I-T - Whether share trading or banking activity can be said to have an inherent quality of producing both regular banking income as well as dividend income, to qualify as condition for apportionment of expenses u/s 14A - YES: ITAT
MUMBAI: THE issue before the Bench is - Whether share trading or banking activity can be said to have an inherent quality of producing both regular banking income as well as dividend income, to qualify as a condition for apportionment of expenses u/s 14A. YES is the answer.
Facts of the case
The assessee is a bank. During the concerned year, the assessee had an income of Rs.581.23 lacs by way of interest on tax-free bonds and dividend on shares and units of mutual funds. Consequent to filing of assessee' s return, the AO disallowed a sum of Rs.366 lacs u/s.14A r/w Rule 8D during assessment. The assessee contended that since its investments yielding tax-free income, being funded by the assessee€ ¢â' '¹s own capital, no disallowance of interest, i.e., on a proportionate basis, would arise in terms of Rule 8D(2)(ii). The Revenue€ ¢â' '¹s contention, on the other hand, was that the capital raised by the assessee was specifically meant to meet the capital adequacy norms and, therefore, could not be presumed or inferred as having been invested in shares, including preference shares and PSU bonds, so as to be excluded while reckoning the disallowance under rule 8D.
Having heard the parties, the Tribunal held that,
Interest on tax fee bonds
++ it is seen that funds from various sources are tapped from time to time as well as get generated through and in the course of its business, and together go to form a common pool of funds, to be applied on need basis, for the purpose of its business by the assessee-bank from time to time. To therefore appropriate a particular liability toward a particular asset would, therefore, be wholly incorrect, without factual basis and, rather, inconsistent with the manner in which the funds are normally accessed, generated and deployed in business. We can understand if the funds, raised from a particular source or falling under a particular class, have to be necessarily deployed in the business in a particular manner, as where the capital is required to be invested, to a particular extent, in specified securities. However, where the legal requirement is only towards maintaining liquid assets at a prescribed percentage of the capital or liabilities, it would only imply that the funds of the business are invested in a composite manner. The specification with reference to capital is only to work out the quantum of such investment. It is seen that the Apex Court in the case of Indian Bank Ltd., held that it was impermissible under the scheme of the Act for the AO to look behind the expenditure and to determine as to whether it had the quality of producing taxable income. Further, the jurisdictional High Court in case of Godrej & Boyce, explains the genesis of section 14A, also expounding on its scope, clarifying that the basic principle of taxation is that it is only the net income, i.e., gross income less expenditure, which is taxable. The said principle, i.e., of only the net income as being liable to tax is axiomatic in tax jurisprudence and that, therefore, section 14A was curative and declaratory of the intent of the Parliament. That it represented the first serious attempt on its part to ensure that the tax incentive to certain incomes is not used to reduce the tax payable on the taxable income, i.e., by debiting the expenditure incurred to earn the non-taxable income against taxable income;
++ in fact, the High Court in Godrej & Boyce case goes to the extent of stating that the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question of whether the assessee has incurred the expenditure in relation to earning such (tax-free) income. Even if, therefore, it had utilized its own funds for making investment which had resulted in income not forming part of the total income under the Act, the expenditure which is incurred in earning the income would have to be disallowed. In our view, it was incumbent on the parties to have brought its€ ¢â' '¹ decision in the case of Godrej & Boyce to the notice of the Court in HDFC Bank Ltd. We are conscious that we are deciding an appeal in the case of the same assessee. So, however, we are deciding a purely legal issue, i.e., whether, in view of the statutory presumption cast by section 14A, a non obstante provision, a presumption on facts could obtain, or that the assessee shall have to establish the same with reference to its accounts, in terms of section 14A(2) r/w s. 14A(3), leading to a satisfaction or otherwise of the AO, arrived at objectively, only to find the earlier decision in Godrej & Boyce as having addressed the said issue;
Tax free investments held as stock-in-trade of the business
++ in-as-much as dividend is earned on shares or units held as stock-in-trade, i.e., where so, it is a direct fall out of such holding, an incidence of business, which thus yields both taxable and non-taxable incomes. Rather, as apparent, it is only to mitigate and transcend issues relating to attribution (of expenditure) that the provision of section 14A, followed by the mandatory rule 8D, has been brought in place, where one composite indivisible business gives rise to more than one stream of income, of which (at least) one does not form part of the total income, as clarified in case of Godrej & Boyce. Dividend income arises from the same shares held as stock-in-trade which give rise to the share trading income in the case of a share trader, or the banking income of a bank, as the assessee, i.e., business income, generally speaking. Now, the shares and securities giving rise to dividend income, even assuming to be held as stock-in-trade of the business, form an integral part thereof, which represents a source giving rise to both types of income, the share trading or the regular banking income, which is taxable, and the dividend income, which is not. Share trading or the banking activity can thus be said to have an inherent quality of producing both these incomes, a qualifying condition for apportionment of expenses, contemplated u/s.14A. How could, then, one may ask, interest expenditure in relation to such business, or in fact any expenditure of the said business, be said to be incurred either wholly and exclusively for either the regular share trading (banking) income or the dividend income. Dividend income, being tax-exempt, would thus warrant an apportionment of expenses. In fact, but for the provision of section 56(2)(i), dividend or tax-free interest income in such a case would stand classified as business income, even as it could yet be tax-exempt. The taxability or otherwise of a particular income is independent of its classification, which, rather, is required to be only for the income forming part of the total income, for the purpose of its computation u/s 14. As such, being tax-exempt, expenses would require being apportioned in respect of such tax-exempt income/s. This is precisely the purport of the decision in Godrej & Boyce case. We have already clarified that no case on facts has been made out by the assessee in the present case. In fact, there is even no claim, much less finding of the shares and securities under reference as representing stock-in-trade of the assessee€ ¢â' '¹s business. On the contrary, the assessment order states of the investment being in government securities, i.e., to meet the SLR requirements as stipulated by the RBI, so that the same would qualify as investments;
++ the sole premise of section 14A is to effectuate the basic postulate of taxation that it is only the net income, i.e., net of all expenditure incurred in relation thereto, that is to be subject to tax. It contemplates and seeks to put in place an effective mechanism for apportionment of expenditure where a composite business or activity yields both taxable and non taxable incomes. This is made abundantly clear by the jurisdictional High Court in Godrej & Boyce case, by answering the question in affirmative i.e., "Whether section 14A is attracted in case of dividend income received from shares and income from mutual funds". It is therefore immaterial whether the shares are held as investment or stock-in-trade, both being assets of a composite business giving rise to two sets of income. As regards the claim of adequacy of capital or interest-free funds, we have already clarified of there being no finding of fact qua the specific source/s of financing, even as the High Court has in Godrej & Boyce case clarified that even the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question as to whether the assessee has incurred expenditure in relation to earning of such income. Even if, therefore, as explained by it, the assessee had utilized its own funds for making investments which have resulted in income which does not form part of the total income under the Act, the expenditure which is incurred in the earning of that income would have to be disallowed, which is to be determined by the A.O. Accordingly, we uphold the application of section 14A r/w rule 8D in the facts and circumstances of the case;
Amortized ESOP expenses
++ the decision rendered by the special bench of the Tribunal in the case of Biocon Ltd vs. Dy. CIT, is binding on this Tribunal. No decision taking a contrary view by any higher appellate forum has been brought to our notice. The tribunal, per the same, explains that the discounted sum, i.e., which could be realized by the company on shares issued under ESOP, stands foregone by it only with a view to retain the employees, allowed by way of compensating them for their services. The extent of the amortized expense that could be allowed, i.e., with reference to time, stands also discussed by the tribunal per its said order, i.e., on a straight line basis over the vesting period, unless of course the vesting is not uniform. In fact, it goes further to explain the subsequent adjustment to the discount deductible, i.e., in view of the exercise or the lapse of options, and again in terms of the scheme. However, we observe that though thereby the tribunal approves of deduction of the discount (on ESOP shares) in principle, it does not mandate the discount to be worked out in a particular manner, which, i.e., the quantum of the discount, and as would be apparent, is even otherwise a purely factual matter. True, the tribunal in that case has confirmed the working of the discount with reference to the market value of the shares. This, as apparent from its reading, is for the reason that that was the only value against which the issue price of shares under ESOP was benchmarked, representing the value which the shares would otherwise fetch for the company. In the present case, however, the assessee-bank has issued shares to the public at large as well; the ESOP shares being in fact a mere fraction of the total shares issued during the year. Clearly, therefore, it is the difference between the issue price of the shares to the two segments, i.e., to the public and its€ ¢â' '¹ employees, which would mark or signify the extent of the value foregone or the discount allowed by the assessee on the latter issue;
++ the AR, on this being expressed by the Bench, would, while admitting that this aspect of the matter was not in controversy in Biocon Ltd., submit that the subscription price of the shares issued to the public is wholly irrelevant, for what has been foregone by the assessee-bank is the value it could have realized, i.e., the price at which the shares are traded on the bourses. We are wholly in disagreement. Put succinctly, a company does not incur any expenditure when it issues shares to the public at less than their going market price, an exercise aimed at raising capital from the market, at terms best suited to its interests and prospects, given the obtaining facts and circumstances. The question of the expenditure being incurred for business purpose thus just does not arise. The share issue to the employees under ESOP would therefore have to be considered as a segment of this issue, i.e., as a part/species of the public identified as its employees and, therefore, entitled to a discount on the regular price. It may be argued, as was indeed before us, as to what if there is no public issue. The question is misconceived. What, for instance, if the shares are not traded in the market, as where this is the first public offering by the company. The issue, it needs to be appreciated, is not whether the shares are or are not traded, but which € ¢â' '¸difference€ ¢â' '¹ could be said to represent or be considered as a discount allowed by the company in the facts and circumstances of the case. We have in this regard clarified that it is the purpose for which the value, capital in nature, is foregone, which enables it to assume the character of a revenue expense, besides defining its business purpose, so as to be admissible u/s. 37(1). In evidence of the value foregone, a public issue of shares at the relevant time, or even in proximity, provides an unimpeachable basis in the form of a comparable transaction, for determining the same, i.e., the value foregone or the discount allowed. We are, in fact, fully supported by the decision in Biocon Ltd. in-as-much as in that case the market price of shares was taken as a surrogate measure of the value at which the shares could be issued to or made available to the public by the company. In view of the foregoing, we direct the allowance of the discount on the shares issued to the employees, as held by the larger bench of the Tribunal in Biocon Ltd., subject to the same being reckoned with reference to issue price of the shares issued to the public during the relevant year.
MUMBAI: THE issue before the Bench is - Whether share trading or banking activity can be said to have an inherent quality of producing both regular banking income as well as dividend income, to qualify as a condition for apportionment of expenses u/s 14A. YES is the answer.
Facts of the case
The assessee is a bank. During the concerned year, the assessee had an income of Rs.581.23 lacs by way of interest on tax-free bonds and dividend on shares and units of mutual funds. Consequent to filing of assessee' s return, the AO disallowed a sum of Rs.366 lacs u/s.14A r/w Rule 8D during assessment. The assessee contended that since its investments yielding tax-free income, being funded by the assessee€ ¢â' '¹s own capital, no disallowance of interest, i.e., on a proportionate basis, would arise in terms of Rule 8D(2)(ii). The Revenue€ ¢â' '¹s contention, on the other hand, was that the capital raised by the assessee was specifically meant to meet the capital adequacy norms and, therefore, could not be presumed or inferred as having been invested in shares, including preference shares and PSU bonds, so as to be excluded while reckoning the disallowance under rule 8D.
Having heard the parties, the Tribunal held that,
Interest on tax fee bonds
++ it is seen that funds from various sources are tapped from time to time as well as get generated through and in the course of its business, and together go to form a common pool of funds, to be applied on need basis, for the purpose of its business by the assessee-bank from time to time. To therefore appropriate a particular liability toward a particular asset would, therefore, be wholly incorrect, without factual basis and, rather, inconsistent with the manner in which the funds are normally accessed, generated and deployed in business. We can understand if the funds, raised from a particular source or falling under a particular class, have to be necessarily deployed in the business in a particular manner, as where the capital is required to be invested, to a particular extent, in specified securities. However, where the legal requirement is only towards maintaining liquid assets at a prescribed percentage of the capital or liabilities, it would only imply that the funds of the business are invested in a composite manner. The specification with reference to capital is only to work out the quantum of such investment. It is seen that the Apex Court in the case of Indian Bank Ltd., held that it was impermissible under the scheme of the Act for the AO to look behind the expenditure and to determine as to whether it had the quality of producing taxable income. Further, the jurisdictional High Court in case of Godrej & Boyce, explains the genesis of section 14A, also expounding on its scope, clarifying that the basic principle of taxation is that it is only the net income, i.e., gross income less expenditure, which is taxable. The said principle, i.e., of only the net income as being liable to tax is axiomatic in tax jurisprudence and that, therefore, section 14A was curative and declaratory of the intent of the Parliament. That it represented the first serious attempt on its part to ensure that the tax incentive to certain incomes is not used to reduce the tax payable on the taxable income, i.e., by debiting the expenditure incurred to earn the non-taxable income against taxable income;
++ in fact, the High Court in Godrej & Boyce case goes to the extent of stating that the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question of whether the assessee has incurred the expenditure in relation to earning such (tax-free) income. Even if, therefore, it had utilized its own funds for making investment which had resulted in income not forming part of the total income under the Act, the expenditure which is incurred in earning the income would have to be disallowed. In our view, it was incumbent on the parties to have brought its€ ¢â' '¹ decision in the case of Godrej & Boyce to the notice of the Court in HDFC Bank Ltd. We are conscious that we are deciding an appeal in the case of the same assessee. So, however, we are deciding a purely legal issue, i.e., whether, in view of the statutory presumption cast by section 14A, a non obstante provision, a presumption on facts could obtain, or that the assessee shall have to establish the same with reference to its accounts, in terms of section 14A(2) r/w s. 14A(3), leading to a satisfaction or otherwise of the AO, arrived at objectively, only to find the earlier decision in Godrej & Boyce as having addressed the said issue;
Tax free investments held as stock-in-trade of the business
++ in-as-much as dividend is earned on shares or units held as stock-in-trade, i.e., where so, it is a direct fall out of such holding, an incidence of business, which thus yields both taxable and non-taxable incomes. Rather, as apparent, it is only to mitigate and transcend issues relating to attribution (of expenditure) that the provision of section 14A, followed by the mandatory rule 8D, has been brought in place, where one composite indivisible business gives rise to more than one stream of income, of which (at least) one does not form part of the total income, as clarified in case of Godrej & Boyce. Dividend income arises from the same shares held as stock-in-trade which give rise to the share trading income in the case of a share trader, or the banking income of a bank, as the assessee, i.e., business income, generally speaking. Now, the shares and securities giving rise to dividend income, even assuming to be held as stock-in-trade of the business, form an integral part thereof, which represents a source giving rise to both types of income, the share trading or the regular banking income, which is taxable, and the dividend income, which is not. Share trading or the banking activity can thus be said to have an inherent quality of producing both these incomes, a qualifying condition for apportionment of expenses, contemplated u/s.14A. How could, then, one may ask, interest expenditure in relation to such business, or in fact any expenditure of the said business, be said to be incurred either wholly and exclusively for either the regular share trading (banking) income or the dividend income. Dividend income, being tax-exempt, would thus warrant an apportionment of expenses. In fact, but for the provision of section 56(2)(i), dividend or tax-free interest income in such a case would stand classified as business income, even as it could yet be tax-exempt. The taxability or otherwise of a particular income is independent of its classification, which, rather, is required to be only for the income forming part of the total income, for the purpose of its computation u/s 14. As such, being tax-exempt, expenses would require being apportioned in respect of such tax-exempt income/s. This is precisely the purport of the decision in Godrej & Boyce case. We have already clarified that no case on facts has been made out by the assessee in the present case. In fact, there is even no claim, much less finding of the shares and securities under reference as representing stock-in-trade of the assessee€ ¢â' '¹s business. On the contrary, the assessment order states of the investment being in government securities, i.e., to meet the SLR requirements as stipulated by the RBI, so that the same would qualify as investments;
++ the sole premise of section 14A is to effectuate the basic postulate of taxation that it is only the net income, i.e., net of all expenditure incurred in relation thereto, that is to be subject to tax. It contemplates and seeks to put in place an effective mechanism for apportionment of expenditure where a composite business or activity yields both taxable and non taxable incomes. This is made abundantly clear by the jurisdictional High Court in Godrej & Boyce case, by answering the question in affirmative i.e., "Whether section 14A is attracted in case of dividend income received from shares and income from mutual funds". It is therefore immaterial whether the shares are held as investment or stock-in-trade, both being assets of a composite business giving rise to two sets of income. As regards the claim of adequacy of capital or interest-free funds, we have already clarified of there being no finding of fact qua the specific source/s of financing, even as the High Court has in Godrej & Boyce case clarified that even the fact that the assessee has utilized its own funds in making the investments would not be dispositive of the question as to whether the assessee has incurred expenditure in relation to earning of such income. Even if, therefore, as explained by it, the assessee had utilized its own funds for making investments which have resulted in income which does not form part of the total income under the Act, the expenditure which is incurred in the earning of that income would have to be disallowed, which is to be determined by the A.O. Accordingly, we uphold the application of section 14A r/w rule 8D in the facts and circumstances of the case;
Amortized ESOP expenses
++ the decision rendered by the special bench of the Tribunal in the case of Biocon Ltd vs. Dy. CIT, is binding on this Tribunal. No decision taking a contrary view by any higher appellate forum has been brought to our notice. The tribunal, per the same, explains that the discounted sum, i.e., which could be realized by the company on shares issued under ESOP, stands foregone by it only with a view to retain the employees, allowed by way of compensating them for their services. The extent of the amortized expense that could be allowed, i.e., with reference to time, stands also discussed by the tribunal per its said order, i.e., on a straight line basis over the vesting period, unless of course the vesting is not uniform. In fact, it goes further to explain the subsequent adjustment to the discount deductible, i.e., in view of the exercise or the lapse of options, and again in terms of the scheme. However, we observe that though thereby the tribunal approves of deduction of the discount (on ESOP shares) in principle, it does not mandate the discount to be worked out in a particular manner, which, i.e., the quantum of the discount, and as would be apparent, is even otherwise a purely factual matter. True, the tribunal in that case has confirmed the working of the discount with reference to the market value of the shares. This, as apparent from its reading, is for the reason that that was the only value against which the issue price of shares under ESOP was benchmarked, representing the value which the shares would otherwise fetch for the company. In the present case, however, the assessee-bank has issued shares to the public at large as well; the ESOP shares being in fact a mere fraction of the total shares issued during the year. Clearly, therefore, it is the difference between the issue price of the shares to the two segments, i.e., to the public and its€ ¢â' '¹ employees, which would mark or signify the extent of the value foregone or the discount allowed by the assessee on the latter issue;
++ the AR, on this being expressed by the Bench, would, while admitting that this aspect of the matter was not in controversy in Biocon Ltd., submit that the subscription price of the shares issued to the public is wholly irrelevant, for what has been foregone by the assessee-bank is the value it could have realized, i.e., the price at which the shares are traded on the bourses. We are wholly in disagreement. Put succinctly, a company does not incur any expenditure when it issues shares to the public at less than their going market price, an exercise aimed at raising capital from the market, at terms best suited to its interests and prospects, given the obtaining facts and circumstances. The question of the expenditure being incurred for business purpose thus just does not arise. The share issue to the employees under ESOP would therefore have to be considered as a segment of this issue, i.e., as a part/species of the public identified as its employees and, therefore, entitled to a discount on the regular price. It may be argued, as was indeed before us, as to what if there is no public issue. The question is misconceived. What, for instance, if the shares are not traded in the market, as where this is the first public offering by the company. The issue, it needs to be appreciated, is not whether the shares are or are not traded, but which € ¢â' '¸difference€ ¢â' '¹ could be said to represent or be considered as a discount allowed by the company in the facts and circumstances of the case. We have in this regard clarified that it is the purpose for which the value, capital in nature, is foregone, which enables it to assume the character of a revenue expense, besides defining its business purpose, so as to be admissible u/s. 37(1). In evidence of the value foregone, a public issue of shares at the relevant time, or even in proximity, provides an unimpeachable basis in the form of a comparable transaction, for determining the same, i.e., the value foregone or the discount allowed. We are, in fact, fully supported by the decision in Biocon Ltd. in-as-much as in that case the market price of shares was taken as a surrogate measure of the value at which the shares could be issued to or made available to the public by the company. In view of the foregoing, we direct the allowance of the discount on the shares issued to the employees, as held by the larger bench of the Tribunal in Biocon Ltd., subject to the same being reckoned with reference to issue price of the shares issued to the public during the relevant year.
ST - Refund - Direction of Commr(A) to verify total credit available as unutilized credit would result in waste of time as accounts were already subject to audit and as there is no such allegation raised in SCN: CESTAT
NEW DELHI: THE appellants are having centralized service tax registration and are engaged in providing services such as Business Auxiliary services, Information technology services, Management consultancy etc and are primarily engaged in exporting their services. The appellants filed refund claim of service tax paid on various input services used for providing output services pertaining to the period October, 2010 to December, 2010 under Rule 5 of CCR, 2004 read with Notification No. 5/2006-CE (NT) dated 14.03.2006.
The Adjudicating Authority allowed the refund claim in part. For the rejected portion, the appellant went in appeal and the Commissioner (Appeals) allowed refund for some services but upheld rejection of part of refund claim on the ground that invoices do not have complete address, invoice not having PAN based registration number, and service is not eligible as input service to claim credit.
He also directed the primary authority to recalculate the total admissible credit before sanctioning any refund.
The assessee is in appeal against this portion of the order too. Inasmuch as it is their contention that there is no need for once again ascertaining the quantum of unutilized CENVAT credit.
The Bench agreed to this submission and observed -
"There is no allegation raised in the show cause notice as to the total amount available as unutilized credit in the account of the appellants. In such circumstances, it was not proper for the Commissioner (appeals) to direct to check and verify or recompute the total credit available as unutilized credit. It would result in waste of time and a futile exercise as accounts were already subject to audit and as there is no such allegation raised in the show cause notice. Therefore, this direction in the impugned order is set aside."
To the other grounds on which the refund was denied, the Bench after considering the submissions held -
++ The department has no case that in inquiry they found that these transactions are not genuine or that tax was not paid. The appellants have produced the Chartered Account Certificate also. In any case, these are all procedural lapses and in a catena of judgments it has been settled that credit cannot be denied on procedural lapses. In Imagination Technologies India (P) Ltd. Vs. CCE Pune-III - 2011-TIOL-719- CESTAT-MUM the CESTAT has held that though the registration number of the input service provider is not stated in the invoice, the credit cannot be denied. For the above reasons, I am of the view that the denial of credit on the ground of incomplete address and invoices not containing PAN based registration number is unjustified. I hold that appellant is eligible for credit on these invoices.
In the matter of denial of credit on Rent-a-cab services, courier services, guest house services, Power Audit Services, Finite Element Analysis (FEA) services, maintenance of Gym Equipment Services, Medical Services, Renting of Speakers, Mike etc, Hotel expenses & Banquet Charges, Conference charges, cleaning services with outside catering and professional services on the ground that these services did not qualify as input services under Rule 2 (l) of CCR, 2004, the Bench held thus -
++ The definition of input service, as it stood during the relevant period was very wide as words 'activities relating to business' was contained in the inclusive part of the definition. The leading judgments in Coca Cola India (P) Ltd. Vs. CCE Pune III - 2009-TIOL-449- HC-MUM-ST and CCE, Nagpur Vs. Ultratech Cement Ltd. - 2010-TIOL-745- HC-MUM-ST have settled the interpretational issues in this regard. The series of judicial pronouncements that followed has held that during the relevant period (prior to 1.4.2011) the impugned services are eligible for credit as input services, if the services are relating to the business of the assessee. The activities in relation to business can cover all activities relating to functioning of a business. Thus, any service used by a provider of taxable service which is commercially required for the purpose of carrying on the business of output service provided will be covered by the expression "activities relating to business" . Applying the ratio laid in the above judgments I am of the view that appellants are eligible for refund of credit in regard to all the impugned input services.
However, the CENVAT credit availedon Medical services (Rs. 9270) was denied on the ground that the same being in the nature of personal consumption cannot be said to be related to business activity of the appellant.
The appeal was allowed in part accordingly.
NEW DELHI: THE appellants are having centralized service tax registration and are engaged in providing services such as Business Auxiliary services, Information technology services, Management consultancy etc and are primarily engaged in exporting their services. The appellants filed refund claim of service tax paid on various input services used for providing output services pertaining to the period October, 2010 to December, 2010 under Rule 5 of CCR, 2004 read with Notification No. 5/2006-CE (NT) dated 14.03.2006.
The Adjudicating Authority allowed the refund claim in part. For the rejected portion, the appellant went in appeal and the Commissioner (Appeals) allowed refund for some services but upheld rejection of part of refund claim on the ground that invoices do not have complete address, invoice not having PAN based registration number, and service is not eligible as input service to claim credit.
He also directed the primary authority to recalculate the total admissible credit before sanctioning any refund.
The assessee is in appeal against this portion of the order too. Inasmuch as it is their contention that there is no need for once again ascertaining the quantum of unutilized CENVAT credit.
The Bench agreed to this submission and observed -
"There is no allegation raised in the show cause notice as to the total amount available as unutilized credit in the account of the appellants. In such circumstances, it was not proper for the Commissioner (appeals) to direct to check and verify or recompute the total credit available as unutilized credit. It would result in waste of time and a futile exercise as accounts were already subject to audit and as there is no such allegation raised in the show cause notice. Therefore, this direction in the impugned order is set aside."
To the other grounds on which the refund was denied, the Bench after considering the submissions held -
++ The department has no case that in inquiry they found that these transactions are not genuine or that tax was not paid. The appellants have produced the Chartered Account Certificate also. In any case, these are all procedural lapses and in a catena of judgments it has been settled that credit cannot be denied on procedural lapses. In Imagination Technologies India (P) Ltd. Vs. CCE Pune-III - 2011-TIOL-719- CESTAT-MUM the CESTAT has held that though the registration number of the input service provider is not stated in the invoice, the credit cannot be denied. For the above reasons, I am of the view that the denial of credit on the ground of incomplete address and invoices not containing PAN based registration number is unjustified. I hold that appellant is eligible for credit on these invoices.
In the matter of denial of credit on Rent-a-cab services, courier services, guest house services, Power Audit Services, Finite Element Analysis (FEA) services, maintenance of Gym Equipment Services, Medical Services, Renting of Speakers, Mike etc, Hotel expenses & Banquet Charges, Conference charges, cleaning services with outside catering and professional services on the ground that these services did not qualify as input services under Rule 2 (l) of CCR, 2004, the Bench held thus -
++ The definition of input service, as it stood during the relevant period was very wide as words 'activities relating to business' was contained in the inclusive part of the definition. The leading judgments in Coca Cola India (P) Ltd. Vs. CCE Pune III - 2009-TIOL-449- HC-MUM-ST and CCE, Nagpur Vs. Ultratech Cement Ltd. - 2010-TIOL-745- HC-MUM-ST have settled the interpretational issues in this regard. The series of judicial pronouncements that followed has held that during the relevant period (prior to 1.4.2011) the impugned services are eligible for credit as input services, if the services are relating to the business of the assessee. The activities in relation to business can cover all activities relating to functioning of a business. Thus, any service used by a provider of taxable service which is commercially required for the purpose of carrying on the business of output service provided will be covered by the expression "activities relating to business" . Applying the ratio laid in the above judgments I am of the view that appellants are eligible for refund of credit in regard to all the impugned input services.
However, the CENVAT credit availedon Medical services (Rs. 9270) was denied on the ground that the same being in the nature of personal consumption cannot be said to be related to business activity of the appellant.
The appeal was allowed in part accordingly.
CX - Payment of duty under protest - Tribunal and Revenue have committed manifest error in rejecting refund on ground that no protest letter was filed in accordance with procedure prescribed under Rule 233B: HC
ALLAHABAD: THE appellant is a charitable society registered under the Societies Registration. One of its activities is, manufacturing of Satritha Herbal Shampoo and Neem Shampoo for supply to the Khadi and village industry. According to the appellant, the shampoo manufactured by them is eligible for exemption of duty as per Notification No.140/85-CE dated 5th May, 1983 as amended from time to time. On the other hand, the Central Excise department was classifying the said shampoo under Tariff Chapter subheading No.3305.99, Chapter 33 of the Central Excise Tariff Act, 1985. Since there was a dispute with regard to the classification of the product and the appellant was not agreeing to the stand of the department, the appellant accordingly, filed a declaration under Rule 173B of the Central Excise Rules, 1944 in the prescribed proforma , mentioning in the remarks column that they shall pay duty under protest under Rule 233B of the CE Rules, 1944. They also filed a separate letter with the Assistant Commissioner on 24.12.1996.
On 3.2.2000, the appellant filed an application for refund of the duty paid under protest. The refund claim was rejected on the ground that the same was barred by limitation and also on the ground of unjust enrichment. On appeal, the Commissioner (Appeals) held that the appellant had not followed the procedure under Rule 233B. The appeal against this order was rejected by the Tribunal. Hence the assessee is before the High Court.
After hearing both sides, the High Court held:
++ A perusal of Rule 233B indicates that where an assessee desires to pay duty under protest, he shall deliver to the proper officer a letter to this effect. No format of the letter has been prescribed and, therefore, the format of the letter has been left to the assessee. According to the appellant, a protest letter had been given and, therefore, they had complied with the necessary requirement as stipulated under Rule 233B of the Rules. On the other hand, the stand of the revenue is that the appellant has not followed the requirement of law as prescribed under Rule 233B of the Rules and, therefore, they are not entitled to claim any refund.
++ The contention of the respondents that the protest as envisaged under Rule 233B, should have been followed and the procedure prescribed under the said rule had not been followed cannot be accepted. The requirement of Rule 233B of the Rules cannot be construed in a narrow and hyper-technical manner. What is required is, that there has to be a protest in writing, which in the present case has been done. Rule 233B of the Rules is procedural in nature and cannot override or control the substantive provision of Section 11- B( 1) of the Act since no specific form of protest or format has been provided under the Rules. The appellant in its letter and in the declaration form had recorded his dissent and objection to the levy of duty, which was sufficient to term it as depositing the duty under protest.
++ The Tribunal and the departmental authorities have committed a manifest error in non-suiting the appellant' s application for refund on the ground that no protest letter was filed in accordance with the procedure prescribed under Rule 233B of the Rules. Since the protest letter was filed by the appellant, the question of the application being barred by limitation under Section 11-B of the Act does not arise. The appeal is allowed by remanding the matter to decide the refund application on merits.
ALLAHABAD: THE appellant is a charitable society registered under the Societies Registration. One of its activities is, manufacturing of Satritha Herbal Shampoo and Neem Shampoo for supply to the Khadi and village industry. According to the appellant, the shampoo manufactured by them is eligible for exemption of duty as per Notification No.140/85-CE dated 5th May, 1983 as amended from time to time. On the other hand, the Central Excise department was classifying the said shampoo under Tariff Chapter subheading No.3305.99, Chapter 33 of the Central Excise Tariff Act, 1985. Since there was a dispute with regard to the classification of the product and the appellant was not agreeing to the stand of the department, the appellant accordingly, filed a declaration under Rule 173B of the Central Excise Rules, 1944 in the prescribed proforma , mentioning in the remarks column that they shall pay duty under protest under Rule 233B of the CE Rules, 1944. They also filed a separate letter with the Assistant Commissioner on 24.12.1996.
On 3.2.2000, the appellant filed an application for refund of the duty paid under protest. The refund claim was rejected on the ground that the same was barred by limitation and also on the ground of unjust enrichment. On appeal, the Commissioner (Appeals) held that the appellant had not followed the procedure under Rule 233B. The appeal against this order was rejected by the Tribunal. Hence the assessee is before the High Court.
After hearing both sides, the High Court held:
++ A perusal of Rule 233B indicates that where an assessee desires to pay duty under protest, he shall deliver to the proper officer a letter to this effect. No format of the letter has been prescribed and, therefore, the format of the letter has been left to the assessee. According to the appellant, a protest letter had been given and, therefore, they had complied with the necessary requirement as stipulated under Rule 233B of the Rules. On the other hand, the stand of the revenue is that the appellant has not followed the requirement of law as prescribed under Rule 233B of the Rules and, therefore, they are not entitled to claim any refund.
++ The contention of the respondents that the protest as envisaged under Rule 233B, should have been followed and the procedure prescribed under the said rule had not been followed cannot be accepted. The requirement of Rule 233B of the Rules cannot be construed in a narrow and hyper-technical manner. What is required is, that there has to be a protest in writing, which in the present case has been done. Rule 233B of the Rules is procedural in nature and cannot override or control the substantive provision of Section 11- B( 1) of the Act since no specific form of protest or format has been provided under the Rules. The appellant in its letter and in the declaration form had recorded his dissent and objection to the levy of duty, which was sufficient to term it as depositing the duty under protest.
++ The Tribunal and the departmental authorities have committed a manifest error in non-suiting the appellant' s application for refund on the ground that no protest letter was filed in accordance with the procedure prescribed under Rule 233B of the Rules. Since the protest letter was filed by the appellant, the question of the application being barred by limitation under Section 11-B of the Act does not arise. The appeal is allowed by remanding the matter to decide the refund application on merits.
INCOME TAX OFFICER (OSD) vs.MAGUNTA RAGHAVA REDDY CHARITABLE TRUST
CHENNAI TRIBUNAL
Charitable trusts€ ¢â' '´Income from property held for charitable or religious purposes€ ¢â' '´Charitable purpose€ ¢â' '´Assessee a trust, registered u/s 12A(a) had filed its return of income for the relevant A/Y admitting Nil income€ ¢â' '´Assessee€ ¢â' '¹s case was taken up for scrutiny and the assessment was completed u/s 143(3) thereof by treating the income derived from certain sale of land as business income of Rs. 1,62,76,519 & Rs. 44,23,266 respectively€ ¢â' '´AO brought to tax such amount under the head € ¢â' '¼income from business€ ¢â' '½ for the relevant A/Y€ ¢â' '´CIT(A) on appeal held that the assessee was not liable to tax on the profit arising out of sale of land since the proceeds were utilized for the charitable activities of the Trust€ ¢â' '´CIT(A) held that as long as the trust carries out charitable activities the exemption cannot be denied to the trust€ ¢â' '´Held, It was apparent from the facts of the case that the assessee had sold its unutilized land for pursuing its main objects viz., education and basically forsecuring maximum revenue, the assessee had indulged in commercial transactions€ ¢â' '´Transactions entered by assessee were made only for the purpose of extending its charitable activities with more resources€ ¢â' '´Retaining land which was not required for the purpose of the assessee€ ¢â' '¹s trust would not have helped the assessee to comply with its objects in a constructive manner and thus assessee trust had realized maximum revenue from the sale of the excess land, and utilized the same for complying with the main objects of the assessee trust viz., Education € ¢â' '´Thus, the transaction of the sale of the land by the assessee in a wise manner by applying commercial prudence was only an activity which was incidental to the main objects of the assessee€ ¢â' '´View taken by CIT(A) that the proviso of s 2(15) would not be applicable to assessee was justified€ ¢â' '´Revenue€ ¢â' '¹s appeal was dismissed
CHENNAI TRIBUNAL
Charitable trusts€ ¢â' '´Income from property held for charitable or religious purposes€ ¢â' '´Charitable purpose€ ¢â' '´Assessee a trust, registered u/s 12A(a) had filed its return of income for the relevant A/Y admitting Nil income€ ¢â' '´Assessee€ ¢â' '¹s case was taken up for scrutiny and the assessment was completed u/s 143(3) thereof by treating the income derived from certain sale of land as business income of Rs. 1,62,76,519 & Rs. 44,23,266 respectively€ ¢â' '´AO brought to tax such amount under the head € ¢â' '¼income from business€ ¢â' '½ for the relevant A/Y€ ¢â' '´CIT(A) on appeal held that the assessee was not liable to tax on the profit arising out of sale of land since the proceeds were utilized for the charitable activities of the Trust€ ¢â' '´CIT(A) held that as long as the trust carries out charitable activities the exemption cannot be denied to the trust€ ¢â' '´Held, It was apparent from the facts of the case that the assessee had sold its unutilized land for pursuing its main objects viz., education and basically forsecuring maximum revenue, the assessee had indulged in commercial transactions€ ¢â' '´Transactions entered by assessee were made only for the purpose of extending its charitable activities with more resources€ ¢â' '´Retaining land which was not required for the purpose of the assessee€ ¢â' '¹s trust would not have helped the assessee to comply with its objects in a constructive manner and thus assessee trust had realized maximum revenue from the sale of the excess land, and utilized the same for complying with the main objects of the assessee trust viz., Education € ¢â' '´Thus, the transaction of the sale of the land by the assessee in a wise manner by applying commercial prudence was only an activity which was incidental to the main objects of the assessee€ ¢â' '´View taken by CIT(A) that the proviso of s 2(15) would not be applicable to assessee was justified€ ¢â' '´Revenue€ ¢â' '¹s appeal was dismissed
October 6, 2015
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The Battle To Ease Children's Backpack Burdens
Mon Oct 05 18:39:19 2015 EDT
(FROM THE WALL STREET JOURNAL 10/6/15) By Laura Johannes The Ache: Children and teens are carrying backpacks far too heavy for them, resulting in neck, shoulder and back pain, scientists say. The Claim: Inflatable cushions, either built into the backpack or clipped on, can lighten the load on the shoulders and back, say companies that sell the devices. The Verdict: One short-term study found that an air-filled backpack cushion reduced self-reported pain in middle-school students. However, given a paucity of well-designed longer-term studies, there isn't enough evidence to recommend the devices, scientists say. The American Physical Therapy Association, based on scientific research on the effects of heavy weights, recommends that children carry no more than 10% to 15% of their body weight in their backpacks. Children often carry more than this, sometimes resulting in pain and potentially putting them at higher risk for back, neck and shoulder problems in adulthood, says Frances Kistner, assistant professor at MCPHS University's School of Physical Therapy in Worcester, Mass. Inflatable cushions in the lumbar region, sometimes called air bladders, are designed to reposition the pack so the weight is lightened on the shoulders and upper back. The Airbac line of backpacks, $49.99 to $149.99 from Airbak Technologies Corp., Hopewell Junction, N.Y., features a cushion shaped like an L, with one leg under the pack and the other extending across the bottom half of the back of the bag. The cushion lifts the pack off the upper back by half-an-inch to an inch, redistributing its weight evenly on the top of the buttocks, says company chief executive and product inventor Troy Christy. Another product, a $19 cushion sold by Core Products International Inc., in Osceola, Wis., clips to any backpack and is worn externally behind it, in the small of the back -- letting children wear colorful or cartoon-character bags, says director of sales and marketing Rob Cooper. Neither product has been tested in a published clinical trial. An unpublished Airbac study tested electrical activity in muscles in an adult male while wearing the backpack and concluded it put less stress on muscles than a normal backpack. A 2002 study of 111 adolescents by researchers at Northeastern University in Boston found another backpack with an air cushion -- formerly sold by Core -- resulted in lower levels of self-reported back pain. A longer and larger study would be needed to determine if the pack is really an improvement over conventional backpacks without cushions, scientists say. Core no longer sells that product, in part because it was too hard to keep up with rapidly changing backpack fashions, Mr. Cooper says. With the help of Andover, Mass., physical therapist Mary Ann Wilmarth, I tested the Airbac filled with heavy textbooks in the atrium of a local mall. The cushion lifted the backpack, making it feel light on my shoulders and upper back; the weight felt evenly distributed in my lumbar and hip region. The downside was that the heavy weight on the top of the buttocks created a tendency to overarch the back, which could result in long-term wear and tear on the spine, says Dr. Wilmarth, a spokeswoman for the American Physical Therapy Association. To properly wear the pack, she says, it is important to engage the body's core muscles to counteract the weight pushing the hips forward. For this reason the backpack may be better suited for college students than children with relatively weak abdominal muscles, she adds. Bringing the pack off the back goes against the more established principle that a backpack's weight should be as close to the spine as possible to reduce torque on the spine, says Dr. Kistner. Research on backpacks is difficult because there are many factors to consider, including people's size and weight, level of fitness and how they wear the backpack, scientists say. Young people often use only one of the two straps, making any potential benefits of air cushions a moot point for many, says Shelley Goodgold, a professor emeritus of physical therapy at Simmons College in Boston. Children and teens should be encouraged to use both straps of a backpack and to clip both chest straps and a waist strap if the pack has one, Dr. Kistner says. And if a pack hits either the head or the bottom part of the buttocks when full, it's too big, she adds. Subscribe to WSJ: http://online.wsj.com?mod=djnwires (END) Dow Jones Newswires October 05, 2015 18:39 ET (22:39 GMT) Copyright (c) 2015 Dow Jones & Company, Inc. 100515 22:39 -- GMT
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