, the assessee in fact established the identity of the persons extending the credit or giving the money as well as the genuineness of the transaction. Emphasizing that the genuineness was also established or proved through other means, such as the registered sale deed and the entries in the books of accounts depicting the commission payable to the assessee, learned counsel emphasized that the law pertaining to Section 8 did not cast as onerous a burden as was understood by the Tribunal in the circumstances of this case. Placing reliance on CIT v. Value Capital Services (P.) Ltd.[2008] 307 ITR 334 (Delhi), CIT v. Divine Leasing Finance Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440 (Delhi) and various other decisions, it was submitted that the inability to produce evidence that was impossible to access could not result in the assessee being placed disadvantageously. Learned counsel submitted that as to whether M/s. Thailand and General Co. Ltd. and the other firm who were the remitters in this case were the real investors had to be seen in the light of the end-use of the amount. Learned counsel submitted that these two concerns were more in the nature of facilitators for financial transactions that were commonly prevalent in Thailand which routinely facilitated remittances abroad from that country.
8. Reliance is placed upon the decision of the Supreme Court in CIT v. Lovely Exports (P.) Ltd.[Application No. 11993 of 2007, dated 11-1-2008]. In that case, the Court affirmed the judgment of the Division Bench which had ruled that so long as the identity of the person making the investment or the source of funds could be traced, the assessee is said to have discharged the burden placed upon him. The assessee also relied upon the judgments reported as CIT v. Dwarkadhish Investment (P.) Ltd. [2011] 330 ITR 298/[2010] 194 Taxman 43 (Delhi); CIT v. Oasis Hospitalities (P.) Ltd. [2011] 333 ITR 119/198 Taxman 247/9 taxmann.com 179 (Delhi) and CIT v. Victor Electrodes Ltd. [2010] 329 ITR 271/[2012] 20 taxmann.com 680 (Delhi). It was urged that in the light of these decisions, the approach of the Tribunal amounted to casting an unreasonable, if not impossible, burden on the assessee. The assessee argued in addition that for the Revenue to infer that the amounts in question were really benami or from a dubious source, the onus was upon it. In other words, once the genuineness of the transactions and the identity of the persons concerned were shown, the Revenue had to proceed further with concrete materials to conclude that the amounts were benami. Learned counsel also relied upon the decision reported as Divine Leasing & Finance Ltd. (supra). Learned counsel for the respondent relied upon the findings of the Tribunal in the impugned judgment and urged the Court not to interfere with them. It was argued that the remand order by the Tribunal on the previous occasion was on the pointed issue regarding the identity of the two companies, i.e. M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. Further, learned counsel argued that the assessee's reliance upon the affidavits of Sh. Vinay Kumar Kedia and Sh. Narottam Singh on the one hand and the affidavit of Ms. Rosna Singhjirakul was insufficient, and there needed to be a clear confirmation from the two foreign remitters, i.e. M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. In the absence of these, it could equally be held by the AO that the entries shown in the books of accounts in respect of the transaction could well cover some other commercial activity, and the property purchased could well be in reality of€_2 in relation to some other commercial transaction. Therefore, the scope of the remand was specific, i.e. the link between the two remitters in the chain of investment. If the two purchasers had been facilitated in their transactions by Ms. Rosna Singhjirakul, what was expected of the assessee was to show that the immediate remitters today, i.e. the two Thai companies had indeed facilitated the transaction as was stated by Ms. Rosna Singhjirakul.
9. From the above discussion, what is evident is that the assessee's explanation for the receipt of Rs. 29,70,810/- was that it was in respect of a transaction facilitated by it as a property consultant to the two individuals - Sh. Vinay Kumar Kedia and Sh. Narottam Singh. It relied upon the sale deeds executed in favour of those individuals and also the relevant entries in its books to say that the amounts were received as consideration payable on behalf of those individuals to the vendors of the properties and that the fee payable had been debited from their account. Superficially, the explanation seems plausible. Yet, the Court cannot lose sight of the fact that the identity of the investor and the genuineness are the twin requirements that have to be established to the satisfaction of the AO in each case where Section 68 is sought to be invoked. Section 68 is in the nature of an attributive or "deemed" income in the hands of the assessee, and the AO is given the power to include unexplained cash in the hands of the assessee. Lovely Exports (P.) Ltd. (supra) and various other decisions culminating are forthright that if the identity of the transaction and the genuineness are established, the burden cast upon the assessee is said to be discharged and the AO, in order to invoke Section 68, has to probe further and discharge the onus placed upon the Revenue. The question in this case, therefore, is whether those requirements are said to have been met with by the Revenue.
10. The remand in the first round of the litigation was on a narrow and pointed aspect, i.e. the identity of the remitters, M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. No doubt, the affidavits of the purchasers (of the property), Sh. Vinay Kumar Kedia and Sh. Narottam Singh in support of the assessee's assertions as well as the affidavit of Ms. Rosna Singhjirakul, to some extent, advance its case. At the same time, the immediate foreign remitters' explanation is absent. The assessee contends with some vehemence that being foreign nationals or concerns, it was not possible to secure their confirmations or affidavit and further, they are beyond the pale of jurisdiction of the Indian authorities. Whilst that may be so, this Court cannot help notice that when asked to produce materials in support of its contention after the remand, the assessee was able to secure affidavits of Ms. Rosna Singhjirakul as well as the alleged purchasers, i.e. Sh. Vinay Kumar Kedia and Sh. Narottam Singh. When the scope of remand itself is narrow and limited, in proving of entire chain of transactions leading to the remittance to the assessee, the missing link was also an aspect which had to be established. This becomes critical because the monies were immediately remitted to the assessee by the two Thai companies - M/s. Thailand and General Co. Ltd. and M/s. Preet Trading Co. Ltd. of Thailand. The scope of the remand was defined in the previous order of the Tribunal dated 20.08.2004, the relevant part of which is extracted below:
"We have carefully examined the order of the lower authorities and we are of the considered opinion that it is a fit case where the issue should be restored to the file of the AO for its re-examination and also to afford an opportunity to the assessee to prove whether these two companies are owned by Shri Vinay Kumar Kedia and Shri Narottam Singh. If not, how the assessee has made the credit entries in its books of account when the foreign remittance was made to it by these two companies. We, therefore, set aside the order of the CIT(A) and restore it to the file of the AO for readjudication of the impugned issue after affording an opportunity of being heard to the assessee."
11. There is no need for any authority for the proposition that the scope of enquiry of lower authority or Court in the face of a remand is confined to the points required of it to return a finding. Having regard to this aspect, once the Tribunal had spelt out what was expected of the assessee, it was not now open for the latter to contend that the requirement was unreasonable. The assessee did not appeal against the remand nor seek dilution of points on which the Tribunal recollected finding after due enquiry. In these circumstances, it is now not open for the assessee to state that even though it could afford explanations by way of affidavits of the two individuals and the foreign national, its inability to secure any confirmation or documentary proof in support of its contention that the two foreign remitters did not have any independent transaction carries no consequence. Since this aspect goes to the root of the second requirement under Section 68, this Court is of the opinion that the genuineness of the transaction alleged by the assessee cannot be said to have been shown by it in discharge of the initial burden placed on it by Section 68 of the Income Tax Act.
12. In the light of the above findings, the appeal has to fail; it is accordingly dismissed with no order as to costs.
SONAMRegards,
Pawan Singla , LLB
M. No. 9825829075 Cenvat Credit : Rail/PSC (pre-stressed concrete) sleepers classifiable under Tariff Heading 6807 are not eligible for credit as 'capital goods'
■■■
[2014] 45 taxmann.com 194 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
Steel Authority of India Ltd.
v.
Commissioner of Central Excise & Service Tax, Raipur*
D.N. PANDA, JUDICIAL MEMBER
AND MANMOHAN SINGH, TECHNICAL MEMBER
AND MANMOHAN SINGH, TECHNICAL MEMBER
STAY ORDER NO. 56663/2013-EX(DB)
APPLICATION NO. E/STAY/55529/2013
APPEAL NO. E/55418/2013
APPLICATION NO. E/STAY/55529/2013
APPEAL NO. E/55418/2013
MARCH 5, 2013
Rule 2(a) of the Cenvat Credit Rules, 2004 - Cenvat Credit - Capital Goods - Stay order - Assessee took credit of 'rail' used for movement of goods within factory - Department denied said credit holding that it was not covered by definition of capital goods - HELD : Only Chapter Headings 6804 and 6805 of Excise Tariff are included in definition of capital goods, whereas PSC (pre-stressed concrete) sleepers is classified under Chapter Heading 6807 - Therefore, rail used by assessee is not covered under definition of capital goods - Assessee was directed to make pre-deposit [Para 1] [In favour of revenue]
EDITOR'S NOTE
Under present law, these will be eligible as 'input' under Rule 2(k) of CENVAT Credit Rules, 2004, as all goods used within factory (except capital goods) are eligible for credit as capital goods.
Hemant Bajaj for the Appellant. Sanjay Jain for the Respondent.
ORDER
Manmohan Singh, Technical Member - Issue raised by learned counsel is whether Cenvat credit is available on rail used in the factory and has been utilized further for movement of goods within the factory as capital goods. In this regard we have examined the definition of capital goods which reads as under :
'"Capital goods" means :—
(A) the following goods, namely :—
| (i) | all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act; | |
| (ii) | pollution control equipment; | |
| (iii) | components, spares and accessories of the goods specified at (i) and (ii); | |
| (iv) | moulds and dies, jigs and fixtures; | |
| (v) | refractories and refractory materials; | |
| (vi) | tubes and pipes and fittings thereof; | |
| (vii) | storage tank, and | |
| (viii) | motor vehicles other than those falling under Tariff Headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and tippers, |
used —
(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or
(2) for providing output service;'
From the perusal of above definition it is very clear that rail track material does not fall within definition of capital goods. Only Chapter Headings 6804 and 6805 of Chapter 68, have been included in the definition, whereas PSC sleepers is classified under Chapter Heading 6807. Therefore, rail used by the appellant is not covered under the definition of capital goods. In view of this, assessee has failed to prove its case to be fit for waiver of pre-deposit. Therefore, appellant is directed to deposit Rs. 50 lakhs within 6 weeks from today and make compliance on 17th May, 2013.
VINEETRegards,
Pawan Singla , LLB
M. No. 9825829075__._,_.___
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