Business expenditure—Interest, commission, brokerage etc. to
CHENNAI TRIBUNAL
Business expenditure—Interest, commission, brokerage etc. to a resident—Disallowance of foreign commission—During course of assessment proceedings, AO called for details of difference between closing stock in Balance Sheet and statement produced to bank, details of salary/wages, and loading and unloading charges, details of overseas commission paid and details of TDS deducted etc—Assessee filed all details called for by AO—AO thereafter allowed payment of commission—However, Administrative Commissioner in guise of exercising his revisional jurisdiction u/s 263, found that payment of commission was made to non-residents, therefore, it was liable for TDS at time of making payment—CIT further found that u/s 40(a)(i), AO ought to have disallowed sum of Rs. 37,18,965—Accordingly CIT directed AO to disallow payment of foreign commission—Assessee submitted that since AO had applied his mind to details filed by assessee and took one view, CIT could not substitute his own view and disallow claim u/s 40(a)(i)—Held, AO being quasi-judicial authority, had to apply its mind and that must be reflected in impugned assessment order itself—Apparently, even though AO called for details, there was no discussion in assessment order regarding payment of commission and application of mind was not reflected from assessment order—It was incumbent on part of AO to disclose reasons in assessment order for allowing or disallowing claim of Assessee—CIT had thus rightly exercised his jurisdiction u/s 263—However, CIT directed AO to disallow sum paid to non-residents for non-compliance of provisions of s 40(a)(i) of the Act as opportunity should have been given to assessee to explain nature of payment before AO—Accordingly, order of CIT was modified and AO was directed to examine payment of commission to non-residents independently—Assessee's Appeal partly allowed
Charitable trust—Voluntary contributions—Income or not
BANGALORE TRIBUNAL
Charitable trust—Voluntary contributions—Income or not—Assessee was a society registered under the Karnataka Societies Registration Act, 1960 for carrying on activities for charitable purposes—Assessee was granted registration u/s 12A w.e.f. A/Y 2012-13 onwards—In the course of proceedings for registration u/s 12A, AO noticed that the assessee society had received certain voluntary contributions in the period relevant to AY 2005-06 to 2009-10 for the purpose of construction of a 'Kalyana Mantapa'; which were credited to Building Fund in the Balance Sheet, treating the amount as capital receipts—In returns of income for relevant A/Ys 2005-06 to 2009-10, the assessee claimed income from voluntary donations as exempt from taxation by claiming application towards charitable purposes, even though the income of the assessee was not eligible for exemption as it did not have the benefit of registration u/s 12A for these assessment years—AO initiated proceedings u/s 147 to bring to tax income of the assessee that had escaped assessment for A/Ys 2005-06 to 2009-10 and issued notices u/s 148—Subsequently, AO completed the assessments u/s 143(3) rws 147, rejecting the assessee' s claim and held the same as liable to be treated as income and brought the same to tax—CIT(A) allowed the assessee' s appeals by following the decision of a co-ordinate bench of the ITAT, Bangalore in the case of St.Anns Home for the Aged V ITO—Issue was whether the voluntary contributions received from the specific purpose of construction of 'Kalyana Mantap' was falling within the definition of income u/s 2(24)(iia)—Held, voluntary contributions received for a specific purpose cannot be regarded as income u/s 2(24)(iia) since they were capital receipts and tied up grants for specific purpose—Facts revealed that assessee society had solicited donations for the specific purpose of construction of a 'Kalyana Mantap' building, for which building corpus fund was established and donations received had been credited to the said fund—List of Donors was also filed for all the years—List of donors filed by the assessee was not examined by the authorities below—Thus,amounts credited could not be regarded as income as the same had been credited to the corpus fund/building fund—Order of the CIT(A) was upheld—However in the interest of justice, AO was directed to examine and verify the donation receipts maintained by assessee, to come to the conclusion as to whether the amounts credited as building fund corpus in the accounts were supported by donation receipts issue—Revenue's appeals allowed partly
CONTINGENT CONTRACT
Chapter III of the Indian Contract Act, 1872 deals with the contingent contract. The following sections deals with various aspects of contingent contract-
Section 31 – Definition of 'contingent contract';
Section 32 - Enforcement of contract contingent on an event happening;
Section 33 – Enforcement of contract contingent on an event not happening;
Section 34 – When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person;
Section 35 – When contracts becomes void, which are contingent on happening of specified event within fixed time;
Section 36 – Agreements contingents on impossible event void.
Contingent Contract
Section 31 defines the term 'contingent contract' as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
Every contract constitutes a relation between the parties to it and rights arising out of that relation, but it does not follow that every contract creates a right immediately enforceable. The right created may be one which the parties agree shall be enforceable only on the happening of some future event, as to which neither of the parties makes any promise and which is, therefore, collateral to the contract, its import being merely to mark the moment at which a right created by the contract becomes enforceable. Such contracts are terms 'contingent'.
The following are the essential features of contingent contract-
Uncertainty and futurity of the event to which it is related – It is this dependence on a future even which distinguishes a contingent contract from other contract. An insurance contract is an example for this type of contract;
Uncertain future event must be collateral to the contract.
The following may not be the contingent contract:
An agreement to sell unspecified half share in the property;
An agreement to sell a house;
An agreement to purchase a property;
Reciprocal promises;
The contingency which is the essence of a condition must be distinguished from mere futurity. An obligation is not to be classed as conditional because its performance is not yet due. The passage of time is a certainty and not a contingency.
A contingency contract need not necessarily be dependent on any external event. It may be conditional on the voluntary act or the future conduct of one of the parties or a third person.
Enforcement of contingent contract on an event happening
Section 32 of the Act provides that contingent contracts to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible such contracts become void.
The following are the illustrations
A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced in law unless and until C dies in A's life time;
A makes a contract with B to sell a horse to B at a specified price if C, to whom the horse has been offered, refuses to buy. The contract cannot be enforced by law unless and until C refuses to buy the horse;
A contract to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.
Contingent contracts dependent on the happening of a certain event can be enforced only on the happening of that event. A plea that a contract is a contingent has to be alleged and proved by the party who sets it up and it is futile to argue that it is the bounded duty of the Trial Court to go into the matter.
Enforcement of contracts contingent on an event not happening
Section 33 of the Act provides that contingent contracts to do or not to do anything if uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before. If A agrees to pay B a sum of money, if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
In 'Gian Chand V. Goapala' – 1995 (1) TMI 386 - SUPREME COURT the declaration under Section 6 of Land Acquisition Act, was published and so it was conclusive of public purpose and the land was acquired. The contract was, therefore, frustrated. Since one of the terms of the contract is to return the earnest money, in the event of acquisition being made by the State, the Vendee-appellant is entitled under Section 33 of the Act, as rightly and legally held by the trial court to seek the refund of earnest money. The contract in question being a contingent contract based on uncertain future events, that event having occurred by notification issued under Section 6 the contract became impossible of performance. Therefore it got frustrated and the contracting party is entitled to enforce the terms of the contract for refund of earnest money.
No liability can arise on a promise subject to a condition precedent until the condition is performed and if by lapse of time or for any other reason the condition cannot be performed, no liability can ever arise upon the promise. In other words it will be discharged
When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person
Section 34 of the Act provides that if the future event on which a contract is contingent is the way a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.
If A agrees to pay B a sum of money if B marries C, C marries D. The marriage of B to C must now be considered impossible; although it is possible that D may die and that C may afterwards marry B.
The application of this section must obviously depend upon the construction of the contract. In the matter of Jaunpur Sugar Factory – 1925 (5) TMI 1 - ALLAHABAD HIGH COURT one R had agreed to take shares in the Jaunpur Sugar company if the company would appoint him its sole agent as at a certain place. The company went into liquidation before appointing him as agent and R was entered on the list of contributories. It was held that R was not liable, as the contract to take shares was contingent on his appointment as agent which event never took place.
When contracts become void, which are contingent on happening of specified event within fixed time
Section 35 provides that contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event has not happened, or if before the time fixed, such event becomes impossible.
Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired, if it becomes certain that such event will not happen.
The illustration for the above is as follows:
A promises to pay B a sum of money if a certain ship returns within an year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt with the year.
A promises to pay B a sum of money if a certain ship does not return within an year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.
In 'Panem Venkanarayana Sastry V. Rajupalli Chinna Yellw Reddy' 1958 (11) TMI 29 - ANDHRA PRADESH HIGH COURT the defendant agreed to sell the suit properties to the plaintiff. The agreement was subject to the title of the defendant being approved by the plaintiff's family lawyer. There was no time fixed within which the plaintiff should obtain the approval of his lawyer. It was held that the intention was that the approval should be obtained within a reasonable time. The time that elapsed between the agreement and the approval of the lawyer was about ten days. In these circumstances there has been no unreasonable delay.
Agreements contingent on impossible event void
Section 36 provides that contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
The following are the illustrations for the purpose of Section 36:
A agrees to pay B ₹ 1,000/- if two straight lines should enclose a space. The agreement is void;
A agrees to pay B ₹ 1,000/- if B will marry A's daughter C. C was dead at the time of agreement; the agreement is void.
By: Mr. M. GOVINDARAJAN
FTP - ban of import of palm oil through ports of Kerala, in public i
NEW DELHI: BY Notification No.39 (RE-2007)/2004- 2009 dated 16.10.2007, the Central Government (respondent in this case) prohibited the import of palm oil through Kochi port in Kerala. It was followed by another Notification No.63 (RE-2007)/2004- 2009 dated 24.12.2007 whereby the import of palm oil has been prohibited through all the ports of Kerala. These Notifications were issued by the Central Government in exercise of powers conferred by Section 5 read with Section 3 of The Foreign Trade (Development and Regulation) Act, 1992. All the appellants filed separate writ petitions challenging the validity of these Notifications on the ground that they were ultra vires the provisions of Section 3 of the Act and, in any case, unconstitutional as offending Article 14 of the Constitution of India. The writ petitions filed by them were dismissed by the Kerala High Court and so the matter is before the Supreme Court.
The appellants are engaged in refining and manufacture of edible oils, vanaspathi, bakery shortening, margarine etc. Their registered offices and the factories are in the State of Kerala. The main raw material used in the manufacture of RBD palm oil is crude palm oil. The appellants have been importing this raw material from other countries, primarily from Indonesia and Malaysia. Before the issuance of the above Notifications, this import was through the ports of Kochi and Beypore from where it used to be transported by road to its main factories which are in Kozhikode and Malappuram, in the State of Kerala itself. The impugned Notifications have prevented them from importing crude palm oil through the ports of Kochi and Beypore. Instead, they are forced to import this raw material through the ports outside Kerala. The effect thereof is that distance from the ports of import to the factories of appellants in Kerala stands increased, in contrast with the situation prevailing earlier. It has led to increased transportation cost for the appellants and that is precisely the cause of grievance.
These Notifications were challenged on two grounds, viz.:
(i) The Notifications are issued purportedly in exercise of powers under Section 5 read with Section 3 of the Act, but these provisions do not confer any such power on the Central Government. Therefore, the Notifications are ultra vires the provisions of Section 3(5) of the Act;
(ii) Imposition of selective restriction and confining the prohibition of import of crude palm oil to the ports in Kerala has not only resulted in invidious discrimination, such an action is manifestly arbitrary, irrational and unreasonable as well it is contended that there is no rational objective which is sought to be achieved with such Notifications and, therefore, they offends the equality clause enshrined in Article 14 of the Constitution.
Supreme Court observed,
It is well known that State of Kerala is the largest producer of Coconut and, in turn, there is substantial production of coconut oil as well. It is also a matter of common knowledge that coconut oil as well as palm oil are used for cooking and other common purposes. In that sense, coconut oil and palm oil are competing products. Whereas coconut oil produced from indigenous raw material and for the production of palm oil in India, the raw material i.e. crude palm oil is largely imported. Since the import price of crude palm oil has been much less than the price of coconut oil, the perception of Coconut growers in the State of Kerala was that it was affecting their livelihood. It is a matter of record that there are approximately 35 lakhs farmers in the State of Kerala who sustain their livelihood on Coconut crop. Therefore, it becomes their life sustaining crop. The Coconut crop covers more than 9 lakhs hectares in Kerala and contributes to nearly 35% of the agricultural income of the State which is a sufficient evidence to indicate that it is not only main but important crop of the State. The Coconut growers are predominantly small and marginal with the average size of holding being only half an acre. As already pointed out above, the significant and marked difference between the price of coconut oil and palm oil was manifest the fact that percentage difference between the two stood at 109% in the year 2004, reduced to 50% in December, 2006, to 12% in September 2007 and 0.6% in October 2007. The import of palm oil in one particular year had a cascading downward impact on coconut oil prices in the subsequent years. For example, the huge import of 1,53,513 tonnes of palm oil in 2004-05 had led to a price decline in coconut in 2005-06 and 2006-07. While the average price of coconut oil is Rs.6,155/- per quintal in 2004-05, in 2005-06, it declined sharply to Rs.4,978/- per quintal with further fall in 2006-07 when the price was Rs.4,459/- per quintal. It is more than abundantly clear that the restriction is imposed keeping in view the welfare of 35 lakhs farmers in the State of Kerala. Matter was examined at the highest level.
The Government had two alternatives before it, either to increase the custom duty i.e. duty on the import of crude oil or to issue impugned Notification. Enhancing the import duty would have all India ramification, whereas the problem was Kerala specific. Therefore, instant step was taken. When a particular decision is taken in the interest of the said farmers which are marginalized section of the society, more so for their survival, this policy decision of the Central Government provides a complete rational in support of the decision having nexus with the objective sought to be achieved.
The respondents have been able to demonstrate intelligible basis for issuing the impugned Notifications having rational nexus with the objectives sought to be achieved.
We, thus, reject the arguments based on Article 14 of the Constitution.
Interests of consumers vs farmers : The argument to the effect that interests of consumers is equally important which is not taken into consideration needs an outright rejection for more than one reason. In the first place no such case was made out by the appellants either in the High Court or even in the special leave petition filed in this Court. This argument was raised for the first time during oral hearing. There is, thus, no material produced on record to show how the impugned Notification would affect the interests of the consumers. An argument of this nature cannot be raised in the air without having solid foundation with relevant material. In any case, as we have found that the Notifications were issued in the interests of farmer class in the State of Kerala and, therefore, they are in public interest, this argument is of no avail.
The Supreme Court held that in the present case, there is a sufficient public good sought to be achieved by laying down the exception banning the imports of crude palm oil through ports in Kerala. These appeals are accordingly dismissed.
Deduction u/s 80P(2)(a)(i) & u/s 80(P)(2)(d)—Deduction in res
PANAJI TRIBUNAL
Deduction u/s 80P(2)(a)(i) & u/s 80(P)(2)(d)—Deduction in respect of income of co-operative societies—Assessee a cooperative society carrying on the business of providing credit facilities and supplying fertilizers, pesticides and ration to its members had filed its return of income declaring Rs. NIL income after claiming deduction u/s 80P(2)(a)(i)—In the said return of income, the assessee has shown interest income of specified amount from investment made with BDCC Bank and other nationalized banks, institutes other than cooperative societies—AO had treated the interest earned from BDCC bank institutes as 'income from other sources'—AO had that the investment in cooperative bank/financial institutions could not be attributed to the assessee's business a the investment was made with an intention to earn interest—AO had disallowed the interest income u/s 80P(2)(a)(i)—Held, Karnataka High Court in the case of Sri Billuru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot observed that the intention of the legislature was that if a cooperative bank was exclusively carrying on banking business, then the income derived from the said business cannot be deducted while computing the total income of the assessee—High Court further observed that the legislature did not want to deny the benefit of section 80P to a primary agricultural credit society or a primary cooperative agricultural and rural development bank and the intention was not to extend the benefit of section 80P to a cooperative bank exclusively carrying banking business—No material was brought on record by the Department to show that BDCC institutes, in which the assessee made investment and earned interest thereon, were cooperative banks and not credit societies—Lower authorities were not justified in disallowing claim of deduction u/s 80P(2)(d) in respect of interest received from cooperative societies—Provision of Section 80(P)(4) does not apply to the assessee Society because the assessee Society was Primary Agricultural Credit Coop Society and assessee was not Cooperative Bank as per Sec 80(P) (4)—Assessee society be allowed the exemption u/s 80(P)(2)(d) and 80(P)(2)(a)( i)—Order of CIT was set aside—Assesses appeal allowed
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