I-T - Whether assessee has case even if he pays higher stamp duty as per valuation of stamp authority and claims lower capital gains as per report of approved valuer - YES: HC
By TIOL News Service
ALLAHABAD, SEPT 19, 2013: THE issues before the Bench are - Whether assessee has a case even if he pays higher stamp duty as per valuation of stamp authority and claims lower capital gains as per report of approved valuer; Whether valuation by stamp authority is not expected to have any nexus with the market value; Whether valuation under I-T Act is required to take into account attributes like occupancy by tenants, legal encumbrances and other charges; Whether if the value assessed by the stamp valuation authority exceeds u.s 50C, the AO can refer the case to the DVO and Whether if the AO relies on the report of the approved valuer u/s 55A, it is required to apply his mind and record reasons for the same. And the law point goes in favour of the assessee.
Facts of the case
In assessment proceeding assessee disclosed sale of a capital asset at Rs. 25 lacs for which he also submitted a report from approved valuer. Revenue asserted that purchaser paid stamp duty on the valuation of property as per Stamp Valuation authority and the capital gain was worked out on the basis of valuation fixed u/s 50C(2). Assessee filed objections and requested to accept the valuation shown by him on the ground that the building was under tenancy. AO rejected the claim of assessee and held that the value adopted by the stamp duty authority has to be taken as fair market value and accordingly computed the long term capital gain.
Before CIT (A) assessee submitted another valuation report suggesting that the actual distress sale value of the property was Rs. 17.30 lacs as against the valuation of the property inclusive of land and building at Rs 33.77 lacs. The CIT (A) rejected the said valuation report as it was not submitted before AO. Applying section 50C, CIT (A) held that it was mandatory on the part of AO to make reference to Valuation Officer as per provisions of section 50C where assessee contended that valuation as done by Stamp Valuation Authority was not acceptable to him. AO was not correct where he held that reference to Valuation officer was optional since assessee had not objected to value adopted by the State Valuation Authority. Clauses (a) & (b) of sub-section (2) of section 50C are continuation to each other and therefore, conditions laid down in both the clauses are required to be satisfied together-AO has to refer the valuation to the DVO for determing the fair market value if the property under transfer is less than valuation made by the State Valuation Authority. Thus, the stand taken by AO is not correct since he should have referred the matter in assessment to the DVO as in the present case, both the ingredients of provisions of section 50C(2) are present which compels the AO to refer such matter for valuation by DVO in accordance with provisions of section 55A of the I.T. Act, 1961. Thus, the valuation as per the report of approved valuer should be taken as sale consideration. Moreover the property was very old and under tenancy since 1969 fetching a nominal rent of Rs.625 per month (approx.), in the year of sale and since the assessee could not vacate the property even after a legal battle, had to sell the property to the son of the tenant.
ITAT held that provisions of Section 50 C (2) of the Act are essentially be read in conjunction with the provisions of Section 50C (1) of the Act, and the value of capital asset as determined by the approved valuer has to be taken as the sale consideration and similarly the value taken by the approved valuer as at 1.4.1981 has to be taken into consideration for the purposes of arriving at indexed cost of acquisition. ITAT did not find any infirmity in the order of CIT (A) and dismissed the appeal filed by the revenue.
After hearing both the parties, the ITAT held that,
++ Section 50C is a rule of evidence in assessing the valuation of property for calculating the capital gain. The deeming provision under Section 50 C (1) of the Act is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The property was under the tenancy of father of the purchaser since 1969 and thus the assessee being landlord of the property, offered it for sale to the tenant, which could not have attracted fair market value, as a willing purchaser may have offered for a property in vacant condition. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value in the condition the property is a offered for sale and is purchased. He is required to value the property in accordance with the circle rates fixed by the Collector. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances;
++ there may be several reasons for the purchaser not to file such objection. A purchaser may not go into litigation, and pay stamp duty, as fixed by the Stamp Valuation Authority, which may be over and above the fair market value of the property, as on the date of transfer, though the amount so determined has not been actually received by owner of the property. Whenever the assessee claims before AO that the value adopted or assessed or assessable by the Stamp Valuation Authority u/s 50C exceeds, AO may refer the valuation of the capital asset to a DVO. In case of any such claim, AO may rely on the report of registered valuer u/s 55-A and in such case it will not be necessary for him to refer the matter to the DVO. However, the AO has to record sufficient reasons. He has to record reasons for accepting the report of the approved valuer submitted by the assessee along with his claim/objection u/s 50C (2). If he does not accept the report, he has to record the reason for referring the matter to the DVO which must have nexus with the objection/claim made by the assessee;
++ CIT (A) has correctly observed in his order that the provisions of Section 50C (2) are essentially to be read in conjunction with the provisions of Section 50C (1). It was necessary for the AO to refer the matter for valuation to DVO in accordance with provisions of Section 55-A. ITAT failed to consider that AO did not record any finding either on the validity of the claim/objection filed by the assessee nor did he record any finding on the sufficiency of valuation of the approved valuer submitted by the assessee;
++ assessee submitted three different valuation reports of the approved valuer. The first report was based on the valuation as on 1.4.1981, the second report was based on the valuation as on October 2004 and the third report was based on distress sale value of the property. The third valuation report was prepared during the proceedings before AO. The assessee submitted the said third report before CIT (A) as additional evidence which was rejected by the CIT (A);
++ whenever objection is taken or claim is made before AO, that the value adopted or assessed or assessable by the Stamp Valuation Authority under sub-section (1) of Section 50-C exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection of the assessee. He may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee, or invite objection from the department and refer the question of valuation of the capital asset to DVO in accordance with Section 55-A of the Act. In all these events, AO has to record valid reasons, which are justifiable in law. He is not required to adopt an evasive approach of applying deeming provision without deciding the objection or to refer the matter to the DVO u/s 55-A of the Act as a matter of course, without considering the report of approved valuer submitted by assessee. In all such cases, the reasons recorded by the AO may be questioned by the assessee or the department as the case may be. Matter is remanded to AO, to decide the valuation of the capital asset in accordance with law as explained in this judgement.
In assessment proceeding assessee disclosed sale of a capital asset at Rs. 25 lacs for which he also submitted a report from approved valuer. Revenue asserted that purchaser paid stamp duty on the valuation of property as per Stamp Valuation authority and the capital gain was worked out on the basis of valuation fixed u/s 50C(2). Assessee filed objections and requested to accept the valuation shown by him on the ground that the building was under tenancy. AO rejected the claim of assessee and held that the value adopted by the stamp duty authority has to be taken as fair market value and accordingly computed the long term capital gain.
Before CIT (A) assessee submitted another valuation report suggesting that the actual distress sale value of the property was Rs. 17.30 lacs as against the valuation of the property inclusive of land and building at Rs 33.77 lacs. The CIT (A) rejected the said valuation report as it was not submitted before AO. Applying section 50C, CIT (A) held that it was mandatory on the part of AO to make reference to Valuation Officer as per provisions of section 50C where assessee contended that valuation as done by Stamp Valuation Authority was not acceptable to him. AO was not correct where he held that reference to Valuation officer was optional since assessee had not objected to value adopted by the State Valuation Authority. Clauses (a) & (b) of sub-section (2) of section 50C are continuation to each other and therefore, conditions laid down in both the clauses are required to be satisfied together-AO has to refer the valuation to the DVO for determing the fair market value if the property under transfer is less than valuation made by the State Valuation Authority. Thus, the stand taken by AO is not correct since he should have referred the matter in assessment to the DVO as in the present case, both the ingredients of provisions of section 50C(2) are present which compels the AO to refer such matter for valuation by DVO in accordance with provisions of section 55A of the I.T. Act, 1961. Thus, the valuation as per the report of approved valuer should be taken as sale consideration. Moreover the property was very old and under tenancy since 1969 fetching a nominal rent of Rs.625 per month (approx.), in the year of sale and since the assessee could not vacate the property even after a legal battle, had to sell the property to the son of the tenant.
ITAT held that provisions of Section 50 C (2) of the Act are essentially be read in conjunction with the provisions of Section 50C (1) of the Act, and the value of capital asset as determined by the approved valuer has to be taken as the sale consideration and similarly the value taken by the approved valuer as at 1.4.1981 has to be taken into consideration for the purposes of arriving at indexed cost of acquisition. ITAT did not find any infirmity in the order of CIT (A) and dismissed the appeal filed by the revenue.
After hearing both the parties, the ITAT held that,
++ Section 50C is a rule of evidence in assessing the valuation of property for calculating the capital gain. The deeming provision under Section 50 C (1) of the Act is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The property was under the tenancy of father of the purchaser since 1969 and thus the assessee being landlord of the property, offered it for sale to the tenant, which could not have attracted fair market value, as a willing purchaser may have offered for a property in vacant condition. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value in the condition the property is a offered for sale and is purchased. He is required to value the property in accordance with the circle rates fixed by the Collector. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances;
++ there may be several reasons for the purchaser not to file such objection. A purchaser may not go into litigation, and pay stamp duty, as fixed by the Stamp Valuation Authority, which may be over and above the fair market value of the property, as on the date of transfer, though the amount so determined has not been actually received by owner of the property. Whenever the assessee claims before AO that the value adopted or assessed or assessable by the Stamp Valuation Authority u/s 50C exceeds, AO may refer the valuation of the capital asset to a DVO. In case of any such claim, AO may rely on the report of registered valuer u/s 55-A and in such case it will not be necessary for him to refer the matter to the DVO. However, the AO has to record sufficient reasons. He has to record reasons for accepting the report of the approved valuer submitted by the assessee along with his claim/objection u/s 50C (2). If he does not accept the report, he has to record the reason for referring the matter to the DVO which must have nexus with the objection/claim made by the assessee;
++ CIT (A) has correctly observed in his order that the provisions of Section 50C (2) are essentially to be read in conjunction with the provisions of Section 50C (1). It was necessary for the AO to refer the matter for valuation to DVO in accordance with provisions of Section 55-A. ITAT failed to consider that AO did not record any finding either on the validity of the claim/objection filed by the assessee nor did he record any finding on the sufficiency of valuation of the approved valuer submitted by the assessee;
++ assessee submitted three different valuation reports of the approved valuer. The first report was based on the valuation as on 1.4.1981, the second report was based on the valuation as on October 2004 and the third report was based on distress sale value of the property. The third valuation report was prepared during the proceedings before AO. The assessee submitted the said third report before CIT (A) as additional evidence which was rejected by the CIT (A);
++ whenever objection is taken or claim is made before AO, that the value adopted or assessed or assessable by the Stamp Valuation Authority under sub-section (1) of Section 50-C exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection of the assessee. He may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee, or invite objection from the department and refer the question of valuation of the capital asset to DVO in accordance with Section 55-A of the Act. In all these events, AO has to record valid reasons, which are justifiable in law. He is not required to adopt an evasive approach of applying deeming provision without deciding the objection or to refer the matter to the DVO u/s 55-A of the Act as a matter of course, without considering the report of approved valuer submitted by assessee. In all such cases, the reasons recorded by the AO may be questioned by the assessee or the department as the case may be. Matter is remanded to AO, to decide the valuation of the capital asset in accordance with law as explained in this judgement.
(See 2013-TIOL-704-HC-ALL-IT)
[2013] 36 taxmann.com 403 (Article)
POWER OF CBDT UNDER SECTION 119(2)(b)
SHOBHIT KOSHTA
Introduction
1. The Income-tax Act, 1961 (herein after referred to as the "Act") contains various provisions which are mandatory in nature and some of them attain mandatory nature after passing of certain time-limit or orders. However, on principles of natural justice, relief should be available to an assessee on grounds of reasonableness, genuine hardships and exigencies beyond the control of the assessee.
Therefore, the Central Board of Direct Taxes (CBDT), which is the highest administrative authority for direct taxes, is empowered by the Act u/s. 119(2)(b) to issue general or special order, authorising any income-tax authority, not being the first appellate authority, to admit an application or claim for any exemption, deduction, refund or any other relief under the Income-tax Act after the expiry of the period specified by or under the Act for making such application or claim and deal with the same on merits in accordance with law.1-3
This article deals with the nature of the power, scope of the power conferred on CBDT, relevant circulars, along with restriction and limitations as per Instructions.
2. Scope of the power of CBDT
2.1 Orders issued by the Board:-
Section 119 is broad enough to cover or authorise any relief "in any case or class of classes" by a general or special order.4 In terms of section 119(2)(b), the Board has powers to make orders for avoiding genuine hardship and authorise certain income-tax authorities to admit an application or claim for any exemption, deduction, refund or any other relief after the expiry of the specified time-limit for making such application or claim.
2.2 Class or classes of persons - The term "any case or class of cases" used in section 119(2)(b) of the Act does not imply that the order under section 119(2)(b) of the Act can be exercised only in a class of cases; the power can be exercised even in an individual case. The Karnataka High Court's judgment in Union Home Products Limited v. Union of India5 has doubted whether the powers that are exercised by the Board u/s 119(2)(a) would apply to the individual cases the though there is no such doubt when it comes to exercising it u/s 119(2)(b). Section 119(2)(b) envisages orders by the Board in any case or class of cases for the purpose of avoiding genuine hardship, which means that the Board can exercise this power u/s 119(2)(b) in regard to any class of cases in general or any "individual case" in particular.6
2.3 Whether requirement of a separate application is there? - A claim raised by an assessee in a return for carry forward of losses or for "any other relief" cannot be rejected merely on the ground that the same was made only in a return and not by a separate application.7 Thus, the Board has the power to condone the delay in cases having claims of carry forward of losses in a return and there is no requirement of a separate application.8
2.4 Condonation of the delay - In the case of Jaswant Singh Bambha v. CBDT [2005] 272 ITR 1 (Punj. & Har.)/142 Taxman 528 (Punj. & Har.) (FB)9; the Punjab & Haryana High Court held that the Central Board of Direct Taxes has power to condone delay in filing application for refund. There is a similar power of condonation of the delay u/s 5 of the Limitation Act, 1963, where there is sufficient cause of delay. Section 237 of the Income-tax Act has not expressly excluded application of section 5 of the Limitation Act. So, there is nothing abnormal about the power of the Board to admit a delayed application for avoiding genuine hardship.10 However, the same Court in Niranjan Dass v. CBDT, [2004] 266 ITR 489/135 Taxman 422 (Punj. & Har.)11 took a contrary view which says that belated refund claim cannot be enterained and section 239 is not amenable to relaxation by the Board through instruction u/s 119 but this decision is not in consonance with the plain language of section 119 of the Act. Thus, the mandatory limitation provisions of section 239 are amenable to relaxation by the CBDT under section 119(2)(b), as section 239 has not expressly excluded the application of section 5 of the Limitation Act.12
Subsequently, the Court held that even for return u/s 148 claiming refund13, revised return filed under section 13914 beyond the time-limit, an application lies to the CBDT. Therefore, the power of the board for granting relief is available against the limitation prescribed in all other sections of the Act, until and unless it is expressly excluded by the provision of the Act.
A Cases to be dealt with as per its merits
3. Section 119(2)(b) of the Act empowers the board to grant relief to the assessee if it is satisfied that any claim or an application on merits, which was required to be made within the prescribed time, was not done so for good reasons and to relieve the assessee from hardship. When an application u/s 119 is considered by the Board, the Board is not required to write an order recording reasons but should pass a speaking order.15 It is well-settled that in matters of condonation of the delay a highly pedantic approach should be eschewed and a justice oriented approach should be adopted. A party should not be made to suffer on account of technicalities.16
In the case of John Shalex Paints Pvt. Ltd. v. CBDT [1993] 201 ITR 523 (Kar.)17 the Court held that where an oral hearing was given to the assessee and written arguments were also permitted to be filed, it was held that the Board had applied its mind to the merits of the case. It is, thus, submitted that it is mandatory on the part of the Board to consider the merits of the case before any application is rejected or accepted by it u/s 119(2)(b).
Board's Power : Quasi-Judicial in Nature
4. The Power exercisable by the Board under this sub-section is quasi-judicial in nature. Therefore, the Board is required to follow the principles of natural justice by affording an opportunity of hearing to the assessee18 and pass a reasoned order.19
In the case of H.S. Anantharamaiah v. CBDT,20 the Court, while explaining the nature of the power of, the Board, observed as under :
"The Board is required to exercise the discretion on taking into consideration all the relevant facts and circumstances and determine whether the delay in filing the return should or should not be condoned. The order must be informed by the reasons. It is not an arbitrary exercise of power. This power has all the traits of judicial power."
Thus, the power exercisable by the Board under clause (b) of sub-section (2) of section 119 of the Act is quasi-judicial in nature.
4.1 Compliance with natural justice and recording of reason - The Board before passing any order u/s 119(2)(b) of the Act has to conform to the principles of "natural justice" for which it has to afford an opportunity to the parties who are going to be affected by the decision of the authority. The Board is, therefore, required to afford an opportunity of hearing to the assessee, either oral or through written representation with reference to the points against the assessee for not granting relief sought for. His prayer should be considered and the same should be taken into account. When the Board rejected both the applications, without recording reasons the High Court ordered for the application to be remitted back to the Board which was then to be decided in accordance with the law.21 In the case of Desai Investments (P) Ltd. v. Central Board of Direct Taxes and Ors.,22 the Court refused to exercise its extraordinary jurisdiction in case petitioner was heard and after such opportunity, for reasons recorded and the said application was rejected. Thus, it is duty of the Board in case of an application filed under this section to comply with the requirements of natural justice along with recording the reasons for the same.
Grounds for condonation of the delay
5. While considering the question of delay, the Central Board of Direct Taxes will have to consider whether any genuine hardship would be caused to the petitioner if delay is not condoned. The phrase "Genuine hardship" should be construed liberally.23 The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on merit. Any case of genuine hardship, therefore, has to be judged in the light of the facts and circumstances of the case, as refusing to condone the delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.24
The word "genuine" means not fake or counterfeit real, not pretending (not bogus or merely a ruse).25 The very object of conferring power on the Board is to consider the exceptional cases where a departure from the provisions of the Act with regard to the period with which the relief is to be sought, can be regarded as justified.26 Also, for determining genuine hardship another well-known principle, that is, "a person cannot take advantage of his own wrong" may also have to be borne in mind.27 Thus, when a person deliberately tries to take advantage of his wrong doing by claiming relief u/s 119(2)(b), then, being a quasi-judicial authority, the Board is entitled to refuse such an application.
6. Instances of Genuine Hardships
| ♦ | In Madhya Pradesh State Electricity Board v. Union of India28 the return of loss of Rs 1,500 crore could not filed because of bifurcation of Chhattisgarh and Madhya Pradesh. The Court held that in the peculiar facts of the case, the delay ought to have been dealt with by the Central Board of Direct Taxes in a proper perspective and remanded the matter to the board for re-consideration. | |
| ♦ | Where delay in filing returns was only three days due to labour unrest, such case was a case of genuine hardship and delay in condonation for filing return was proper.29 | |
| ♦ | A delay of one day due to large queue while filing return is a case of genuine hardship, if the condonation of delay is not allowed.30 | |
| ♦ | When return could not be submitted in time due to ill-health of officer looking after the petitioner's case.31 | |
| ♦ | When some amount was paid erroneously and the assessee was entitled to refund, in such case rejection of application because it was beyond the limitation period was considered to constitute genuine hardship to the assessee.32 | |
| ♦ | The assessee was bound to get its accounts audited under section 64 of the Kerala Co-operative Societies Act, 1969. The delay in audit by the auditor appointed under the said Act was not attributable to the assessee. Therefore, the condonation of delay was proper.33 |
Other instances are when delay is due to auditor appointed under Multi-State Co-operative Societies Act, if delay was not condoned then such cases are cases of genuine hardships.
Remedy to an assessee against order of the Court
7. The only remedy an assessee has against the order of the Board u/s 119(2)(b) of the Act is to approach the respective High Court under article 226 of the Constitution of India, 1950. In a plethora of cases the approach of the Courts in cases where requirements under this section were not followed was to remand the matter to the board for re-consideration. In the case of Lodhi Property Company Ltd.v. Under Secretary, (ITA-II), Department of Revenue34, the Court adopted a different approach instead of remanding the matter to the CBDT; the Court directed that the delay of one day in filing of the return was to be condoned.
Thus, we can conclude that the approach of the Court in such cases is that when a matter or not looked into merits, natural justice is not being followed or reasonable grounds are not provided, then the matter is to be remanded to the Board for re-consideration to be decided in accordance with law but where as per the facts and circumstances of the case there is genuine hardship then the Court by considering the facts and circumstances can decide as to whether the delay is to be condoned or not? Thus, no need of remanding the matter to the board is there in such cases.
Restriction on Powers of the Board
8. The Madras High Court the case of Precot Mills Ltd. v. Central Board of Direct Taxes,35 held that "Power under clause (b) was limited to extending the time within which the assessee might make claims for exemption, deduction or refund of other relief and permitting the assessee to make such claim even after the expiry of the period specified in the Act."
| ♦ | By admitting a belated claim for refund, the Board neither interferes with the course of assessment of any particular assessee nor with the discretion of the CIT (A) which, according to the Supreme Court in Union of India v. Azadi Bachao Andolan36, is the only restriction on the powers of the Board u/s 119 of the Act. | |
| ♦ | As the provisions are to be assigned such meaning as would enable the assessee to secure the benefits intended to be given by the Legislature37 only relief prescribed under the provisions can be given to the assessee and no other relief can be granted to the assessee by the Board, no matter the amount of hardship faced by the assessee. | |
| ♦ | According to various instructions issued by the CBDT, the Board has no power for entertaining an application u/s 119(2)(b) of the Act, if - |
| - | the applicant has made an investment in 8% Savings (Taxable) Bonds, 2003 issued by the Government of India opting for cumulative interest on maturity, but has accounted for interest earned on mercantile basis, | |
| - | the intermediary bank at the time of maturity has made deduction of tax at source (TDS) on the entire amount of interest paid without apportioning the accrued interest/TDS to various financial years involved.38 | |
| - | the applications/claims under section 119(2)(b) for condonation of delay involving refund claims exceeding Rs. 50,00,000 can only be processed by the Central Board of Direct Taxes, both for acceptance and rejection39 and no other claim below this amount can be entertained by the Board. |
Conclusion
9. The guideline which the Parliament has given to the Central Board of Direct Taxes, when it delegated the power of waiver of interest under section 119(2)(b) of the Act is avoidance of "genuine hardship" in a case, so that any guideline which does not take into consideration genuine hardship in a particular case, cannot be said to meet the requirements of the delegated powers. The concept of "genuine hardship" does not get exhausted by merely listing some items in a circular.
At the time of considering the case under the provisions of section 119(2)(b), it should be ensured that the income declared and refund claimed are correct and genuine and also that the case is of genuine hardship on merits.40 Any application or return not considered by the Board on merits or without looking at the genuine hardship caused to the assessee would result in defeating the intention of the Legislature, which is to provide relief to the assessee in genuine cases in order to avoid hardship to the assessee.
SEC. 119
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1-3. Section 119(2)(b) of the Income-tax Act, 1961.
4. SAMPATH IYEGNAR, LAW OF INCOME TAX 8769 (11th ed. 2012).
6. Tuticorin Vegetable Marketing Co. (P.) Ltd. v. ITO [2000] 243 ITR 202 (Mad.), [2002] 123 Taxman 116 (Mad).
7. Associate Electro Ceramics v. Chairman, CBDT, [1993] 201 ITR 501 (Kar.).
8. CBDT Circular No. 8 of 2001 dated 16.05.2001.
10. Supra Note, 4 at 8773.
12. Dy. CIT v. Gopal Krishan Builders, [2004] 91 ITD 124 (Luck.). (SMC)
13. Kakumanu Rao v. CCIT, [1998] 234 ITR 444 (AP).
14. CIT v. Infosys Technology Ltd.,[2008] 297 ITR 167/166 Taxman 204 (SC).
15. Supra, Note 4 at 8767.
16. Bombay Mercantile Co-operative Bank Ltd. v. CBDT, [2011] 332 ITR 87/[2010] 195 Taxman 106 (Bom.).
17. (1993) 201 ITR 523 (Kar.), See also Pallavan Transport Consultancy Service Ltd. v. Union of India, [1998] 233 ITR 745 [2000] 111 Taxman 685 (Mad.); Kusumben Parikh v. CBDT, [2000] 242 ITR 501 (Guj.).
18. Citizen Watch Co. Ltd. v. IAC , [1984] 148 ITR 774/[1983] 15 Taxman 438 (Kar.); Cf Modern Chemicals v. Vineet Kulkarni, [1985[ 154 ITR 230 (A.P.)/[1984] 17 Taxman 66 (Bom.)Sivaraman v. ITO [1994] 209 ITR 36/[1995] 78 Taxman 110 (Ker.); Smt. Prameela v. CIT [1996] 220 ITR 271/[1994] 75 Taxman 594 (AP).
19. Tiam House v. CBDT [2000] 242 ITR 539/[1999] 104 Taxman 679 (Mad.); Dharmpal v. CBDT, [2001] 250 ITR 629 (MP); Bhavani Mills v.Member (IT&J), CBDT, [2000] 243 ITR 636 105 Taxman 335 (Mad.).
21. Supra, Note 17.
22. MANU/MH/0479/2008.
23. Gujarat Electric v. CIT [2002] 255 ITR 396/120 Taxman 733 (Guj.)
24. Sitaldas K. Motwani v. DGIT (International Taxation), [2010] 323 ITR 223/187 Taxman 44 (Bom).
25. B.M Malani v. CIT [2008] 174 Taxman 363 (SC).
26. Supra Note, 19.
27. Id.
29. Id.
30. Lodhi Property Co. Ltd. v. Under Secretary, (ITA-II), Department of Revenue, [2010] 323 ITR 441/191 taxman 74 (Delhi).
31. Supra Note at 24.
32. R. Seshammal v. ITO, [1999] 237 ITR 185 (Mad.).
33. Pala Marketing Co-operative Society Ltd. v. Union of India, [2008] 167 Taxman 238 (Ker.).
34. Supra Note at 30.
35. Precot Mills Ltd. v. CBDT [2004] 140 Taxman 662 (Mad.); See also H. P. Ranina, Wide are the Board's powers, http://www.thehindubusinessline.in/2005/07/09/stories/2005070901000900.html/ (last accessed on Dec 13, 2012).
36. Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (Mad.).
37. KANGA, PALKHIVALA & VYAS, THE LAW OF INCOME TAX 27 (9th ed. 2004).
38. CBDT Instruction No. 2/2012 dated 22-2-2012.
39. CBDT Instruction No. 13/2006 dated 22.12.2006.
40. Ibid.
IT : Where vires of provisions of Central Act had been challenged before High Court, matter should be considered by Supreme Court
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[2013] 37 taxmann.com 31 (SC)
SUPREME COURT OF INDIA
Union of India
v.
Maruthi Tubes (P.) Ltd.*
H.L. DATTU AND M.Y. EQBAL, JJ.
TRANSFER PETITION (CIVIL) NO. 588 OF 2011
AUGUST 2, 2013
Section 40(a)(ia) of the Income-tax Act, 1961, read with article 139(A)(1) of the Constitution of India - Business disallowance - Interest, etc., paid to resident without deduction of tax at source [Constitutional validity] - Constitutional validity of section 40(a)(ia) had been challenged before High Court - Transfer petition had been filed under article 139(A)(1) read with Order XXXVI-A of Supreme Court Rules, 1966 for transfer of said case before Supreme Court - Whether since vires of provisions of Central Act had been questioned, said transfer petition had to be allowed - Held, yes [Paras 1 and 2] [In favour of revenue]
Mohan Parasaran and B.V. Balaram Das for the Petitioner. M. Srinivas R. Rao, Abid Ali Buran P. and Mrs. Sudha Gupta for the Respondent.
ORDER
1. This transfer petition is filed under Article 139(A)(1) of the Constitution of India read with order XXXVI-A of the Supreme Court Rules, 1966 on behalf of the Union of India & Ors. for transfer of Writ Petition No. 10732 of 2010 pending before the High Court of Andhra Pradesh questioning the validity of the amended provisions of Section 40(a)(ia) of the Income Tax Act, 1961.
2. In view of the fact that the vires of the said provisions of the Central Act has been questioned, we allow this transfer petition.
3. Accordingly, we order for transfer of Writ Petition No. 10732 of 2010 pending before the High Court of Andhra Pradesh at Hyderabad to this Court for consideration.
4. We further direct the Registry to list the matter for disposal accordingly once the same is received.
Liberty to mention.
Ordered accordingly.
ORDER
The Transfer Petiton is allowed in terms of the signed order.
POOJA*In favour of revenue.
IT : Where possession of property was given to assessee-advocate enabling exercise of general control for discharging certain services and in consideration whereof assessee was to be given part of land coupled with power to sell those land, transaction would be considered as transfer and receipt of sale consideration by assessee would attract capital gain
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[2013] 37 taxmann.com 38 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Chennai
v.
J. Mahalingam*
MRS.CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NO. 229 OF 2010†
JULY 8, 2013
Section 2(47) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882 - Capital gain - Transfer [Immovable property] - Assessment year 2006-07 - Assessee was a practising advocate - He entered into an agreement in respect of property with its owners who sought his services for getting patta and layout of property and had offered three grounds of land toward charges for rendering services - In terms of agreement, possession of property was immediately handed over to assessee - Whether since possession was given to assessee enabling exercise of general control for discharging certain services and in consideration whereof assessee was to be given three grounds of land coupled with power to sell those land, transaction was considered as transfer and receipt of sale consideration by assessee would attract capital gain - Held, yes [Paras 14 & 19] [In favour of assessee]
Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as [Advocate fees] - Assessment year 2006-07 - Whether in view of facts stated under heading 'capital gains - Transfer', since, original agreement between assessee and owners made no reference to professional status of assessee for availing services of assessee, receipt was not to be assessed as professional income - Held, yes [Paras 14 & 19] [In favour of assessee]
FACTS
| ■ | The assessee was a practising advocate. It entered into an agreement with one 'U' and 'C' in respect of the property situated in Puliyur village, Kodambakkam. 'C' was the absolute owner of 3 grounds of land and 'U' was the absolute owner of 2 grounds in the same property. | |
| ■ | The agreement stated that the assessee would undertook the job of obtaining patta and layout of the properties and for the services rendered, the owners agreed to transfer 3 grounds of land to the assessee. In pursuance of the agreement, possession of the property was handed over to the assessee and General power of attorney was executed in favour of assessee. | |
| ■ | Sale agreement was executed in respect of three grounds of property for a sale consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as 'confirming party'. | |
| ■ | The assessee claimed the consideration received on sale of the property as capital gain. | |
| ■ | The Assessing Officer rejected the claim of the assessee and held that the receipt was to be assessed as income from professional services. | |
| ■ | On appeal, the Commissioner (Appeals) deleted the order of the Assessing Officer and held that the receipt at the hand of the assessee could only be treated as income available for capital gains. | |
| ■ | On revenue's appeal, the Tribunal upheld the order of the Commissioner (Appeals). | |
| ■ | On further appeal: |
HELD
| ■ | Since, the original agreement dated 10-10-1995 between the assessee herein and the original owners viz., Chakravarthy and Umapathy, makes no reference at all to the profession status of the assessee for taking the services of the assessee. There is not even a mention about the assessee being an Advocate and his services was taken by the original owners of the property only in that capacity. In the circumstances, in the absence of any material to show that the payment was made only for the services rendered by the assessee as an Advocate, the plea of the Revenue was not accepted that the receipt was to be assessed as professional income. [Para 14] | |
| ■ | Reading section 5 and section 53-A of the Transfer of Property Act, 1882 with section 2(47) of the Income-tax Act, 1961 on facts, it is find that the entrustment of the possession of the entire 5 grounds to the assessee was with the specific object of getting patta and layout of the property. The sale agreement makes it very clear that the transfer of 3 grounds of land to the assessee herein was intended as by way of consideration for securing patta and layout and as such, the original owners had entrusted the entire land to the assessee. [Para 18] | |
| ■ | Thus, when possession was given to the assessee enabling exercise of general control for discharging certain services, in consideration whereof the assessee was to be given land coupled with the power to sell those grounds. It is held that the assessee has rightly placed reliance on section 2(47)(v) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882 that the receipt would attract capital gains at his hands. There is nothing on record to show that the services to be rendered was taken in the capacity as a lawyer. [Para 19] |
M. Swaminathan for the Appellant. Dr. Anita Sumanth for the Respondent.
JUDGMENT
Mrs. Chitra Venkataraman, J. - The following substantial questions of law are raised by the Revenue in the present Tax Case Appeal preferred as against the order of the Income Tax Appellate Tribunal, Chennai 'B' Bench dated 18.09.2009 passed in ITA.No.1115/Mds/2009 for the assessment year 2006-07.
| "1. | Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee became a owner of the 3 plots as per the agreement dated 10.10.95 that was entered into between the assessee and the original owners and the assessee had possessed the plots as a capital asset and had sold it to the purchaser ? | |
| 2. | Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs.90 lakhs received being the value of the 3 grounds of plot, to be assessed as income from profession and to be assessed to capital gains ?" |
2. The assessee entered into an agreement with one Chakravarthy and E. Umapathy on 10th October, 1995 in respect of the property situate in Puliyur village, Kodambakkam. The said Chakravarthy was the absolute owner of 3 grounds of land measuring about 7,200 sq.ft. The said Umpathy was the absolute owner of 2 grounds measuring about 4,800 sq.ft in the same property. At the time of registration of the document in favour of the above two persons, the vendor promised to furnish the copy of the proper layout plan to them. However, when the said parties found that there were no proper layout or even a rough sketch, leading to difficulties in identifying the boundaries, the purchasers viz., Chakravarthy and Umapathy approached J. Mahalingam, the assessee herein, seeking his services for getting necessary patta as well as for getting the necessary layout of the properties purchased by them.
3. Incidentally, it is a matter of record that the said J. Mahalingam is a practising Advocate. It is a matter of record that with the object of getting patta and layout, the owners of the property were stated to have entered into an agreement with J. Mahalingam. In pursuance of the agreement, the owners of the property handed over possession of this property to the assessee.
4. The agreement stated that the assessee herein would undertake the job of preparing a sketch of the entire area and obtain patta from the Revenue Authorities. For the services to be rendered by the assessee herein, the owners agreed to transfer 3 grounds of land in T.S. No. 35, Block No. 1, Village No. 109, Puliyur Village, Kodambakkam, Madras and that the owners would take one ground each as apportioned by the assessee herein. The agreement has specifically pointed out that after obtaining patta in the names of the owners, the assessee herein would take possession of the property and obtain patta in the names of the owners, Umapathy and Chakravarthy. Thereupon, they would transfer the rights of 3 grounds of plot to the assessee free of cost as the assessee would be incurring huge expenses in preparing the plan and in the process of obtaining patta.
5. It is a matter of record that there were certain acquisition proceedings in respect of certain properties around the subject property and an Award Proceedings was there by the Acquisition Tahsildar and the compensation amount was deposited in the City Civil Court under Section 30 of the Land Acquisition Act. The proceedings were referred to the Civil Court and as on the date of the agreement, acquisition proceedings were pending adjudication.
6. With the above facts in background, the owners of the property approached the assessee for his assistance. Subsequent to this agreement, the owners of the property viz., Chakravarthy and Umapathy executed a General Power of Attorney registered in the Office of Sub-Registrar, Anna Nagar empowering the assessee herein to apply for patta in the owners' name and sell 3 grounds of land and that the remaining 2 grounds should be handed-over to the owners viz., Chakravarthy and Umapathy after fencing for their enjoyment. Accordingly, the original title itself was handed-over to the assessee as their Power of Attorney and the said Deed of Document was executed on 21.08.1996.
7. It is further found that there was a sale agreement entered into between the owners of the property viz., Chakravarthy and Umapathy as Vendors 1 and 2 and the assessee herein as a confirming party and M/s. Indu Projects Ltd., as Purchaser on 28th December 2005.
8. Referring to the Deed of General Power of Attorney dated 21.08.1996, giving the assessee full power to sell three grounds of property, an agreement was executed to transfer the property of an extent of 3 grounds to the purchaser on a sale consideration of Rs. 1,50,00,000/- (Rupees One Crore and fifty lakhs only). The said amount was to be paid by the purchaser to the Vendors and Confirming Party (the assessee herein) at Rs. 30,00,000/- (Rupees Thirty Lakhs only) in favour of Chakravarthy, Rs. 30,00,000/- (Rupees Thirty Lakhs only) in favour of Umapathy and Rs. 90,00,000/- (Rupees Ninety Lakhs only) in favour of the assessee as confirming party. The Agreement further pointed out that the Vendors and the Confirming Party agreed to adjust the sum towards the sale consideration and thereby releasing the purchaser from any further payment whatsoever towards the sale consideration. Evidently the sale agreement did not mention about the first agreement between the assessee and the owners of the property viz., Chakravarthy and Umapathy.
9. In the background of these facts, when the assessment was taken up for consideration for the year 2006-07, the Assessing Authority rejected the case of the assessee offering the consideration received on sale of the property, for capital gains. The order of assessment pointed out to the agreement dated 10.10.1995 and held that the role of the assessee was only that of a Professional; consequently, the receipt was to be assessed as income from professional services.
10. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income Tax (Appeals), wherein, the Commissioner of Income Tax (Appeals) reasoned out that if the transaction was to be taken as for rendering professional services, then the receipt from the professional service would generally be limited to minimum 5% to 10% in most of the cases. However, to say that the receipt of 60% of total sale consideration as 'business income' and treating it as such was devoid of logic or merit. In that view of the matter, the Commissioner of Income Tax (Appeals) allowed the appeal, directing the Assessing Officer to treat the amount as 'capital gains' after ascertaining the period of holding and to re-work the capital gains accordingly.
11. Aggrieved by the said order, the Revenue went on appeal before the Income Tax Appellate Tribunal. The Tribunal rejected the Revenue's appeal and referred to the agreement dated 10.10.1995 executed between the owners of the property and the assessee and pointed out that the narration in the agreement clearly pointed out that the property in the hands of the original owners was more of a liability and considering the difficulty in obtaining patta, the owners consequently approached the assessee for obtaining patta and offered 3 grounds of lands towards the charges for rendering services and the expenses on getting the patta and the layout.
12. The Income Tax Appellate Tribunal held that once the patta was obtained and the plots were properly identified, the original owners were to transfer title to the assessee. In terms of the agreement, possession was immediately handed over to the assessee. It is important to note that the power to sell the land does not find place in the agreement dated 10.10.1995 and the assessee did not act in the capacity of a professional Advocate to render the services. Considering the above said circumstances and going by the definition of 'transfer' as per Section 2(47) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal held that the receipts at the hands of the assessee could only be treated as income available for capital gains. The Income Tax Appellate Tribunal further pointed out that even though the assessee was put in possession of 5 grounds of land, what was offered in the agreement as towards his services was only 3 grounds. The General Power of Attorney executed in favour of the assessee also pointed out that out of 5 grounds, only 2 grounds were to be retained for the benefit of the owners and 3 grounds was given to the assessee. Thus, the Tribunal pointed out that "receipts" should be read in the context of the transfer of 3 grounds "for the services rendered" and not "for the professional services rendered" or "for services rendered as a lawyer". Thus, the Department's contention therein was not accepted on its face value. In this view of the matter, the Revenue's appeal was dismissed. Aggrieved by the same, the present Tax Case Appeal is preferred by the Revenue.
13. Learned Standing counsel appearing for the Revenue submitted that considering the fact that the assessee is a practising lawyer and had received the consideration on the sale of the property and the income received need not be one in cash, the consideration in the form the lands given could be treated as "Professional Receipt". The owners took the service of the assessee only in the capacity of "Advocate" and the assessment be accordingly made treating the receipts as professional income.
14. We do not agree with the said line of reasoning of the learned Standing counsel appearing for the Revenue, since, the original agreement dated 10.10.1995 between the assessee herein and the original owners viz., Chakravarthy and Umapathy, makes no reference at all to the profession status of the assessee for taking the services of the assessee. There is not even a mention about the assessee being an Advocate and his services was taken by the original owners of the property only in that capacity. In the circumstances, in the absence of any material to show that the payment was made only for the services rendered by the assessee as an Advocate, we do not accept the plea of the Revenue that the receipt was to be assessed as professional income.
15. Section 2(47) of the Income Tax Act, 1961 defines "transfer" to include any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882). Section 2 (47) reads as under:—
'2. Definitions (47) "transfer", in relation to a capital asset, includes,—
| (i) | the sale, exchange or relinquishment of the asset ; or | |
| (ii) | the extinguishment of any rights therein ; or | |
| (iii) | the compulsory acquisition thereof under any law ; or | |
| (iv) | in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or | |
| (iva) | the maturity or redemption of a zero coupon bond; or | |
| (v) | any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1881 (4 of 1882) ; or | |
| (vi) | any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever)which has the effect of transferring, or enabling the enjoyment of, any immovable property.' |
16. Section 53A of the Transfer of Property Act defines "Part performance" in the following manner:—
"Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,
and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is willing to perform his part of the contract,
then, notwithstanding that where there is an instrument of transfer that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract ;
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. "
Under Section 2(47) of the Act, "transfer" is an inclusive definition and therefore it extends to events and transactions which may not otherwise be 'transfer' according to its ordinary popular natural sense; the definition also mentions such transaction as sale, exchange etc to which the word "transfer" would properly apply on its popular and natural import.
17. Thus a reading of Sections 5 and 53-A of the Transfer of Property Act, 1882, shows that part performance is assumed where any person contracts to transfer for consideration, any immovable property and in pursuance of which possession is handed over to the other party towards part performance of the contract.
18. Reading Sections 5 and Section 53-A of the Transfer of Property Act, 1882 with Section 2(47) of the Income Tax Act, 1961 on facts, we find that the entrustment of the possession of the entire 5 grounds to the assessee was with the specific object of getting patta and layout of the property. The sale agreement makes it very clear that the transfer of 3 grounds of land to the assessee herein was intended as by way of consideration for securing patta and lay-out and as such, the original owners had entrusted the entire land to the assessee.
19. Thus, when possession was given to the assessee enabling exercise of general control for discharging certain services, in consideration whereof the assessee was to be given 3 grounds of land coupled with the power given to the assessee to sell the 3 grounds, we hold, rightly the assessee placed reliance on Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53A of the Transfer of Property Act, 1882 that the receipt would attract capital gains at his hands. There is nothing on record to show that the services to be rendered was taken in the capacity as a lawyer.
20. On the admitted fact that the assessee had performed his part of contract when the sale was sought to be effected, rightly, the assessee acted as 'Confirming Party' as per the terms of the agreement and the assessee was given Rs. 90,00,000/-.
21. In the background of the above facts, we do not accept the case of the Revenue that on the mere incident of the assessee being a practising advocate, he is dis-entitled to claim the receipt as income assessable under capital gains. In the circumstances, the Tax Case (Appeal) filed by the Revenue is rejected. The substantial questions of law are answered in favour of the assessee and against the Revenue. No costs.
RITESH †Arising out of order of ITAT in IT Appeal No. 1115/Mds/2009, dated 18-9-2009.
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CBDT Directs Immediate Issue Of Refunds Due For FY 2011-12
September 23rd, 2013
The CBDT has issued a letter dated 20.09.2013 to the Chief Commissioners of Income-tax pointing out that despite earlier instructions to pay over the refunds due for FY 2011-12 the progress so far has been tardy. The CCsIT have been directed to take necessary action and direct the Assessing Officers to issue the refunds for AY 2011-12 without further delay. The CCsIT have also been directed to personally monitor the progress in the above respect and send a report on the matter by 15.10.2013 with reasons for non-issue of refunds, if any.
I-T - Whether ancillary profit like DEPB receipts can be said to be derived from industrial undertaking for purpose of claiming deduction u/s 80IC - NO: ITAT
By TIOL News Service
NEW DELHI, SEPT 23, 2013: THE issues before the Bench are - Whether ancillary profit like DEPB receipts can be said to be derived from an industrial undertaking for the purpose of claiming deduction u/s 80IC of the Act and Whether the Revenue can deny deduction u/s 80IC claimed by the assessee on the ground that the assessee has not carried out any manufacturing activity on the basis of assumption and suspicion and without laying its hands on any concrete material to prove the same. And verdict partly goes in favour of the assessee.
Facts of the case
Assessee filed its return of income on 26.9.2009 declaring an income at nil after claiming deduction u/s 80IC of the Act. AO noticed a total turnover of Rs.100,31,28,153 which has resulted net profit of Rs.36,68,35,903. Assessee has claimed deduction u/s 80IC and in support of its claim, it has submitted Form No. 3CD and Form No. 10CCB along with the return. AO has observed that assessee has been claiming deduction u/s 80IC on the ground that it has been engaged in the business of manufacturing and export of handmade, handcuffed carpet at its industrial undertaking situated at Plot No.11, Sector 4, Sidhcul Haridwar and has been claiming deduction u/s 80-IC since AY 2005-06. This is the 5th consecutive AY of such claim.
AO had a suspicion that a turnover of more than Rs. 100 crores cannot be achieved by the assessee. He observed that the department had made local inquiry on several occasions from which it was gathered that no manufacturing activity was done at the alleged industrial undertaking of the assessee. According to the AO, the huge turnover as claimed by the assessee was diverted from its factory at Partappur, Meerut. He further observed that assessee has been claiming deduction at 100% by camouflaging manufacture at its location at Haridwar.
AO directed the assessee to show the present status of the business at Sidhcul. It was contended that assessee firm was came into existence in January 2003 and it was dissolved w.e.f. Ist of April 2009. The factum of dissolution was duly intimated to the AO. AO has observed that it is quite unusual to close down a business concern which is showing huge turnover up to AY 2009-10. AO has further observed that ITO, Ward 2, Hardwar was deputed to visit the factory premises and furnished the factual report. He took note of the factual status report submitted by the ITO, Ward- 2, Hardwar and thereafter made an analysis of the material collected by the ITO, Ward-2, Hardwar. On such analysis, AO formed certain reasons which creates a doubt about the claim of the assessee. He issued a show-cause notice on 26.12.2011 wherein he has narrated 27 reasons for doubting the claim of the assessee.
On receipt of show-cause notice, assessee has filed detailed reply, whereby it has appraised its manufacturing activities, how it is entitled for deduction u/s. 80IC. The assessee highlighted the various statutory compliance made by it for fulfilling all the conditions required for grant of deduction u/s 80IC of the Act, the assessee has filed its comments on each observation of the AO in the alleged show-cause notice. AO thereafter held that the assessee did not manufacture carpet at Sidcul, rather it has achieved the turnover by diverting products from its factories at Partappur and Meerut. He disallowed the claim of the assessee u/s 80IC which includes deduction on DEPB receipts at Rs.12,90,26,728. CIT(A) dismissed the appeal of the assessee.
On further appeal by the assessee, the ITAT held that,
++ the primary issue required to be determined, is when assessee came into existence and whether geographically it is located with the notified area contemplated in sub-clause (ii) of sec. 80IC(2)(a) or (2) (b). It emerges out from the record that assessee partnership firm came into existence on 1st of December 2003. It is situated at Plot No.11 Sector 4, Sidcul, integrated industrial estate, Haridwar. It had commenced the production on 18th October 2004. The A.O. himself admitted that deduction u/s 80IC was granted to the assessee continuously since AY 2005-06;
++ the next step which is essential for examining the case of an assessee about the admissibility of deduction u/s 80-IC is whether it manufactures or produces any article or things. Expression "manufacture" has been defined in section 2(29BA). However, expression "production" has not been defined in the Act. The stand of the revenue authorities is that at the most activity carried out by the assessee is of latexing, binding, carving and embossing, clipping and finishing. The other actiity of weaving of the carpets is being done at Meerut and other localities;
++ broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a change of one object to another for the purpose of marketability. It brings something into existence, which is different from that, which originally existed. The new product is a different commodity physically as well as commercially. The broader test to determine whether manufacture is there or not, it is propounded that when a change or series of changes are brought out by application of processes which take the commodity to the point where, commercially, it cannot be regarded as the original commodity but is, instead recognized as a distinct and new article that has emerged as a result of the process;
++ as far as objections of the AO that binding latexing packing, tufting, leveling, embossing and finishing are to be considered as a manufacturing activity of the assessee. This activity was not even disputed by the AO himself since AY 2005- 06. In the last four years, deduction u/s 80IC has been granted to the assessee treating this activity as a manufacturing activity. AO did not dispute the fulfillment of other eligible criteria provided in sec. 80IC of the Act i.e. the geographical location of the assessee, employment of the number of employees etc. In this year, Revenue Authorities have erred in construing the concept of manufacturing in a restricted manner. Thus, as far as legal requirements are concerned, all have been fulfilled by the assessee. Even on the strength of principle of consistency, it was brought to our notice that deduction u/s 80IC of the Act was claimed for the first time in AY 2005-06 and it was allowed to the assessee. This is the 5th consecutive AY. The assessments have been made u/s 143(3) in AY 2005-06 to 2008-09. The Department has not reopened the assessment in these four AYs nor any action u/s 263 of the Act was taken. Thus, it is not necessary to go into the aspects whether assessee fulfilled the other conditions of sec. 80IC of the Act or not;
++ the limited issue required to be considered in this AY is, whether the department is able to lay its hands on a material which exhibits that assessee has not carried out any manufacturing activity and it is not entitled for deduction u/s 80IC of the Act? Whatever was granted in earlier years was granted on account of mistaken belief or misconstruction of the facts. It is also to be kept in mind that if no remedial action can be taken in those years on account of expiry of limitation etc. that does not mean that any error committed in earlier years would be perpetuated in the present year;
++ in the assessment order, AO has issued notice u/s 143(2) on Ist of September 2010, a questionnaire was issued u/s 142(1) almost after 10 months on 06th July 2011. Thereafter, the jurisdiction over the assessee was transferred from ACIT to the JCIT who had issued fresh notice u/s 143(2) and 142(1) on 12th September, 2011. It suggests that investigation process has been started after 6th July 2011 and effectively after 12th of September, 2011. The assessment has been passed on 30.12.2011 i.e. just within three and half months. The assessee firm was dissolved on Ist of April 2009. It closed down its business from this date. The alleged spot inquiry got conducted through ITO, OSD, Haridwar was conducted after the month of September, 2011 i.e. almost after two and half years of closure of the business. According to the assessee, AO has observed that on a local inquiry conducted through ITO, OSD, Haridwar, it was found that no such business was ever carried out at the said location. The assessee pointed out that during the course of assessment proceedings, assessee has asked the AO to disclose the basis of this observation. DR on the other hand pointed out that in the reasons stated by the AO, he has disclosed the basis. The objection of the assessee is that after the closure of the business, if the ITO made the inquiry from tea-vendors, rikshaw-pullers, it is meaningless. Had he approached the Pollution Authority, local sales-tax authorities, district industry office or other government agencies? It reveals from the record that no such exercise was carried out. In our opinion, the prosecuting agency needs not to explain the assessee the manner of investigation, but it is bound to confront the assessee with the material of investigation collected during the spot inquiry. If ITO, OSD was visiting the area in the capacity of a local commissioner, he should have issued a show-cause notice to the partners of the assessee, pointing out object of his visiting and associates them during his inquiry. He should have prepared a list of persons with whom he had interacted and on the basis of which AO has been observing that department made local inquiries on several occasions from which it was gathered that no manufacturing activity was done at the said location. No such material was ever confronted to the assessee or disclosed to the assessee. AO has been reproducing the factual position found by the ITO, OSD on page 2 of the assessment order (extracted by us in the order). According to the ITO, there were only 13 taping frames and three were in broken condition. ITO has narrated list of eleven items which were available on the premises and then concluded that on the basis of these items, it is not possible to achieve a turnover of Rs.100 crores. While putting reliance on this material, Revenue Authorities have totally lost sight that this is the remnant of a discontinued business. ITO has been visiting the place after two and half years of the closure of the business. Why the machinery etc. would be available in an intact position as was available at the time of running the business?;
++ thus, the alleged inspection report of ITO is neither here nor there, it cannot goad any adjudicating authority to any conclusion, more so, when in the last four AYs passed u/s 143(3) existence of assessee's business was not disputed by the ITO. The right time to raise this suspicion about the nature of business was the time when it was in existence;
++ AO has alleged that statement of Mr. Ashis Gupta was recorded. In his statement, he claimed that latexing, binding, embossing and finishing was done at Haridwar but the production activity data furnished by the firm does not reflect any activity of this type being done at Haridwar. For this conclusion, he was harping upon the replies of the job workers obtained u/s 133(6) who have alleged that they were doing the job work at their premises outside Haridwar. The reply qua reasons No. 9 of the assessee is available on page 18 of the assessment order. The assessee has alleged that these replies were received during the AY 2005-06. The vendors have no where said that these services are not given by them at Haridwar. AO has drawn incorrect inference from the replies. AO has considered this reply and made analysis on page 24 of the order. He observed that letters were issued to different persons u/s 133(6) of the Act, who have done job work for the assessee. 25 letters have been received back undelivered. 7 concerns have responded to the letters. They have confirmed the job work done for the assessee. AO did not consider their replies as worthy of credence on the ground that they have sent the copies of their replies to the assessee. Their replies are similarly worded. On an analysis of this detail, we fail to understand the approach of the AO. He is using this material against the assessee. When assessee explained its position he excluded this material but considered it as a negative evidence. In the reasons, he has observed that job workers have denied for carrying out the job work for the assessee. When assessee explained its position and pointed out that seven parties have confirmed about doing the job work then AO has observed that such reply must be a tutored reply on the asking of the assessee otherwise they would have not sent these letters to the assessee. This will only suggest that this material cannot be used against the assessee, at the most for its prosecution. It is not the evidence of the assessee. It is the evidence of the AO who failed to prove against the assessee but still relying upon it in a negative sense;
++ similar are the other reasons assigned by the AO. The assessee has explained its position and on an analysis of the material, except observing philosophically for raising a suspicion, AO was unable to lay his hands on any concrete material for doubting the activity of the assessee;
++ during the course of appellate proceedings, a survey u/s 133A of the Act was carried out on the new business premises of erstwhile partner on 23.2.2012 at Meerut and Haridwar. AO has submitted a report dated 4.5.2012 to the CIT(A) which includes the material collected during the course of survey. Before considering this report on merit, let us consider the procedural aspect whether it is cognizance could be taken by the CIT(A) or not, on asking of the AO? Rule 46A of the Income-tax Rules, 1962 is a rule which provide the procedure for production of additional evidence before the DCIT(Appeals) and CIT(A);
++ a bare perusal of rule 46A from clause Nos. 1 to 3 would suggest that additional evidence could be produced by the appellant only. It nowhere provide a remedy to the AO to strength his assessment order by supplementing the material in the shape of additional evidence. No doubt, sub-rule(4) gives powers to the CIT(A) to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. CIT(A) in the impugned order did not disclose how he came to know about the survey and whether he has issued notice to the assessee for production of the survey material or not. AO cannot be an applicant for production of the additional evidence in an appellate proceeding. The rule does not empower the AO because, if some income has escaped assessment, he can take action under sections 147, 154 or the CIT can take action u/s 263 of the Income-tax Act, 1961. CIT(A) can exercise its coterminus powers of the AO and then calls for any evidence. But we find that the report has been entertained on the request of the AO which is not permissible under the Rule;
++ the assessee has explained each page and each objections raised by the AO. The survey has not been carried out on the premises of the assessee because it has already discontinued the business. In paragraph 4.2 of the First Appellate Authority has observed that as far as the material available in report at Sr. Nos. 1 to 4, 6 to 9, 11 to 13, 15 to 71, 73 to 83, 93, 94 & 97 are concerned, the assessee has given a common reply that these documents are not related to the assessee firm because, it has closed the business. Assessee has placed on record its reply on all the issues. In the report of the AO, Sr. No. 1 talks about register pertaining to dying unit. It is annexure 63. The conclusion derived by the AO is that this register has been found at the Gogal Road, Meerut Unit of the assessee, therefore, it may be concluded that dying operation is being performed at Meerut rather then Haridwar as claimed by the assessee. It submitted that on page Nos. 1 and 2, dates mentioned are January 2012. Therefore, it is a register for dying unit. It does not relate to the business of the assessee which discontinued w.e.f. Ist of April 2009. CIT(A) has simply ignored this reply on the ground that it is a stock reply. When a business was discontinued in 2009 and the department is trying to co-relate the entries of 2012 with 2009, it is totally misapplication of mind. In the survey, the department ought to have collected the material for the period relevant to this AY. It should not have drawn the inference from the latest material found at the premises of new concern and then assumed that it must belong to the assessee in 2009. During the course of hearing, we have confronted the DR to pin point the material which pertains to the period of the accounting year involved in the present AY and then point out how that material suggests that assessee has not carried out any manufacturing activity. He drew our attention towards Sr. No. 96, or No. 86, Sr. No. 10 and Sr. No. 14 of the report. We have duly considered these material but they do not suggest that assessee has not carried out any manufacturing activity;
++ apart from these aspects, assessee took us through the assessment order passed by Dy. Commissioner, Central Excise u/s 9(2) available and through the sales-tax assessment order passed by Dy. Commissioner Sales tax, Haridwar. These are scrutiny assessments. For AY 2008-09, these authorities have accepted the business turnover of the assessee. Revenue Authorities have totally ignored these material on the record. It is true that whenever a conclusion has to be reached on an appreciation of a number of facts established by evidence, whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. The efforts of the CIT(A) is to reach the conclusion on the basis of circumstantial evidence but to our mind the inferences drawn by the Revenue Authorities are not supported by the material or the circumstances. They are just on assumption and suspicion. Therefore, the assessee has carried out the manufacturing activity. It has been granted deduction u/s 80IC of the Act from the last four AYs. The department is unable to lay its hands on any concrete material which can force us to take a different view then the stand of the AO in earlier four AYs. Assessee is entitled for deduction u/s 80IC of the Act;
++ in the computation for deduction u/s 80IC, assessee has included a sum of Rs.12.90 crores which represents the DEPB receipts. The assessee has placed on record a note as to how deduction on DEPB receipts u/s 80IC are admissible. However, this issue is squarely covered against the assessee by the decision of Supreme Court in the case of Liberty India vs. CIT. The Supreme Court has held that DEPB receipts are not derived from an industrial undertaking rather their genesis is from the beneficiary scheme formulated under Central Excise Act etc. They are the ancillary profit. The assessee submitted that the Supreme Court has not taken into consideration the amendment in sec. 28 which has been given effect from 1st of April 1998. This amendment suggests that on sale of DEPB receipts, if there is any profit, then it will be a revenue receipts. This amendment was brought by Act of 2005, w.e.f. 01.04.1998. The decisions of the Supreme Court is dated 31.09.2009. Thus, the decision of Supreme Court is subsequent to the amendment, hence, the decision cannot be distinguished on this argument. In view of the above discussion, the AO was directed to allow the deduction u/s 80IC of the Act as per law excluded on the DEPB receipts.
(See 2013-TIOL-817-ITAT-DEL)
ST - Commercial Training or Coaching Services - Assessee who had already deposited Rs. 29 Cr for earlier period directed to deposit another Rs 25 Cr: HC
By TIOL News Service
HYDERABAD, SEPT 24, 2013: THE Short History : The petitioner which is a society registered under the provisions of the Registration of Societies Act, 1860, has been operating educational institutions and imparting education through Junior Colleges and Coaching centers.
Commissioner of Customs, Central Excise and Service Tax, Guntur passed an Order in Original dated 11.06.2009 confirming the demand of Service Tax on the income received by the petitioner for the period 01.04.2003 to 31.03.2007 under the head of "Commercial Training or Coaching Services". The Tax demanded was over Rs. 87 Crores and the penalty imposed was Rs. 150 Crores apart from other penalties.
The CESTAT by its order reported in 2010-TIOL-1306-CESTAT-BANG granted unconditional stay and total waiver of pre-deposit.
Against the above CESTAT order, the Revenue approached the Andhra Pradesh High Court which in its order reported in 2011-TIOL-147-HC-AP-ST remanded the case back to the CESTAT consider the balance of convenience and financial hardship while disposing the stay application.
The CESTAT passed a fresh order on 18.4.2011 maintaining the full waiver of pre-deposit granted to the petitioner and staying the recovery till the disposal of the appeal. (2011-TIOL-661-CESTAT-BANG)
The Department again questioned this order before the High Court which set aside the order of the CESTAT and ordered pre deposit of Rs. 80 Crores which is about 1/3rd of the Tax and Penalty. (2011-TIOL-694-HC-AP-ST)
This time, the party went in appeal to the Supreme Court. The Supreme Court by its order dated 6.1.2012 reported in 2012-TIOL-02-SC-ST - reduced the pre-deposit to one third of the tax – that is about Rs. 29 Crores. The assessee complied with this order.
Now comes the demand for the subsequent periods 2007-08, 2008-09, 2009-10 and 2010-11 for which two orders were passed by the Commissioner demanding a tax of Rs. 69 Crores and Rs. 13 crores.
This was also challenged before the CESTAT which by its order reported in 2013-TIOL-1375-CESTAT-BANG directed pre-deposit of Rs. 25 crores.
The assessee filed a modification petition against the above order which the Tribunal by its order reported in 2013-TIOL-1376-CESTAT-BANG rejected.
Against the above order, the assessee is before the AP High Court.
The High Court observed, "As per the first proviso to Section 35F of the Central Excise Act, pre-deposit of the duty demanded or penalty levied can be waived where the Appellate Tribunal is of the opinion that such deposit would cause undue hardship to the applicant. As we could see, the Order dated 5.4.2013 came to be passed taking into consideration all the relevant factors including the orders passed by this Court and the Apex Court in respect of the earlier demand made for the period 2003-2007 and the payments that were already made by the petitioner. Thus adopting a reasonable approach, the pre-deposit was restricted to Rs.25 Crores which in fact is less than 1/3 rd of the total demand of Service Tax and Education Cess. The petitioner's request for modification of the said order was rejected assigning valid reasons therefor.
On a perusal of the Order, dated 5.4.2003 and the impugned order dated 15.07.2013, we are of the opinion that the condition of pre-deposit of Rs.25 Crores was imposed on proper exercise of the discretion vested in the Appellate Tribunal and on proper appreciation of the facts and circumstances of the case. Therefore, the impugned order which cannot be treated either arbitrary or irrational, warrants no interference by us on any ground whatsoever. "
So, the High Court permitted the petitioner to remit the pre-deposit amount of Rs.25 Crores in two instalments, the first instalment of Rs.15 Crores payable on or before 4.10.2013 and the balance of Rs.10 Crores on or before 4.11.2013.
(See 2013-TIOL-714-HC-AP-ST)2013-TIOL-717-HC-MUM-IT
IN THE HIGH COURT OF BOMBAY
Writ Petition No.1266 of 2013
COMMISSIONER OF INCOME TAX
CITY-15, MATRU MANDIR, ROOM NO 124
TARDEO ROAD, MUMBAI-400007
CITY-15, MATRU MANDIR, ROOM NO 124
TARDEO ROAD, MUMBAI-400007
Vs
1) INCOME TAX SETTLEMENT COMMISSION
ADDITIONAL BENCH, 2ND FLOOR
MAHALAXMI CHAMBERS, S K RATHOD
MARG, MAHALAXMI, MUMBAI-400034
ADDITIONAL BENCH, 2ND FLOOR
MAHALAXMI CHAMBERS, S K RATHOD
MARG, MAHALAXMI, MUMBAI-400034
2) M/s CHIRAG CONSTRUCTION RMC
GULMOHAR APARTMENT, FACTORY LANE
BORIVALI, MUMBAI-400092
GULMOHAR APARTMENT, FACTORY LANE
BORIVALI, MUMBAI-400092
Mohit S Shah, CJ and M S Sanklecha, J
Dated: August 30, 2013
Appellants Rep by: Mr A R Malhotra with Mr N A Kazi
Respondents Rep by: Mr R A Dada, Sr. Adv. with Mr Sashi Tulsiyani and P C Tripathi, for Respondent No.2.
Respondents Rep by: Mr R A Dada, Sr. Adv. with Mr Sashi Tulsiyani and P C Tripathi, for Respondent No.2.
Income Tax Act, 1961 - Sections 119, 143(1), 143(2), 143(3), 153, 245A(b), 245C & 245D(2C), Circular No.3 of 2008 - due date - settlement commission.
Whether for the years for which returns have been processed under Section 143(1) but no time was left for issue of notices under Section 143(2), the proceedings for the assessment Years are pending or not - Whether even if the notice of intimation for the relevant year is in appeal before an Appellate Authority, it would still be open to an assessee to file an application before the Settlement Commission so long as no order of assessment under Section 143(3) has been passed within the period of time provided under Section 153 - Whether Circulars issued by the CBDT which are beneficial to the assessee must be applied - Whether the entire purpose and objective of Chapter IXA providing for settlement is to give an opportunity to a tax defaulter to surrender and pay up the taxes in consideration of immunity from prosecution and penalty (either wholly or in part) and thus a beneficial interpretation should be given to the word 'case' in Section 245A(b).
The assessee had filed his return of income before the statutory due date but no notice under Section 143(2) was issued to him as a consequence of which it was not possible to complete the assessment under Section 143(3) before the expiry of the time to complete assessment under Section 153. Subsequently, the assessee filed an application for settlement with the settlement commission and thereby the settlement commission passed an order under section 245D(2B).
In appeal, the Revenue submitted a Writ petition to quash the order passed by the settlement commission as the as the jurisdictional requirement as provided in Section 245C read with Section 245A(b), being that no assessment proceedings were pending before the AO when the application for settlement was filed, was not satisfied.
The assessee submitted supporting decisions of the Apex Court as well as the CBDT Circular No.3 of 2008 dated 12 March 2008.
After having heard the parties, the High Court held that,
++ as we are concerned with AY 2010-11 where the fact situation is identical to AY 2010-11 in the matter before the Gujarat High Court in the matter of Amrish Shukla. However, the revenue did not challenge the order of the Settlement Commission, admitting the application for the Assessment Year 2010-11 before the Gujarat High Court. Therefore, the decision rendered by the Special Bench of the Settlement Commission in the matter of Rescuwear Corporation nor the CBDT circular No.3/2008 dated 12 March 2008 has not been declared bad by the Gujarat High Court so far as fact situation in the present proceedings are concerned. The context in which the Gujarat High Court rendered its decision in the matter of Amrish Shukla was completely different and distinct from the issue arising in this case;
++ in the case before us, the period to complete the Assessment under Section 153 had not yet expired, the period to issue notice under Section 143(2) had expired just as in the case of Settlement Commission before Gujarat High Court in the matter of Amrish Shukla, for the AY 2010-11. The revenue before the Gujarat High Court in the matter of Amrish Shukla had not challenged the admission for AY 2010-11 in view of the binding Circular No.3/2008 dated 12 March 2008 issued by the CBDT. In the circular, the CBDT has categorically mentioned that it is not material whether time limit for issue of notice under Section 143(2) has expired or not and also that the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant;
++ where time limit to issue notice under Section 143(2) has expired, then in such a case, it cannot be stated that assessment is pending before the AO. This is particularly so as under Section 246A, an appeal can be filed by the Assessee to the CIT(A) from an intimation received under Section 143(1). Therefore, even if the notice of intimation for the relevant year is in appeal before an Appellate Authority, it would still be open to an assessee to file an application before the Settlement Commission so long as no order of assessment under Section 143(3) has been passed within the period of time provided under Section 153;
++ however, as the Circulars issued by the CBDT are binding upon the authorities under the Act, we see no reason to interfere with the order of Settlement Commission as the Apex Court has taken a view in respect of Income Tax matters in Catholic Syrian Bank Ltd. v/s. CIT that Circulars issued by the CBDT which are beneficial to the assessee must be applied and further it held that Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the Income Tax Authorities, though they cannot be enforced adversely against the assessee. Normally, these Circulars cannot be ignored. A Circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act;
++ we would like to deal with the decision of the Apex Court in the matter of Commissioner of Central Excise v/s. Ratan Melting & Wire Industries in which it held that a circular which is contrary to the statutory provisions has really no existence in law. This reiterates the view taken by the Apex Court in an Income Tax case in Hindustan Aeronautics Ltd. v/s. C.I.T. The above decisions are not applicable to the facts of the present case in as much as our attention has not been invited to any decision of the Apex Court or of any High Court which has taken a view contrary to the view expressed by the CBDT in a Circular dated 12 March 2008. Thus, there being no ruling of the Apex Court or any High Court taking a view contrary to the CBDT Circular dated 12 March 2008, the circular has a binding force upon the revenue and they cannot contend to the contrary. Thus, the decision of the Apex Court in the matter of Ratan Melting & Wire Industries would have no application to the present case;
++ the revenue has not till date withdrawn the circular to the extent it clarifies that it is immaterial for the purpose of filing an application before the Settlement Commission whether the time limit for issuing of notice under Section 143(2) has expired or not;
++ we must also not lose sight of the fact that the entire purpose and objective of Chapter IXA providing for settlement is to give an opportunity to a tax defaulter to surrender and pay up the taxes inconsideration of immunity from prosecution and penalty (either wholly or in part). Thus, a beneficial interpretation to the word 'case' in Section 245A(b) given by the Circular dated 12 March 2008 issued by the CBDT is understandable so as to mitigate/lessen the rigour of the definition of the word 'case'.
Revenue's appeal dismissed
Cases Followed-
Commissioner of Income Tax v/s. Income Tax Settlement Commission and Amrish Shukla (Special Civil Application No.859 of 2012) dated 15 September 2012
K. P. Varghese v/s. Income Tax Officer, Ernakulam and Another (2002-TIOL-128-SC-IT)
Catholic Syrian Bank Ltd. v/s. CIT (2012-TIOL-16-SC-IT)
Cases Distinguished-
Rescuwear Corporation (supra)
Income Tax case in Hindustan Aeronautics Ltd. v/s. C.I.T. (2002-TIOL-154-SC-IT)
Commissioner of Central Excise v/s. Ratan Melting & Wire Industries (2008-TIOL-194-SC-CX-CB)
JUDGEMENT
Per: M S Sanklecha:
By this Petition under Article 226 of the Constitution of India, the revenue challenges the order dated 31 December 2012 passed by respondent No.1 Settlement Commission under Section 245D(2C) of the Income Tax Act, 1961 (in short "the Act") rejecting the petitioner's prayer to declare the Settlement Application filed by respondent No.2 applicant on 14 November 2012 for Assessment Year 2010-11 as invalid.
2. Brief facts relevant to this petition are as under:
(a) For Assessment Year 2010-11, the respondent No.2 applicant filed its return of Income with the revenue on 26 September 2010.(b) The time/period to issue a notice under Section 143(2) of the Act for Assessment Year 2010 11 expired on 30 September 2011. Admittedly, no notice under Section 143(2) of the Act has been issued till 30 September 2011 or even thereafter. Therefore, it was not possible to complete the assessment under Section 143(3) of the Act before the expiry of the time to complete assessment under Section 153 of the Act which expired on 31 May 2013.(c) On 14 November 2012, the respondent No.2 applicant filed an application for Settlement with respondent No.1– Settlement Commission. By the above application, respondent No.2 applicant sought to settle its dispute for Assessment Years 2010-11, 2011-12 and 2012-13 with the revenue.(d) On 19 November 2012, the respondent No.1 Settlement Commission passed an order under Section 245D( 1) of the said Act, allowing the settlement application to be proceeded with for all the three Assessment Years i.e. 2010-11, 2011-12 and 2012-13.(e) Thereafter, on 24 December 2012, the Commissioner of Income Tax forwarded his report in terms of Section 245D( 2B) of the Act.The Commissioner of the Income Tax in his report challenges the jurisdiction of the respondent No.1 Settlement Commission to settle the application of respondent No.2 applicant for the Assessment Years 2010-11 and 2012-13. This was on the ground that on the date of the application, there was no pending assessment before the Assessing Officer. It was pointed out that so far as Assessment Year 2010-11 was concerned, the time to issue notice/initiate proceedings under Section 143(2) of the Act had expired, consequently assessment under Section 143(3) of the Act was not possible. So far as Assessment Year 2012-13 is concerned, it was submitted that no proceedings are pending with the Income Tax Department on the date the application was filed with respondent No.1 Settlement Commission.(f) On 31 December 2012, the respondent No.1 Settlement Commission by an order passed under Section 245D( 2C) of the Act found no merits in the objections raised by the Commissioner of Income Tax. Consequently, the settlement application filed by respondent No.2 applicant for Assessment Years 2010-11, 2011-12 and 2012-13 was directed to be proceeded with by the respondent No.1 Settlement Commission.
3. The revenue by this Petition assails the impugned order dated 31 December 2012 of respondent No.1 Settlement Commission only in so far as it admits the settlement application of respondent No.2 applicant for Assessment Year 2010-11.
4. Mr. A. R. Malhotra, learned Counsel appearing for revenue in support of the Petition assails the impugned order dated 31 December 2012 as under:
(a) The Settlement Commission could not have entertained the application filed on 14 November 2012 for settlement in respect of Assessment Year 2010-11 as the jurisdictional requirement as provided in Section 245C of the Act read with Section 245A(b) of the Act was not satisfied. This was for the reason that no Assessment proceedings were pending for Assessment Year 2010-11 as on 14 November 2012, when the application for settlement was filed;(b) The condition precedent for the purpose of entertaining the application for settlement as provided under Section 245C of the Act is that an application can only be made at any stage of a case as defined under Section 245A (b) of the Act. As no assessment was pending before the Assessing Officer for the Assessment Year 2010-11 there was no case in respect of which an application under Section 245C of the Act, could be entertained; and(c) For the Assessment Year 2010-11, the respondent No.2 had filed its return of income on 26 September 2010. The period during which the notice under Section 143(2) of the Act could be issued, expired on 30 September 2011, while the application for settlement was made on 14 November 2012. Therefore, as no notice under Section 143(2) of the Act could be issued to respondent No.2 applicant, no occasion to complete the assessment under Section 143(3) of the Act could arise. Thus, on the date the application was made to the respondent No.1 Settlement Commission by respondent No.2 applicant, there was no assessment pending before the Assessing Officer to enable the application being entertained.
In view of the above, the respondent No.1 Settlement Commissioner had no jurisdiction to entertain the application for settlement in so far it relates to Assessment Year 2010-11.
5. Per Contra, Mr. R.A.Dada, learned Senior Counsel appearing for respondent No.2 applicant in support of the impugned order submits as under:
(a) Admittedly no assessment for the Assessment Year 2010-11 has been made till the filing of the application on 14 November 2012 with the respondent No.1 Settlement Commission. Therefore, the assessment continues to be pending in this case till the filing of the application by respondent No.2 applicant. In support he states that even a notice of intimation issued under Section 143(1) of the Act is not an assessment and notwithstanding the issue of notice of intimation, the assessment continuous to be pending. In support of the aforesaid, reliance was placed upon the decision of the Apex Court in the matter of Assistant Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) = (2007-TIOL-95-SC-IT);(b) Explanation (iv) of the proviso to Section 245A( b) of the said Act provides that for the purposes of Settlement proceedings under the Act, an assessment was deemed to have been commenced from the first day of the Assessment Year and concluded on the day on which the assessment is made. In this case, no assessment is admittedly made till the filing of the Settlement Application on 14 November 2012. Thus, the assessment continuous to be pending before the Assessing Officer; and(c) The above view is fortified by Circular No.3 of 2008 dated 12 March 2008 which specifically states that an intimation under Section 143(1) of the Act is not assessment order and that there is no bar in filing an application for settlement subsequent to the receipt of intimation under Section 143(1) of the said Act. Moreover, the circular provides that it is immaterial whether the time limit for issuing notice under Section 143(2) of the Act expired or not for the purpose of approaching the respondent No.1 Settlement Commission, for settlement.
In view of the above circular, it is submitted that it is not open to the revenue to object to the jurisdiction exercised by the respondent No.1 Settlement Commission.
6. Before dealing with the rival submissions, it may be convenient to set out the relevant statutory provisions which falls for consideration.
Relevant statutory provisions
Section 143 (2) (ii) reads as under:
(2) Where a return has been furnished under Section 139 or in response to a notice under Section (1) of Section 142, the Assessing Officer shall(i) ….................(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return;Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished."
Section 153 (i) reads as under:
"No order of assessment shall be made under Section 143 or section 144 at any time after the expiry of -(a) two years from the end of the assessment year in which the income was first assessable; or(b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April 1988, or any earlier assessment year, is filed under subsection (4) or subsection (5) of section 139,whichever is later:Provided that … … … …..........."
Section 245A reads as under:
In this Chapter, unless the context otherwise requires:"(a) …......(b) 'case' means any proceeding for assessment under this Act, of any person in respect of any assessment year or assessment year's which may be pending before an Assessing Officer on the date on which an application under subsection (1) of section 245C is made:Provided that-(i) a proceeding for assessment or reassessment or recomputation under section 147;(ii) [***](iii) [***](iv) [***]Explanation.-For the purposes of this clause-(i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice under section 148 is issued;(ii) [***](iii)[***](iiia)[***](iv) a proceeding for assessment for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or [clause (iv) of the proviso or clause (iiia) of the Explanation], shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made."
Section 119 (1) reads as under:
"The Board may, from time to time, issue such orders, instructions and directions to other income tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board;Provided that no such orders, instructions or directions shall be issued(a) so as to require any incometax authority to make a particular assessment or to dispose of a particular case in a particular manner; or(b) so as to interfere with the discretion of the [***] [Commissioner (Appeals)] in the exercise of his appellate functions."
Relevant portion of CBDT Circular dated 12 March 2008
"61.2 Under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any incometax authorities. After 31 May 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation under Section 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation under Section 143(1). It is not material whether time limit for issue of notice under Section 143(2) has expired or not; (b) the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant."
7. We have considered the rival submissions. The undisputed facts are that when application for Settlement was filed on 14 November 2012, the time to issue notice under Section 143(2) of the Act to complete the assessment under Section 143(3) of the Act for Assessment Year 2010-11 had expired. In view of the above, it is the revenue's case that on the date of the application for settlement filed by respondent No.2 applicant on 14 November 2012, there was no assessment pending before an Assessing Officer which would entitle respondent No.1 Settlement Commission to exercise jurisdiction over the application for Settlement. The grievance of the revenue petitioner is that in spite of the above, the respondent No.1 Settlement Commission has allowed the settlement application to be proceeded with before it by the impugned order dated 31 December 2012. The respondent No.1 Settlement Commission allowed the application for settlement of respondent No.2 applicant, inter alia, for Assessment Year 2010-11 on the basis of its Special Bench decision dated 13 June 2008 in the matter of Rescuwear Corporation. In the matter of Rescuwear Corporation (supra), the Settlement Commission, inter alia, posed the following question as question (ii) for itself:
For the years for which returns have been processed under Section 143(1) of the Act but now no time is left for issue of notices under Section 143(2) of the Act, whether proceedings for the Assessment Years are pending or not?
The Settlement Commission answered the above question in the affirmative. To reach the above conclusion, reliance was placed upon the Circular No.3/2008 dated 12 March 2008 issued by the Central Board of Direct Taxes (CBDT).
8. Mr. Malhotra, on behalf of the revenue submits that the reliance by the Settlement Commission on its Special Bench decision in the matter of Rescuwear Corporation (supra) was incorrect, as the same is no longer good law in view of the decision of the Gujarat High Court in the matter of Commissioner of Income Tax v/s. Income Tax Settlement Commission and Amrish Shukla (Special Civil Application No.859 of 2012) dated 15 September 2012, wherein the Gujarat High Court has considered the decision of Special Bench of the Settlement Commission in the matter of Rescuwear Corporation (supra) and according to him, not followed it. Before the Gujarat High Court in the matter of CIT v/s. Income Tax Settlement Commission and Amrish Shukla (supra), the Settlement Commission had entertained the application for settlement by the applicant therein for the Assessment Years 200506 to 2011-12. However, the revenue challenged the admission of application for settlement only in respect of Assessment Year 200506 to 200809. In all the years of challenge i.e. Assessment Years 200506 to 200809, the return of income was processed under Section 143(1) of the Act and not only the time to issue notice under Section 143(2) of the Act had expired but even the period to complete the assessment proceedings under Section 153 of the Act had expired. So far as Assessment Year 200910 was concerned, the scrutiny assessment were pending. So far as Assessment Year 2010-11 was concerned, the return of income was processed under Section 143(1) of the Act and the time to issue notice under Section 143(2) of the Act had expired, though there was still time to complete the assessment under Section 153 of the Act. So far as Assessment Year 2011-12 was concerned, the Assessment was admittedly pending before the Assessing Officer. The revenue challenged the order of the Settlement Commission before the Gujarat High Court only to the extent it was admitted by the Settlement Commission for the Assessment Years 200506 to 200809. The revenue did not challenge the order of the Settlement Commission, admitting the application for settlement in respect of the Assessment Year 2010-11. The Gujarat High Court held that the application for settlement for the Assessment Years 200506 to 200809 were not maintainable as not only the period to issue a notice under Section 143(2) of the Act expired but also the period during which the assessment could be completed under Section 153 of the said Act had expired. It would, therefore, be noticed that before the Gujarat High Court, the issue for consideration was not a situation identical to the issue before us or before the Settlement Commission as in this case. We are concerned with Assessment Year 2010-11 where the fact situation is identical to Assessment Year 2010-11 in the matter before the Gujarat High Court in the matter of Amrish Shukla (supra). However, the revenue did not challenge the order of the Settlement Commission, admitting the application for the Assessment Year 2010-11 before the Gujarat High Court. Therefore, the decision rendered by the Special Bench of the Settlement Commission in the matter of Rescuwear Corporation (supra) nor the CBDT circular No.3/2008 dated 12 March 2008 has not been declared bad by the Gujarat High Court so far as fact situation in the present proceedings are concerned. The context in which the Gujarat High Court rendered its decision in the matter of Amrish Shukla (supra) was completely different and distinct from the issue arising in this case.
9. In the case before us, the period to complete the Assessment under Section 153 of the said Act has not yet expired, the period to issue notice under Section 143(2) of the Act had expired just as in the case of Settlement Commission before Gujarat High Court in the matter of Amrish Shukla (supra), for the Assessment year 2010-11. The revenue before the Gujarat High Court in the matter of Amrish Shukla (supra) had not challenged the admission for Assessment Year 2010-11, according to Mr. Dada, in view of the binding Circular No.3/2008 dated 12 March 2008 issued by the CBDT, and particularly paragraph 16.2 thereof which had been reproduced hereinabove. In the circular, the CBDT has categorically mentioned in paragraph 61.2 thereof as under:
" "61.2 Under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any incometax authorities. After 31 May 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation under Section 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation under Section 143(1). It is not material whether time limit for issue of notice under Section 143(2) has expired or not; (b) the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant."
It is the case of respondent No.2 applicant that the Special Bench of the Settlement Commission in the matter of Rescuwear Corporation (supra) had in fact, relied upon the aforesaid circular to conclude that an assessment will continue to be pending before the Assessing Officer even where the time to issue notice under Section 143(2) of the Act had expired.
10. Mr. Dada, learned Counsel appearing for respondent No.2 strongly relied upon Section 119 of the Act in support of his submission that is not open to the revenue to challenge the orders of the Settlement Commission particularly when the same is in accordance with CBDT circular dated 12 March 2008. In fact, he points out that even after the order of the Full Bench of the Settlement Commission in the matter of Rescuwear Corporation (supra), on 13 June 2008, the revenue has not chosen to withdraw the circular dated 12 March 2008. Therefore, it must follow that the CBDT circular dated 12 March 2008 being a Circular beneficial to the assessee must prevail and it is not open to the revenue to file a Petition contrary to the binding Circular dated 12 March 2008. In support of his submission, that circular issued by the CBDT are binding upon the revenue, Mr. Dada relied upon the decision of the Apex Court in the matter of K. P. Varghese v/s. Income Tax Officer, Ernakulam and Another 131 ITR page 597 = (2002-TIOL-128-SC-IT), wherein the Court has held that the instructions issued in the Circular issued by the CBDT was binding upon the department. The Court observed as under:
"The two circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of subSection 2 and they depart or deviate from such instruction. It is not well settled as a result of two decisions of this Court, one in Navnit Lal C. J haveri v/s. K. K. Sen AAC (1965) 56 ITR = (2002-TIOL-153-SC-IT) and the other in Ellerman Lines Ltd. v/s. CIT(1971) 82 ITR 913 that circulars issued by the CBDT under Section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act."
Reliance was also placed upon the decision of the Supreme Court in the matter of Commissioner of Wealth Tax v/s. Vasudeo V. Dempo 196 ITR page 216 and the decision of our Court in the matter of Unit Trust of India and another v/s. P. K. Unny and Others, 249 ITR page 612, wherein it has been held that the circulars issued by the CBDT are binding on the department. Moreover, it was held that the revenue is estopped from raising any arguments contrary to the interpretation placed upon the statutory provisions by the CBDT. We may profitably reproduce the observations of our Court in the matter of UTI (supra) which reads as under:
"…..... It is well settled by a catena of decisions that benevolent circulars are binding on the Department, even if they are based on deviations. It is equally well settled that interpretations given by the CBDT in favour of the assessee are binding on the Department. That, the Department is estopped from raising any argument contrary to the interpretation placed by the CBDT. In the circumstances, we hold that the Department is estopped from now raising an argument contrary to the circular dated October 11, 1991."
11. In view of the above, though there may be some merit in the contention raised on behalf of the revenue viz. that where time limit to issue notice under Section 143(2) of the said Act has expired, then in such a case, it cannot be stated that assessment is pending before the Assessing Officer. This is particularly so as under Section 246A of the said Act, an appeal can be filed by the Assessee to the Commissioner of Income Tax (A) from an intimation received under Section 143(1) of the Act. Therefore, even if the notice of intimation for the relevant year is in appeal before an Appellate Authority, it would still be open to an assessee to file an application before the Settlement Commission so long as no order of assessment under Section 143(3) of the said Act has been passed within the period of time provided under Section 153 of the Act. However, as the Circulars issued by the CBDT are binding upon the authorities under the Act, we see no reason to interfere with the order of Settlement Commission as the Apex Court has taken a view in respect of Income Tax matters in Catholic Syrian Bank Ltd. v/s. CIT 2012(3)SCC 784 = (2012-TIOL-16-SC-IT) that Circulars issued by the CBDT which are beneficial to the assessee must be applied and observed as under:
"Effect of Circulars23. Now, we shall proceed to examine the effect of the Circulars which are in force and are issued by the Central Board of Direct Taxes (for short "the Board") in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the Income Tax Authorities, though they cannot be enforced adversely against the assessee. Normally, these Circulars cannot be ignored.24. A Circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act."
Thus, we find merit in the submission of Mr. Dada that though respondent No.1 Settlement Commission may not be specified as Income Tax Authority under Section 116 of the Act, yet the petitioner cannot urge a view contrary to the Circular for the purpose of challenging the impugned order dated 31 December 2012.
12. Before parting, we would like to deal with the decision of the Apex Court in the matter of Commissioner of Central Excise v/s. Ratan Melting & Wire Industries 231 ELT page 22 = (2008-TIOL-194-SC-CX-CB). In the aforesaid decision, the Constitutional Bench of the Apex Court was considering the binding nature of a circular issued under the Central Excise Act, 1944 which were contrary to decisions rendered by the Supreme Court. The Apex Court in the above case held that :
"Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the Court. It is for the Court to declare what the particular provision of stature says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law."
The aforesaid observations of the Constitutional Bench of the Apex Court in a Central Excise case reiterates the view taken by the Apex Court in an Income Tax case in Hindustan Aeronautics Ltd. v/s. C.I.T. 243 ITR 808 = (2002-TIOL-154-SC-IT). The above decisions are not applicable to the facts of the present case inasmuch as our attention has not been invited to any decision of the Apex Court or of any High Court which has taken a view contrary to the view expressed by the CBDT in a Circular dated 12 March 2008. Thus, there being no ruling of the Apex Court or any High Court taking a view contrary to the CBDT Circular dated 12 March 2008, the circular has a binding force upon the revenue and they cannot contend to the contrary. Thus, the decision of the Apex Court in the matter of Ratan Melting & Wire Industries (supra) would have no application to the present case.
13. Moreover before us no submission was even urged by the revenue that the Circular issued by CBDT dated 12 March 2008 is not correct or not binding upon the revenue. The Special Bench of the Tribunal in the matter of Rescuwear Corporation (supra) has also relied upon the circular dated 12 March 2008 as far back as on 13 June 2008 and parties have acted on the basis of the decision declared by the Special Bench, following the circular dated 12 March 2008. The revenue has not till date withdrawn the circular to the extent it clarifies that it is immaterial for the purpose of filing an application before the Settlement Commission whether the time limit for issuing of notice under Section 143(2) of the Act has expired or not.
14. We must also not lose sight of the fact that the entire purpose and objective of Chapter IXA of the Act providing for settlement is to give an opportunity to a tax defaulter to surrender and pay up the taxes inconsideration of immunity from prosecution and penalty (either wholly or in part). Thus, a beneficial interpretation to the word 'case' in Section 245A(b) of the Act given by the Circular dated 12 March 2008 issued by the CBDT is understandable so as to mitigate/lessen the rigour of the definition of the word 'case'.
15. In view of the above, Writ Petition is dismissed, with no order as to costs.ST on 'TOLL' - Department restrained from Recovery by Delhi HC
TIOL-DDT 219624.09.2013
Tuesday
CBEC had clarified in Circular No. 152/3 /2012-ST, dated: February 22, 2012:
1. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). 'Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV are collection on own account and not on behalf of the person who has made the land available for construction of the road.2. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service3. An SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax.
Levy of service tax on collection of toll demanded by the service tax department has been challenged in the Delhi High Court. The Petitioner also challenged the above mentioned Circular No. 152/3/2012-ST for justifying levy of service tax on toll despite admitting that the 'Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India.
The petitioner submitted that 'Toll' is a matter enumerated at Sr. No.59 of list II (State List) and service tax cannot be imposed on 'Toll'; that they are collecting 'Toll' from the public/users of the roads under the agreement with National Highway Authority of India. Under the agreement, they cannot collect, levy or charge any amount other than the sum specified in the agreement.
The petitioner drew the attention of the Court to paragraph 2 of the circular dated 22nd February, 2012 wherein it is mentioned and accepted that 'Toll' falls in the State List and the same is not covered by taxable services under the Finance Act. However, as per the circular, the respondents claim that the excess amount retained by the toll collector is commission and, therefore, service tax liability arises on the said amount. The contention of the petitioner is that toll is an indirect tax and has to be collected from the customer or consumer, in present case, the toll users. The amount collected retains its character as toll paid by the user. The profit earned, if any, cannot be treated as commission or compensation, but it is income earned after meeting expenses. The toll collector is not rendering service to oneself. There is no service element in the excess amount, which is retained. He further submits that profits may not accrue and in some cases there may be loss also.
The Court last week ordered 'issue of notice returnable on 12th November, 2013'. The Court ordered that, "Assessment proceedings can continue but the respondents will separately quantify the amount which they claim is due and payable as service tax on toll charges which were retained by the petitioner after payment to the National Highway Authority of India. The said amount in terms of the assessment will not be collected by the respondents by taking coercive steps."
Please see 2013-TIOL-722-HC-DEL-ST
Service Tax
Laying of optical fibre cables for BSNL and other telecom service providers - Not taxable - Prima facie case made out - Pre-deposit waived: CESTAT
THE appellant has claimed that this activity does not amount to rendering of any service. CBEC Circular dated 24/5/2010 clarifies the issue which is in favour of the assessee. On considering the circular, this Tribunal in the case of Nicco Corporation Ltd . and in the case of Sanjeev Kumar Jain have taken a view which is in favour of the assessee. The appellant has made out a strong prima facie case for waiver of the predeposit of the amount involved. Application for waiver of predeposit of the amount involved is allowed and recovery thereof stayed till the disposal of the appeal.
ST/ECJ : If a broker has been appointed by, and is acting on behalf of, Indian buyer, such services can be said to be provided to Indian buyer in India and are, therefore, liable to service tax
■■■
[2013] 34 taxmann.com 141 (ECJ)
EUROPEAN COURT OF JUSTICE
Staatssecretaris van Financiën
v.
D. Lipjes*
P. JANN (RAPPORTEUR), PRESIDENT OF THE CHAMBER
A. ROSAS, A. LA PERGOLA,
R. SILVA DE LAPUERTA AND K. LENAERTS, JJ.
A. ROSAS, A. LA PERGOLA,
R. SILVA DE LAPUERTA AND K. LENAERTS, JJ.
CASE C - 68/03
MAY 27, 2004
Section 66C of the Finance Act, 1994, read with rule 9(c), rule 3 and rule 2(f) of the Place of Provision of Services Rules, 2012 - Place of provision of services - Intermediary Services - Assessee, in India, was engaged in brokerage involving sale and purchase of yachts, where buyer was in India and seller was located abroad - Assessee argued that it was not liable to any tax in India - Department argued that service tax was leviable in India - HELD : Intermediary services relating to sale or purchase of goods are not covered by rule 2(f), read with rule 9(c) of Place of Provision of Services Rules, 2012 - Place of provision of such services is governed by rule 3 of Place of Provision of Services Rules, 2012 i.e., location of recipient of brokerage services - Since assessee had been appointed by, and was acting on behalf of, Indian buyer, services were provided to Indian buyer and, therefore, such services were provided in India (taxable territory) - Accordingly, such services were taxable in India (taxable territory) [Paras 16 to 26] [In favour of revenue]
FACTS
Facts
| ■ | Mr Lipjes, who resides in the Netherlands, is a trader involved in the purchase and sale of used leisure watercraft and as a broker in the sale and purchase of yachts. | |
| ■ | He was twice involved in the purchase of yachts located in France, in both cases apparently on behalf of an individual purchaser residing in the Netherlands, whereas the vendor was an individual residing in France. | |
| ■ | Mr Lipjes did not declare the VAT pertaining to those two intermediary operations in either the Netherlands or France. | |
| ■ | The Department of Netherlands charged VAT retroactively on those supplies of services. |
Assessee's arguments
| ■ | Since the yachts were in France and since the intermediary services had been supplied there as well, it was appropriate to apply not the general provision but the exception applying to intra-Community transactions, with the result that the Kingdom of the Netherlands is not entitled to make the transactions subject to VAT. |
Netherland's arguments
| ■ | Article 28b(E)(3) of the Sixth Directive and the corresponding national provision must be interpreted narrowly to the effect that the term 'transactions' includes intermediary services only when the underlying contract, that is, the contract for the supply of a product or service, was concluded by professionals subject to VAT, which is not the case in the main proceedings, which involves individuals. |
Statutory Provisions, Sixth Council Directive 77/388/EEC of 17 May, 1977
| ■ | Article 9(1) : The place where a service is supplied as in principle the place where the supplier has established his business. | |
| ■ | Article 28b(E)(3) : 'By way of derogation from Article 9(1), the place of the supply of services rendered by intermediaries acting in the name and for the account of other persons, when such services form part of transactions other than those referred to in paragraph 1 or 2 or in Article 9(2)(e), shall be the place where those transactions are carried out. However, where the customer is identified for purposes of value added tax in a Member State other than that within the Territory of which those transactions are carried out, the place of supply of the services rendered by the intermediary shall be deemed to be within the Territory of the Member State which issued the customer with the value added tax identification number under which the service was rendered to him by the intermediary.' |
Issue Involved
| ■ | Whether the assessee was liable to VAT in Netherlands ? |
HELD
Scope of Article 28b(E)(3) - All kinds of intra-community intermediary services covered :
| ■ | As regards the relationship between Article 9(1) and Article 28b(E) of the Sixth Directive, Article 28b(E) provides, with respect to intra-Community trade, for an exception to the general rule in Article 9(1). Article 9(1) in no way takes precedence, therefore, and the question must be asked in each case which of those two provisions applies. [Para 16] | |
| ■ | Since the present case concerns intra-Community trade, Article 28b(E)(3) of the Sixth Directive is, in principle, applicable. It is therefore necessary to consider whether that applicability may be affected by the fact that the object of the intermediary service was a non-taxable transaction. [Para 17] | |
| ■ | It follows from the wording of the first paragraph of Article 28b(E)(3) of the Sixth Directive that it covers generally supplies of services rendered by intermediaries 'acting in the name and for the account of other persons', without distinguishing according to whether or not the recipients of the services are subject to VAT. [Para 18] | |
| ■ | Likewise, none of the provisions of Title XVIa of the Sixth Directive, under which Article 28b falls, indicates that they do not cover any supplies to individuals not subject to VAT. In addition, the term 'trade between Member States' used in the wording of that title covers supplies to both taxable and non-taxable persons. The fact that various provisions of that title, like Article 28a, refer to the taxable nature of some transactions has no bearing on the scope of Article 28b, the sole object of which is to determine the place of those transactions. [Para 19] | |
| ■ | For the purposes of determining the place of an intermediary's activities, it does not matter whether the principal transaction is subject to VAT or whether the transaction is non-taxable. [Para 21] | |
| ■ | Accordingly, Article 28b(E)(3) of the Sixth Directive is not to be interpreted as meaning that it covers only the services of intermediaries provided to a taxable person or to a non-taxable legal person for the purposes of VAT. [Para 23] |
Place of provision was to be determined as per Article 28 :
| ■ | It follows from the wording of the Sixth Directive that the place of an intra-Community acquisition of goods is governed by Article 28b(A) and (B) of the directive, which derogates from the general provisions of Article 8 regulating the supply of goods within a Member State. A different assessment is not called for in the circumstances of the main case. [Para 25] | |
| ■ | Accordingly, when an intermediary transaction falls within the scope of Article 28b(E)(3) of the Sixth Directive, it is necessary, for the purposes of determining the place where the transaction underlying the supply of intermediary services was carried out, to refer to the provisions of Article 28b(A) and (B) of that directive. [Para 26] |
CASES REFERRED TO
Jurgen Dudda v. Finanzagericht Bergisch Gladbach [2012] 37 STT 162/26 taxmann.com 115 (ECJ) (para 16).
H.G. Sevenster for the Appellant.
JUDGMENT
1. By judgment of 14 February 2003, received at the Court on 17 February 2003, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the Court for a preliminary ruling under Article 234 EC two questions on the interpretation of Article 28b of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), in the version resulting from Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (OJ 1991 L 376, p. 1) (hereinafter 'the Sixth Directive').
2. The questions have been raised in proceedings between the Staatssecretaris van Financiën and Mr Lipjes concerning the charging of value added tax ('VAT') on supplies of intermediary services effected by Mr Lipjes in France.
Main proceedings, legal framework and questions referred for a preliminary ruling
3. Mr Lipjes, who resides in the Netherlands, is a trader involved in the purchase and sale of used leisure watercraft and as a broker in the sale and purchase of yachts. In 1996 and 1997, he was twice involved in the purchase of yachts located in France, in both cases apparently on behalf of an individual purchaser residing in the Netherlands, whereas the vendor was an individual residing in France. Mr Lipjes did not declare the VAT pertaining to those two intermediary operations in either the Netherlands or France.
4. Following an audit, the Netherlands tax authorities charged VAT retroactively on those supplies of services. The Gerechtshof te 's-Gravenhage (Regional Court of Appeal, The Hague) (Netherlands), before which the case was brought, found that, in the light of the place where the yachts were situated at the time of the sale, the intermediary services had not been supplied in the Netherlands and that Mr Lipjes was therefore entitled not to declare the VAT there.
5. That court relied on Article 6a(3)(c) of the Wet op de omzetbelasting 1968 (1968 Law on turnover tax) of 28 June 1968 (Staatsblad 1968, 329), as amended by the Law of 24 December 1992 (Staatsblad 1992, 713). That provision corresponds to the first paragraph of Article 28b(E)(3) of the Sixth Directive, which provides with respect to intra-Community transactions:
'By way of derogation from Article 9(1), the place of the supply of services rendered by intermediaries acting in the name and for the account of other persons, when such services form part of transactions other than those referred to in paragraph 1 or 2 or in Article 9(2)(e), shall be the place where those transactions are carried out.
However, where the customer is identified for purposes of value added tax in a Member State other than that within the territory of which those transactions are carried out, the place of supply of the services rendered by the intermediary shall be deemed to be within the territory of the Member State which issued the customer with the value added tax identification number under which the service was rendered to him by the intermediary.'
6. Article 9(1) of the Sixth Directive, from which that provision makes an exception, establishes the place where a service is supplied as in principle the place where the supplier has established his business.
7. The Gerechtshof found that, since the yachts were in France and since the intermediary services had been supplied there as well, it was appropriate to apply not the general provision but the exception applying to intra-Community transactions, with the result that the Kingdom of the Netherlands is not entitled to make the transactions subject to VAT.
8. The Staatssecretaris van Financiën appealed against that judgment to the Hoge Raad der Nederlanden. It argues that Article 28b(E)(3) of the Sixth Directive and the corresponding national provision must be interpreted narrowly to the effect that the term 'transactions' includes intermediary services only when the underlying contract, that is, the contract for the supply of a product or service, was concluded by professionals subject to VAT, which is not the case in the main proceedings, which involves individuals.
9. The Hoge Raad der Nederlanden, taking the view that the case raised questions to which the case-law of the Court currently does not offer sufficient answers, decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:
| '1. | Must Article 28b(E)(3) of the Sixth Directive be construed as meaning that that provision refers only to services by intermediaries where the recipient of the service is a taxable person within the meaning of the directive or a non-taxable legal person within the meaning of Article 28a of the Directive? | |
| 2. | If not, must the first sentence of Article 28b(E)(3) of the Sixth Directive then be construed as meaning that where an intermediary acts in the purchase and sale of a tangible object between two individuals, for the purposes of determining the place where the intermediary acts, regard must be had to the place where the transaction is carried out, as if the transaction were a supply or service by a taxable person as referred to in Article 8 of the Sixth Directive?' |
The questions referred for a preliminary ruling
First question
10. According to the Netherlands Government, partly supported by the Portuguese Government, Article 28b(E)(3) of the Sixth Directive must be interpreted narrowly, excluding the services of intermediaries when the underlying contract was concluded between individuals and was thus not a taxable transaction. That provision provides that the place where the intermediary supplied the service must, in principle, be linked to the place of the principal supply, which would make sense only if the principal supply comes within the scope of application of the Sixth Directive, that is, if it was effected by a taxable person. Since that was not so in the present case, the general rule in Article 9(1) of the Sixth Directive, the import of which is to take as a reference Mr Lipjes' place of business, which was in the Netherlands, applies.
11. All of Title XVIa of the Sixth Directive, under which Article 28b falls, covers intra-Community supplies and acquisitions as well as movement, which are all transactions performed by taxable persons or non-taxable legal persons. Thus Article 28b of the directive refers systematically to supplies by taxable persons or non-taxable legal persons. As a matter of coherence then, Article 28b should be interpreted in the same manner.
12. This approach is supported by the second subparagraph of Article 28b(E)(3), which refers to customers who are identified for VAT purposes by means of an identification number. This could also be true only for taxable persons or non-taxable legal persons.
13. Furthermore, the purpose of the provision in question is to avoid customer companies from exercising their right to a deduction in a Member State other than the one where they are subject to VAT. A rule such as this is not necessary for individuals who receive services and who are not entitled to a deduction. The approach adopted also best reflects economic realities and sound tax policy.
14. According to the Commission, it is not appropriate to restrict the scope of application of Article 28b(E)(3) of the Sixth Directive by departing from its very clear wording, which provides expressly for an exception to the general provisions for the category of intermediary transactions, without distinguishing according to the parties to the contract forming the basis of the transaction. There is no reason to depart from that rule when the underlying contract is a non-taxable transaction. The system of intra-Community trade as a whole, as referred to in Title XVIa of the Sixth Directive, is not confined to trade between professionals.
15. The term 'transactions' is used in several places in the Sixth Directive to refer to both services between taxable persons and those supplied to individuals, such as in Article 4(3) and (5). A restrictive interpretation of Article 28b(E)(3) of the directive would lead to complex distinctions and would run counter to the principles of simplicity in the treatment of transactions and rational, homogenous taxation.
16. The Court notes, as a preliminary point, that as regards the relationship between Article 9(1) and Article 28b(E) of the Sixth Directive, Article 28b(E) provides, with respect to intra-Community trade, for an exception to the general rule in Article 9(1). Article 9(1) in no way takes precedence, therefore, and the question must be asked in each case which of those two provisions applies (see, regarding the similar relationship between Article 9(1) and Article 9(2) of the Sixth Directive, Jurgen Dudda v. Finanzagericht Bergisch Gladloach [2012] 37 STT 162/26 taxmann.com 115 (ECJ), paragraphs 20 and 21).
17. Since the present case concerns intra-Community trade, Article 28b(E)(3) of the Sixth Directive is, in principle, applicable. It is therefore necessary to consider whether that applicability may be affected by the fact that the object of the intermediary service was a non-taxable transaction.
18. On this point, the Court notes that it follows from the wording of the first paragraph of Article 28b(E)(3) of the Sixth Directive that it covers generally supplies of services rendered by intermediaries 'acting in the name and for the account of other persons', without distinguishing according to whether or not the recipients of the services are subject to VAT.
19. Likewise, none of the provisions of Title XVIa of the Sixth Directive, under which Article 28b falls, indicates that they do not cover any supplies to individuals not subject to VAT. In addition, as pointed out by the Commission, the term 'trade between Member States' used in the wording of that title covers supplies to both taxable and non-taxable persons. The fact that various provisions of that title, like Article 28a, refer to the taxable nature of some transactions has no bearing on the scope of Article 28b, the sole object of which is to determine the place of those transactions.
20. As regards the argument of the Netherlands Government that the second subparagraph of Article 28b(E)(3), which refers to customers identified for VAT purposes by an identification number in a Member State other than that within the territory of which those transactions were carried out, suffice it to note that that paragraph, which begins with the word 'however', refers to a very specific category of exceptions which has no bearing on the general rule laid down in the preceding paragraph.
21. As stated by the Advocate General in paragraphs 36 to 40 of his Opinion, for the purposes of determining the place of an intermediary's activities, it does not matter whether the principal transaction is subject to VAT or whether the transaction is non-taxable.
22. Lastly, as regards the Netherlands Government's argument that Article 28b(E)(3) of the Sixth Directive concerns primarily entitlement to VAT deduction which is of no interest to an individual, suffice it to note that nothing in the wording of that provision supports that proposition, since the provision refers only to the determination of the place of the intermediary's service and in no way to an entitlement to deduction for individuals who are recipients.
23. Accordingly, it is appropriate to answer the first question as follows: Article 28b(E)(3) of the Sixth Directive is not to be interpreted as meaning that it covers only the services of intermediaries provided to a taxable person or to a non-taxable legal person for the purposes of VAT.
Second question
24. By the second question, the national court asks whether, when an intermediary transaction falls within the scope of Article 28b(E)(3) of the Sixth Directive, it is necessary, for the purposes of determining the place where the underlying transaction was carried out, to refer to the general provisions of Article 8 of the Sixth Directive or to the specific provisions of Article 28b of that directive.
25. Suffice it to note that it follows from the wording of the Sixth Directive that the place of an intra-Community acquisition of goods is governed by Article 28b(A) and (B) of the directive, which derogates from the general provisions of Article 8 regulating the supply of goods within a Member State. A different assessment is not called for in the circumstances of the main case.
26. Accordingly, the second question is to be answered as follows: when an intermediary transaction falls within the scope of Article 28b(E)(3) of the Sixth Directive, it is necessary, for the purposes of determining the place where the transaction underlying the supply of intermediary services was carried out, to refer to the provisions of Article 28b(A) and (B) of that directive.
Costs
27. The costs incurred by the Netherlands and Portuguese Governments and the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main action, a step in the proceedings before the national court, the decision on costs is a matter for that court.
OPERATIVE PART
On those grounds, THE COURT (First Chamber), in answer to the questions referred to it by the Hoge Raad der Nederlanden by judgment of 14 February 2003, hereby rules:
| 1. | Article 28b(E)(3) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers, is not to be interpreted as meaning that it covers only the services of intermediaries provided to a taxable person or to a non-taxable legal person for the purposes of value added tax. | |
| 2. | When an intermediary transaction falls within the scope of Article 28b(E)(3) of Sixth Directive 77/388, as amended, it is necessary, for the purposes of determining the place where the transaction underlying the supply of intermediary services was carried out, to refer to the provisions of Article 28b(A) and (B) of that directive. |
IT: There was no infirmity in interim order directing to return cash seized to assessee on condition of depositing same in Court as and when required
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[2013] 37 taxmann.com 202 (Madras)
HIGH COURT OF MADRAS
Assistant Director of Income-tax (Investigation), Unit-I(4)
v.
A. Khader Mohideen*
C.S. KARNAN, J.
CRL. R.C. NO. 1584 OF 2004
JULY 29, 2013
Section 68 of the Income-tax Act, 1961, read with sections 397 and 401 of the Code of Criminal Procedure, 1973 - Cash credit [Cash] Cash was recovered from assessee by police - Seized cash was deposited in bank and Income-tax department was informed accordingly - Assessee submitted that cash was required in his business but department opposed said claim - Meanwhile, police dropped said case on ground that no further action required - Magistrate accepted said report and directed to pay 30 per cent of seized cash to department and to return balance to assessee subject to deposit of bond along with security on condition that cash would be deposited back as and when required - Whether there was no lapse in conclusion arrived at by Magistrate and interim order was maintainable - Held, yes [Para 11] [In favour of assessee]
FACTS
| ■ | Some cash was recovered from assessee by the police authorities. On direction of the Magistrate, seized cash was deposited with bank and Income-tax department was informed accordingly. | |
| ■ | The assessee submitted that cash was given by his sister and was kept by him for business purposes. However, the department opposed the said claim. | |
| ■ | Police completed investigation and further action dropped. Said report was accepted by Magistrate and he ordered that 30 per cent of seized cash would be paid to the department and the balance was to be returned to assessee on condition that he would deposit said sum in Court as and when required subject to executing a bond along with security. | |
| ■ | The department filed revision application on ground that order to return cash to assessee was contrary. |
HELD
| ■ | On considering the facts and circumstances of the case and arguments advanced by all sides and on perusing the impugned common order of the Magistrate, there was no lapse in the conclusions arrived at regarding the return of money in part to the accused on a stringent condition. This Court's further view is that the seized amount should not be kept idle as 'dead investment'. The amount seized from the assessee could be utilized until the veracity of the case has been determined. Hence, the interim order is maintainable. Therefore, the part amount had been released to the assessee on condition that he would execute a bond for a sum of Rs. 6 lakhs with one surety for like sum on condition that he would return the amount to the Court as and when required. Therefore, the Magistrate's order will not be prejudicial to the interest of the Income-tax Department. [Para 11] |
K. Rangasamy for the Petitioner. K. Ravi and M. Mohammed Riyaz for the Respondent.
ORDER
1. The short facts of the prosecution case are as follows:-
On 17.10.2003, when the accused was travelling on his motorcycle with a sum of Rs.8,07,050/- in cash, the Sub Inspector of Police, City Crime Branch intercepted him near Gandhi Irvin Bridge, Egmore and registered a case against him for offences under Sections 41(2) read with 102 Cr.P.C, on suspicion that the money was stolen property or it had been obtained through some other offence. The Sub Inspector of Police seized the said cash and produced the same before the Court and on his requisition, the said amount has been deposited in the Corporation Bank. Subsequently, the Sub Inspector of Police, who took up the investigation has filed a final report dated 19.01.2004 stating that the case was referred as "further action dropped" and the final report was accepted by the Court.
2. At this juncture, the petitioner/accused has filed Crl.M.P.No.167 of 2004, stating that the said amount was kept by him for business purpose and during investigation police detected nothing against him. During the course of inquiry, the learned Magistrate suo-moto ordered issuance of notice to the Income Tax Department to ascertain their views about the cash seized from the petitioner. The Income Tax Department has filed a counter and opposed the claim of the petitioner in Crl.M.P.No.167 of 2004 and also another petition in Crl.M.P.No.854 of 2004 for the return of the cash.
3. On considering the averments of both parties and on hearing the arguments of the learned counsels on either side, the learned Magistrate on considering that the counsel for the petitioner had agreed for retention of 30% of the seized amount to be paid to Income Tax, ordered that 30% of the seized amount is to be paid to the Income Tax Department subject to the outcome of the final assessment. The seized amount of Rs.8,07,050/- has been deposited in Corporation Bank, Egmore, by the learned Magistrate Court on 31.10.2003.
4. Therefore, the learned Magistrate partly allowed the claim in Crl.M.P.No.167 of 2004 and a sum of Rs.5,30,000/- was ordered to be returned to the petitioner on his executing a bond of Rs.6,00,000/- with one security for like sum on condition that he shall return the amount to the Court as and when required. The learned Magistrate further directed the petitioner to file an affidavit/undertaking that he shall redeposit the amount on the direction of the Court.
5. Likewise, the learned Magistrate partly allowed the claim in Crl.M.P.No.854 of 2004 filed by the Income Tax Department and ordered that a sum of Rs.2,92,373/- was to be returned to the Income Tax Department, which was the balance after deduction of Rs.5,30,000/- from the total amount.
6. Aggrieved by the said order, the Income Tax Department, has filed the above revision.
7. The highly competent senior Special Public Prosecutor argued that ordering to return only part of the seized amount is contrary to law and facts of the case. As per Section 132A of the Income Tax Act, 1961, the Income Tax Department is empowered to enquire into the unexplained cash seized from the first respondent and had assessed the same in accordance with the relevant provisions of the Income Tax Act, 1961. Further, the return of cash of Rs.5,30,000/- to the accused is illegal. Actually, the unexplained cash seized from the accused ought to have been returned to the Income Tax Department. The highly competent counsel has pointed out a question of law that the second respondent, viz., the Sub Inspector of Police, attached to the Central Crime Branch had conducted an investigation on the said offence and finally filed a report stating that the case was referred as "further action dropped". Subsequently, the learned Magistrate has no jurisdiction to pass any order on the said case, especially the return of cash to the accused. Actually, the Income Tax Authorities are vested with the powers of investigation regarding unexplained cash seized from the accused, as such, the Income Tax Department is entitled to receive the entire seized amount. The learned Magistrate has failed to understand the purpose for which Section 132 A of the Income Tax Act, 1961, is introduced in the Statute book which relates to the pre-assessment stage, but the reason given by the learned Magistrate that the Department is not entitled to seize the amount, seized by the Police as the Tax is yet to be determined, is contrary to Section 132A of the Income Tax Act. The accused stated that the alleged loan given by the sister-in-law of the assessee did not reflect in the return filed by the assessee and the brother of the assessee has no sufficient means to advance loan to the accused. Further, the accused, his brother and his wife have not maintained any books of account.
8. The very competent counsel appearing for the revision petitioner further contended that the learned Magistrate erred in splitting the seized amount and returning a part of the amount to the Department and a part of the amount to the first respondent herein. Actually, the police officer has to hand over the seized amount to the Income Tax Department. Hence, the highly competent senior Special Public Prosecutor, Mr. K. Ramasamy entreats the Court to set-aside the trial Court's order.
9. The very competent counsel for the first respondent vehemently argued that the seized amount has to be restored to the first respondent herein, who is an income tax assessee. The complainant i.e., Sub Inspector of Police had seized the amount and registered the case under Crime No.899 of 2003. subsequently, the investigation had been duly conducted by the complainant and the said case was "referred as to further action dropped" as such, the criminal case has not been proved in the initial stage. Therefore, the learned Magistrate ought to have rejected the case in X Crime No.899 of 2003, in limine, considering the present circumstances. Therefore, nothing is surviving on the file of the learned Magistrate. Therefore, the first respondent is entitled to receive the entire seized amount without any condition. The action of the Sub Inspector of Police had disturbed the first respondent's reputation, business and place including his time. If the Income Tax Department issued any show cause notice regarding the unexplained cash, he is prepared to provide suitable explanation. However, the respondent is put into hardship since a false case has been foisted against the respondent, subsequently, the Income Tax Department also came into the picture on the suo-moto order of the Magistrate.
10. The learned counsel for the State vehemently argued that the Sub Inspector of Police attached to the Crime Branch contended that the accused had been intercepted on suspicion and a sum of Rs.8,07,050/- was found as unexplained money in the possession of the accused, therefore, a criminal case has been levelled against him. Subsequently, the case is referred to the learned Magistrate, who is the competent authority to decide the issue of ownership of seized money. The highly competent counsel further contended that it is open to the accused to provide a suitable explanation to the Income Tax Authorities and get return of his money. The Income Tax Authorities also have to conduct an enquiry and then only could the matter be decided. Now, a part of seized amount has been handed over to the accused, as interim custody, with a stringent condition that he has to return the money to the Court as and when required. Therefore, the entire amount rests permanently under the custody of the Court and hence, the revision is not maintainable against the interim order. Further, no one will be prejudiced on the strength of the interim order passed by the learned Magistrate. The complainant has registered a criminal case against the accused since he had not given suitable reply at the time of interrogation, and as such, he is not an innocent person. Even though, the criminal case has been closed, the relevant issues have so far not been decided, hence, the case is existing on the file of the learned Magistrate, therefore, the very competent counsel prays to dismiss the above revision.
11. On considering the facts and circumstances of the case and arguments advanced by the learned counsels on all sides and on perusing the impugned common order of the learned Magistrate, this Court does not find any lapse in the conclusions arrived at regarding the return of money in part to the accused on a stringent condition. This Court's further view is that the seized amount should not be kept idle as "dead investment". The amount seized from the first respondent herein could be utilized until the veracity of the case has been determined. Hence, the interim order is maintainable. Therefore, the part amount had been released to the accused on condition that he executes a bond for a sum of Rs.6,00,000/- with one surety for like sum on condition that he shall return the amount to the Court as and when required. Therefore, the learned Magistrate's order will not be prejudicial to the interest of the Income Tax Department.
12. In the result, the above revision is dismissed. Consequently, the order passed in Crl.M.P.No.167 of 2004, on the file of Additional Chief Metropolitan Magistrate, Egmore, Chennai, dated 22.03.2004 is confirmed.
POOJA IT: Assessing Officer having examined entire receipts of assessee on which TDS was deducted, could not re-open assessment on ground that assessee returned less income as compared to TDS certificates
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[2013] 37 taxmann.com 201 (Delhi)
HIGH COURT OF DELHI
Select Vacations (P.) Ltd.
v.
Income-tax Officer*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
W.P.(C) NO. 7974 OF 2012
JULY 31, 2013
Section 145, read with section 147, of the Income-tax Act, 1961 - Method of accounting - System of accounting [Reassessment] - Assessment year 2006-07 - Assessee, a tour operator, filed its loss return and assessment was completed - Thereafter assessment was sought to be reopened on ground that audit scrutiny revealed that income returned was less than that reflected in TDS certificates - Assessee submitted that income of tours was accounted after netting off direct expenses thereto and said method had been followed consistently and accepted by authorities - Further, entire receipts on which TDS was deducted were examined in original assessment - Whether since Assessing Officer in original assessment had examined method of accounting and held that disclosure of quantum of receipt was as per accounting policies, he could not re-open assessment particularly when there was no failure of assessee to make full and true disclosure - Held, yes [Para 14] [In favour of assessee]
FACTS
| ■ | The assessee was engaged in the business of tours and travels. Original assessment was completed at loss. | |
| ■ | Thereafter, reassessment proceedings were initiated on ground that as per audit report, income calculated as per the TDS certificate was much more than the returned income. | |
| ■ | On writ, the assessee challenged said reopening on three grounds, namely, |
| - | The reasons to believe did not show any nexus with escapement of income and ignored the method of accounting followed by the assessee year after year. | |
| - | It was a case of change of opinion as the entire receipts or incomings on which TDS was deducted, were examined during the course of the assessment proceedings. | |
| - | The assessee had made full and true disclosure of material facts. |
HELD
| ■ | During the course of the assessment proceedings, queries were raised by the Assessing Officer on the method of accounting adopted by the petitioner-assessee. This is apparent from the reply given by the petitioner. Thus, the system and method of accounting was explained. Reference was made to the TDS certificates received and they were collated with the 'income' disclosed. [Para 8] | |
| ■ | A bare perusal of the reply would indicate that the method of accounting adopted by the petitioner was that the direct costs were deducted from the billings and this was the standard method of accounting adopted by the petitioner and other tour operators. Thus, the Assessing Officer in the first or original round of assessment was fully conscious and aware of the method of accounting followed by the petitioner. [Para 9] | |
| ■ | The reasons to believe recorded above clearly do not reflect any application of mind on the accounting practice adopted by the petitioner being a tour operator. It is obvious that the Assessing Officer ignored and was oblivious to said factum. If he had noticed the said position, the reasons to believe would not have recorded that there was difference in the payment/receipt mentioned in the TDS certificates and the amount of income disclosed by the assessee. The audit objection or query was raised and the Assessing Officer in response to the said audit objection had informed that he had fully examined the said aspect i.e. difference in the value on which TDS was deducted and the income declared during the course of assessment proceedings and had stated that there was no loss of revenue. Reassessment provisions are wide, but are not plenary. They are circumscribed and controlled by pre-conditions and must satisfy the prescribed statutory requirements. This is the reason why it is mandatory for the Assessing Officer to record 'reasons to believe' in writing and state why and on what account or reason income chargeable to tax has escaped assessment. Sufficiency of reasons is not a matter which can be gone into by the court, but very existence of belief is a subject matter which can be examined and scrutinized by the Court. Reassessment notice can be quashed if the 'belief' is not bona fide or is based on vague, irrelevant and non specific information. There should be a link and nexus between the reasons and the evidence/material available with the Assessing Officer for initiation of re-assessment proceedings. It should not be a mere pretence. The expression "reason to believe" means cause or justification of the Assessing Officer to believe that income has escaped assessment and does not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a final conclusion, as this is determined and decided in the assessment order which is the final stage before the Assessing Officer. [Para 11] | |
| ■ | Looking at the aforesaid facts, the petitioner is entitled to succeed in the present case on all three counts. Firstly, there is failure on the part of the Assessing Officer to examine the original assessment record and ascertain the method of accounting adopted by the assessee and whether the quantum of receipts disclosed was correct as per the method of accounting and the amount reflected in the TDS certificates was examined by the Assessing Officer in the original assessment proceedings; secondly, it is a case of change of opinion because the method of accounting adopted by the assessee and the TDS certificates were examined by the first Assessing Officer; and thirdly the assessee had made full and true disclosure at the time of original proceedings about the method of accounting adopted by him and the quantum of receipts disclosed. The writ petition is accordingly allowed and the impugned notice dated 29th March, 2012 and the reassessment proceedings initiated thereby are quashed. [Para 14] |
CASES REFERRED TO
GKN Driveshafts India Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 (SC) (para 3), CIT v. International Travel House Ltd. [2012] 344 ITR 554/[2010] 194 Taxman 324 (Delhi) (para 9), Signature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51 [2012] 20 taxmann.com 797 (Delhi) (para 11), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) (para 11), Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1/6 Taxman 14 (SC) (para 11), Phool chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC) (para 11), ITO v. Dwarka Dass [1981] 131 ITR 571/[1982] 8 Taxman 99 (Delhi) (para 11), Le passage to India Tours & Travels (P.) Ltd. v. Addl. CIT [2012] 206 Taxman 88 (Mag.)/20 taxmann.com 639 (Delhi) (para 12), CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC) (para 13)
Ajay Vohra and Ms. Kavita Jha for the Petitioner. N.P. Sahni for the Respondent.
ORDER
Sanjiv Khanna, J. - The petitioner has impugned the re-assessment notice dated 29th March, 2012 issued under Section 148 of the Income Tax Act, 1961 (Act, for short). The notice relates to the assessment year 2006-07.
2. The reasons recorded by the Assessing Officer for issue of notice as postulated and required by Section 147 read with Section 151 of the Act read as under:—
"The assessment of M/s Select Vacations Pvt. Ltd. for the assessment year 2006-07 was completed after scrutiny in December 2008 determining a loss of Rs.44,28,400/-. Audit scrutiny revealed that the assessee has shown total income of Rs.52,36,040/-whereas as per TDS certificates assessee's total income is Rs.1,11,65,657/-. In view of above the mistake resulted in underassessment of income of Rs. 59,29,617/- involving tax effect of Rs.19,95,909/-.
The escapement of income has been on account of failure on the part of the assessee to truly and fully disclose all the material facts necessary for assessment. Thus it is a fit case for initiation of proceedings u/s 148 of I.T. Act, 1961.
Therefore, I have reason to believe that the income of Rs.59,29,617/- has escaped assessment within the meaning of Section 147 of the I.T. Act, 1961. In view of the above, as per provisions of section 151, it is requested to kindly accord approval for issuance of notice u/s 148 for AY 2006-07."
3. The petitioner after receipt of the reasons to believe had filed written objections to the initiation of the re-assessment proceedings in terms of the decision of the Supreme Court in GKN Driveshafts India Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963. The said objections have been disposed of by the impugned order dated 14th November, 2012 recording:—
"The only objection to the reopening as narrated by you is that the assessment has been re-opened on the basis of mere change of opinion. In this regard it is stated that the assessment has been reopened on the basis of reasons to believe that the income as calculated as per the TDS certificates is much more than the returned income. It is therefore, not a change of opinion, but a strong ground to investigate as to why income as per TDS certificates has not been shown. As per the record this aspect was not checked at the time of assessment done in the case, therefore, on the basis of strong ground, the cases was reopened after taking prior approval of the concerned Commissioner of Income Tax as per the provisions of section 151.
Reasons to believe can emanate from facts already on record. It the AO has issued notice u/s 154 & dropped it, still the proceedings u/s 147 can be initiated. This view has been upheld by the courts. WTO vs Aditya Narula (ITAT, Cal) 68 ITD 61 and Rama Boiled Modern Rice Mill Vs. ITO (ITAT, Hyd) 97 ITD 379." (Emphasis supplied)
4. The contention of the petitioner before us is three-fold:—
| (i) | The reasons to believe do not show any nexus with escapement of income and ignores the method of accounting followed by the petitioner assessee year after year, which has been accepted and not adversely commented upon in the reasons to believe. | |
| (ii) | It is a case of change of opinion as the entire receipts or incomings on which TDS was deducted, was examined during the course of the assessment proceedings. Reliance is placed upon letter dated 24th October, 2008, by which the assessee had furnished details of TDS certificates, bills raised by the petitioner and other details including invoices, credit taken to different accounts, etc. | |
| (iii) | The assessee had made full and true disclosure of material facts. Explanation (1) is not applicable and nothing was to be inferred or deduced. Material facts as disclosed were clear and no decoding or decrypting was required. Nothing had to be inferred or gathered from the said facts. |
5. Senior Standing Counsel appearing for the Revenue submits that the Assessing Officer had not examined the difference between the TDS certificates and the income or receipts declared by the assessee. TDS was deducted on amount of Rs. 1,11,65,657/-, whereas the receipt of income as declared was Rs. 52,36,040/-. No explanation was called from the assessee to ascertain and know the reason/cause for the difference. The assessee had failed to disclose income or receipt of Rs.59,29,617/-.
6. The petitioner is engaged in the business of tours and travels. It specialises in arranging tours, hotel bookings for individuals and groups for travel within and outside India. It also handles incentives, meetings and conferences. In the objections filed, the petitioner had submitted that the income on tours was accounted after netting off directed expenses relating thereto. In other words, the income taken to the profit and loss account was not the gross receipts but gross receipts minus direct costs paid/transferred to third parties. The income declared consists of margin earned on services relating to tour arrangements i.e. after reducing from the billing, direct costs incurred like hotel, transport, guides etc. These costs were directly matched with the revenue earned and balance being the margin earned, was transferred to "income from tours accounts". This exercise was undertaken at the time of original assessment.
7. For the assessment year 2006-07, the petitioner had filed its return of income on 29th November, 2006 declaring loss of Rs.44,50,039/-. The return was taken up for scrutiny and vide assessment order dated 5th February, 2008, the loss was computed at Rs. 44,28,400/-.
8. During the course of the assessment proceedings, queries were raised by the Assessing Officer on the method of accounting adopted by the petitioner. This is apparent from the reply given by the petitioner vide letter dated 24th October, 2008, wherein in response to query number 6, the petitioner had furnished the following details:—
"The certificates include certificates for TDS deducted by clients while making payment of bills raised by assessee company and certificate for TDS deducted by ticketing agents (suppliers) from whom the assessee company purchased tickets for its clients taking tours from the assessee company. Since the ticketing agents parts with the commission he earns, he deducts TDS on the commission passed on to the assessee. He adds the amount of TDS on the bill that he raises on the assessee company.
The assessee company is engaged in the business of providing tours for its clients. A separate tour account is opened for each tour and the scheme of accounting entries is as follows:
| 1. | When invoice is raised on the client | |
| Debit: Client A/c (with the amount of invoice) | ||
| | Credit: Tour A/c (with the amount of invoice) | |
| 2. | When client makes payment after deducting TDS | |
| | Debit: Bank A/c (with amount received) | |
| Debit: TDS (TDS deducted by client) | ||
| Credit: Client A/c (with the amount of invoice) | ||
| 3. | When bill are received from suppliers like Hotels, Ticketing agents from whom services are taken for the client | |
| | Debit: Tour A/c (with the net cost of ticket) | |
| | Debit: TDS (With TDS deducted on commission part by the supplier and added to the bills) | |
| | Credit: Ticketing Agent (with the amount payable to the supplier i.e. net cost of the ticket plus TDS) | |
| 4. | After completion of the tour and after bills from all suppliers are received and debited to the Tour A/c, the balance in the tour a/c represents the profit earned on the particular tour. The accounting entry for the recognizing the profit on tour is as under: Debit: Tour A/c (with the balance remaining in the tour a/c after all expenses for the tour have been accounted for) | |
| Credit: Income from Tour services. | ||
| | Hence, it is not the amount of billing which is shown as income but the profit earned on the tours after deducting all direct costs. This is the standard accounting policy followed by all the tour companies." (Emphasis supplied) |
Thus, the system and method of accounting was explained. Reference was made to the TDS certificates received and they were collated with the "income" disclosed.
9. A bare perusal of the said letter would indicate that the method of accounting adopted by the petitioner was that the direct costs were deducted from the billings and this was the standard method of accounting adopted by the petitioner and other tour operators. Thus, the Assessing Officer in the first or original round of assessment was fully conscious and aware of the method of accounting followed by the petitioner. This method of accounting has been accepted by Delhi High Court in CIT v. International Travel House Ltd. [2012] 344 ITR 554/[2010] 194 Taxman 324 (Delhi).
10. The reasons to believe recorded above clearly do not reflect any application of mind on the accounting practice adopted by the petitioner being a tour operator. It is obvious that the assessing officer ignored and was oblivious to said factum. If he had noticed the said position, the reasons to believe would not have recorded that there was difference in the payment/receipt mentioned in the TDS certificates and the amount of income disclosed by the assessee. We notice that audit objection or query was raised and the Assessing Officer in response to the said audit objection had informed that he had fully examined the said aspect i.e. difference in the value on which TDS was deducted and the income declared during the course of assessment proceedings and had stated there was no loss of revenue. The said letter has been enclosed at page 25 of the rejoinder.
11. Reassessment provisions are wide, but are not plenary. They are circumscribed and controlled by pre-conditions and must satisfy the prescribed statutory requirements. This is the reason why it is mandatory for the Assessing Officer to record "reasons to believe" in writing and state why and on what account or reason income chargeable to tax has escaped assessment. Sufficiency of reasons is not a matter which can be gone into by the court, but very existence of belief is a subject matter which can be examined and scrutinized by the Court. Reassessment notice can be quashed if the "belief" is not bona fide or is based on vague, irrelevant and non-specific information. There should be a link and nexus between the reasons and the evidence/material available with the Assessing Officer for initiation of re-assessment proceedings. It should not be a mere pretence. The expression "reason to believe" means cause or justification of the Assessing Officer to believe that income has escaped assessment and does not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a final conclusion, as this is determined and decided in the assessment order which is the final stage before the Assessing Officer. {see Signature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51/[2012] 20 taxmann.com 797 (Delhi), which refers to ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1/6 Taxman 14 (SC) and Phool chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC) and ITO v. Dwarka Dass [1981] 131 ITR 571/[1982] 8 Taxman 99 (Delhi)}.
12. Recently we had quashed reassessment notice issued in the case of Le Passage to India Tours & Travels (P.) Ltd. v. Addl. CIT [2012] 206 Taxman 88 (Mag.)/20 taxmann.com 639 (Delhi) recording as under:—
"13. The ground and reasoning for reopening quoted above relate to the very basic nature and character of the accounting method adopted by the petitioner. The petitioner has adopted a system of netting as their billing was inclusive of "direct costs" incurred which were paid to third parties. It is impossible to perceive and accept the contention of the Standing Counsel for the Revenue that the Assessing Officer during the course of the original assessment proceedings would have not reflected and considered the method of accounting adopted by the petitioner. This is not possible as the Assessing Officer at the very first instance was required to examine the said aspect. The method of accounting adopted by the petitioner was set out in clear terms and explained by the petitioner in their letter dated 31st October, 2008, which has been quoted above. The petitioner has stated that they have always and continue to follow the said method of accounting. This is not a case where explanation 1 to Section 147 is applicable. The question relates to the WPC 8685/2010 Page 12 of 13 very method and manner of accounting, which will be apparent and clear to any person when scrutiny of the return and accounts is undertaken. The reopening is, therefore, bad for want of jurisdictional pre-condition under Section 147 of the Act. It is a case of change of opinion and the ratio in the case of Kelvinator (supra) is applicable."
13. Here it will be appropriate to reproduce the observations of the Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312:—
'5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen.
6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place.
7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the assessing officer.'
14. Looking at the aforesaid facts, the petitioner is entitled to succeed in the present case on all three counts. Firstly, there is failure on the part of the Assessing Officer to examine the original assessment record and ascertain the method of accounting adopted by the assessee and whether the quantum of receipts disclosed was correct as per the method of accounting and the amount reflected in the TDS certificates was examined by the Assessing Officer in the original assessment proceedings; secondly, it is a case of change of opinion because the method of accounting adopted by the assessee and the TDS certificates were examined by the first Assessing Officer; and thirdly the assessee had made full and true disclosure at the time of original proceedings about the method of accounting adopted by him and the quantum of receipts disclosed. The writ petition is accordingly allowed and the impugned notice dated 29th March, 2012 and the reassessment proceedings initiated thereby are quashed. If any assessment order has been passed, the same will be treated as null and void.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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