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From: "aaykarbhavan@yahoogroups.com" <aaykarbhavan@yahoogroups.com>
To: aaykarbhavan@yahoogroups.com
Sent: Monday, 16 September 2013 1:53 PM
Subject: [aaykarbhavan] Digest Number 3338
13 New Messages
Digest #3338
Messages
Sun Sep 15, 2013 5:30 am (PDT) . Posted by:
"Dattatri" dattatrics
Dear Professional Colleagues,
We are back with another fresh edition of the e-Magazine from ICSI Mysore!
This edition too has packed professional and well as life development
oriented contents for all of us!
Mysore Chapter is conducting a three days workshop on "Good Governance:The
Supreme Mantra for Multi-Skilled Professional" on 20th, 21st and
22nd September, 2013 at Mysore. Details are in the eMagazine. You are most
welcome to participate in the program.
The edition is attached herewith. Same can also be downloaded from the
following link:
https://docs. google.com/ file/d/0BxViiXAQ yX24cTIzeVhaRmIw a0U/edit? usp=sharing
*Web view has got limitations with respect to the quality of presentation.
Therefore please download and read.*
Let us know your comments and feedback.
*For the e-Magazine Team,*
CS. Dattatri H M
We are back with another fresh edition of the e-Magazine from ICSI Mysore!
This edition too has packed professional and well as life development
oriented contents for all of us!
Mysore Chapter is conducting a three days workshop on "Good Governance:The
Supreme Mantra for Multi-Skilled Professional" on 20th, 21st and
22nd September, 2013 at Mysore. Details are in the eMagazine. You are most
welcome to participate in the program.
The edition is attached herewith. Same can also be downloaded from the
following link:
https://docs. google.com/ file/d/0BxViiXAQ yX24cTIzeVhaRmIw a0U/edit? usp=sharing
*Web view has got limitations with respect to the quality of presentation.
Therefore please download and read.*
Let us know your comments and feedback.
*For the e-Magazine Team,*
CS. Dattatri H M
Sun Sep 15, 2013 5:48 am (PDT) . Posted by:
"Dipak Shah" cadjshah
----- Forwarded Message -----
From: CA. VMV SUBBA RAO <vmvsrao@gmail. com>
To:
Sent: Sunday, 15 September 2013 1:03 AM
Subject: Duty Drawback Scheme
More items to get duty drawback
To boost
exports, the Government on Saturday brought more items under the duty drawback
scheme.
The rationalised scheme for tax refund to exporters will come
into effect from September 21, a Finance Ministry release said.
The decision was taken after taking into account the
recommendations of the committee headed by Planning Commission Member Saumitra
Chaudhuri to suggest duty drawback rates on the basis of parameters such as
prevailing prices of inputs, rates of duty and tax, as well as the value of
export goods.
The Finance Ministry statement also announced a three-month
extension for the panel's term for "expeditiously addressing exporters
concerns."
India's exports rose to a two-year high of 13 per cent in
August.
PFA
--
Best Wishes
CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail. com
vmvsr@yahoo. co.uk
http://pdicai. org/MyPage/ 203038.aspx
http://vmvsraoco. icai.org. in/
Member- IT Committee of SIRC of ICAI
Sun Sep 15, 2013 5:48 am (PDT) . Posted by:
"Dipak Shah" cadjshah
----- Forwarded Message -----
From: CAclubindia Newsletter <newsletter@caclubin diamailer. com>
To: Dipak Shah <djshah1944@yahoo. com>
Sent: Sunday, 15 September 2013 1:40 AM
Subject: CAclubindia Newsletter : 15/09/2013
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* The new Company law has the Potential to Unleash Huge Economic and Social Value - Sachin Pilot
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Sun Sep 15, 2013 9:28 am (PDT) . Posted by:
"Dipak Shah" cadjshah
CBEC Chief Commissioners Conference - Board seeks Action Taken Reports
TIOL-DDT 2189
13.09.2013
Friday
CBEC has communicated the Minutes of the All-India Conference of Chief
Commissioners and Directors General held on 17 - 18th July, 2013, to the Commissioners and Chief Commissioners to submit Action Taken Report by
30.09.2013.
Important Issues:
Revenue: The Finance Minister stated that the Indian currency has devalued around
13% and, therefore, this factor itself should be enough to achieve the
revenue target in Customs. He urged the officers to not only achieve but to exceed the Customs Duty collections target. With reference to
Central Excise target, he urged the Chief Commissioners and
Commissioners to closely monitor the assessees and forge a close
relationship with them. He stressed upon the need for senior officers to have regular interaction with the junior officers as well as the trade
to have a close watch on the potential evasion of Central Excise Duty.
He stated that the Central Excise growth of 11.9% is achievable provided all steps are taken in that direction. The Finance Minister further
noted that Service Tax revenue is bound to increase in future as it has
shown steady growth so far. He urged the officers to make the Voluntary
Compliance Encouragement Scheme of Service Tax a success by increasing
the trade awareness through Chambers of Commerce and other associations. FM directed to carryout a massive media campaign by having a logo like
VDIS to educate and encourage maximum non-filers/stop filers & wrong filers to avail the Scheme. He emphasised the need for focusing on
eight major cities namely Delhi, Mumbai, Chennai, Kolkata, Bangalore,
Hyderabad, Ahmadabad and Pune to sensitize the trade regarding the
scheme.
Undervaluation: A reference was made about the undervaluation and mis-declaration of the
imported goods due to incomplete description and non-standard Unit
Quantity Code (UQC). It has been decided to implement mandatory UQC to
obviate potential for undervaluation and mis-declaration and thus ensure correct assessment. It was recommended that Directorate General of
System should provide additional fields in B/Es allowing importers to
give complete information in standard UQC. At present, benchmark pricing has been done for 23 commodities. It was recommended that benchmark
pricing may be introduced for sensitive commodities prone to
under-valuation by the Directorate General of Valuation.
Drawback: It was pointed out that in the first quarter of the year, drawback refunds have increased by 47% as compared to last year. It was observed that
drawback under All Industry Rate is fixed in terms of 'Indian Currency'
and hence, drawback refund outgo will be high despite the decline in the export due to depreciation of Rupee. FM directed that All Industry
Rates be re-fixed considering the devaluation of Indian currency and the revised rate should be made effective from 01.04.2013.
Pendency of Adjudication in Service Tax: It was observed that there is a high level of pendency of adjudication in
Service Tax in Mumbai and Delhi Service Tax Commissionerates. It was
recommended to post Commissioner (Adjudication) at Mumbai and Delhi to
liquidate the said pendencies. Recommendations on administrative side
include creation of 4 new Service Tax Zones and 15 new Service Tax
Commissionerate and also Audit and Appeal Commissionerate.
Huge Pendency in scrutiny of Returns: It was noted that at present about 11 lakh returns, thrown up for Review
& Correction in the preliminary scrutiny process, are pending for
correction. In this regard, FM directed the DG (Systems) to submit a
report on the reasons for the large pendency and measures to be taken
for reducing the same, by system-driven scrutiny process of returns,
thereby having only a small percentage of cases for detailed manual
scrutiny, within a week.
CBEC Minutes of All India Conference of the Chief Commissioners and
Directors General of Customs, Central Excise and Service Tax Held on
July 17-18, 2013
ST : Department cannot seek condonation of delay in filing appeal merely by stating that delay was caused due to time consumed in administrative procedures, which is too general and unsatisfactory explanation
■■■
[2013] 37 taxmann.com 39 (Gujarat)
HIGH COURT OF GUJARAT
State of Gujarat
v.
Atul Products Ltd.*
M.R. SHAH AND MS. SONIA GOKANI, JJ.
CIVIL APPLICATION NO. 334 OF 2013
STAMP NO. 1345 OF 2013
JUNE 14, 2013
Section 83 of the Finance Act, 1994 read with section 35G of the Central Excise Act, 1944 - Application of certain provisions of Excise Act -
Appeal to High Court - Department sought condonation of 1371 days in
filing appeal citing administrative procedures as reason of delay
arguing that there was no intention to flout any legal provision or Act - It was also argued that meritorious case would seriously get prejudiced and public interest would be at jeopardy, if delay was not condoned and assessee would not loose anything as due opportunity will be given to
both sides - HELD : Ordinarily Courts liberally condone delay and are
also expected to adopt "justice oriented approach" rather than giving
any undue importance to technicalities and further, delay is not to be
explained by litigant on literal sense on day-to-day basis - However,
when there is no justification for delay, substantial law of limitation
cannot be marred advancing cause of liberal approach - Test for a
sufficient cause is whether party, by exercise of due care and
attention, could have avoided delay; sufficient cause would mean
presence of legal and adequate reasons - In absence of plausible and
acceptable explanation, Court cannot condone delay mechanically only
because litigant is a Government Wing - In this case, Department&# 39;s plea
of time consumed in administrative procedures was in general terms;
therefore, in absence of any specific details and explanation, it was
unsatisfactory - Only because applicant is Government, it cannot be
absolved of its responsibility to fulfill mandate of law - Moreover,
issue involved was neither going to have any far reaching ramification
on exchequer, nor would it result into denying an opportunity in respect of substantial question of law - Hence, appeal was dismissed as
time-barred [Paras 5 to 9] [In favour of assessee]
Words and Phrases : 'Sufficient cause' as appearing in section 35G of Central Excise Act, 1944
CASE REVIEW
Lanka D. Venkateswarlu v. State of A.P. AIR 2011 SC 1199 (para 6.1), Balwant Singh v. Jagdish Singh AIR 2010 SCW 4848 (para 6.1) andOffice of the Chief Post MasterGeneral. v. Living Media India Ltd. [2012] 348 ITR 7/207 Taxman 163/20 taxmann.com 347 (SC) (para 6.3)relied on.
CASES REFERRED TO
G. Ramegowda v. Major Special Land Acquisition Officer, AIR 1988 SC 897 (para 3), N. Balakrishnan v. M. Krishnamurthy AIR 1998 SC 3222 (para 3.1), State of Haryana v. Chandra Mani [1996] 3 SCC 132 (para 3.2), Lanka D. Venkateswarlu v. State of A.P. AIR 2011 SC 1199 (para 6.1) Balwant Singh v. Jagdish Singh AIR 2010 SCW 4848 (para 6.1) and Office of the Chief Post MasterGeneral. v. Living Media India Ltd. [2012] 348 ITR 7/207 Taxman 163/20 taxmann.com 347 (SC) (para 6.3)
Ms. Shruti Pathak for the Appellant.
ORDER
Ms. Sonia Gokani, J - This is an
application preferred for condonation of delay of 1371 days in filing
the present Tax Appeal challenging the order dated 6th May, 2009, in
Revision Application No. 129 of 2001 passed by the Gujarat Value Added
Tax Tribunal, Ahmedabad ("Tribunal&quo t; for short)
2. It is pleaded in the application by the applicant-State, thus :
"The applicant further submits that, to file Tax Appeal before this Court
the applicant has to undergo certain administrative procedures mentioned below :-
After receiving the judgment/order from the Tribunal, it is required to study the judgment and then opinions of several officers are sought as
whether to file the Tax Appeal. Thereafter, the department sends a
proposal to the Finance Department to get the approval of the Government to file the Tax Appeal. After receiving the approval from the Finance
Department, all the papers alongwith the judgment/order are to be
submitted to the G.P Office to file Tax Appeal. And thereafter, the G.P
Office after receiving the papers prepares, gets approved and then files Tax Appeal before this Hon'ble Court.
The applicant further says that, in the present case, the Tribunal passed
the Order on 6-05-2009 in Revision Application No. 129 of 2001. The
applicant states that, the order dated 6-05-2009 was communicated to the applicant on 30-05-2009. Thereafter, on 15-12-2012, the proposal to
file the tax appeal was sent to the Finance Department and on 2-2-2013,
Finance Department approved the proposal. After receiving the proposal
from the Finance Department on 20-02-2013, relevant papers alongwith
judment/order were haned over to the office of the Government Pleader,
High Court to file the Tax Appeal. The applicant says that, the tax
appeal was required to be filed on or before 3-08-2009. However, the
same was filed on 6/5/2013 and thus, there is delay of 1371 days in
preferring the Tax Appeal.
The applicant further says that due to Government administrative mechanism, every work passes and comes back to source point, through a route
system, hence the tax appeal could not be filed within the statutory
time limit. Due to administrative procedures, time was consumed and
hence the delay was caused."
2.1 It is further averred by the applicant that meritorious case would
seriously get prejudiced, if delay is not condoned and opponent is not
to loose anything as due opportunity is likely to be given to both the
sides. It is also averred that it is the public interest which is at
jeopardy in a case where the Government is the petitioner.
3. Learned AGP appearing for the applicant-State has fervently urged to condone
delay as reasonable explanation is already embodied, according to her,
in the petition and this must be construed as a sufficient cause. She
has sought to rely upon the decision of the Apex Court rendered in case
of G. Ramegowda Major v. Special Land Acquisition Officer, AIR 1988 SC 897 wherein the Apex Court has held thus -
"In litigation which Government is a party there is yet another aspect
which perhaps cannot be ignored. If appeals brought by Government are
lost for such defaults, no person is individually affected; but what, in the ultimate analysis, suffers is public interest. The decisions of the Government are collective and institutional decisions and do not share
the characteristics of decisions of private individuals. Therefore, in
assessing what, in a particular case, constitutes 'sufficient cause' for the purposes of Section 5 of the Limitation Act, it might, perhaps, be
somewhat unrealistic to exclude from the considerations that go into the judicial verdict, these factors which are peculiar to and
characteristic of the functioning of the Government. Governmental
decisions are proverbially slow encumbered, as they are, by a
considerable degree of procedural red-tape in the process of their
making. A certain amount of latitude is therefore, not impermissible. It is rightly said that, those who bear responsibility of Government must
have a 'little play at the joints'. Due recognition of these limitations on Government functioning - of course, within a reasonable limit is
necessary if the judicial approach is not rendered unrealistic. It
would, perhaps be unfair and unrealistic to put Government and private
parties on the same footing in all respects in such matters Implicit in
the very nature of Governmental functioning is procedural delay
incidental to the decision making process.."
3.1 Reliance is also placed on the decision of the Apex Court rendered in case of N. Balakrishnan v. M. Krishnamurthy AIR 1998 SC 3222. It is held therein by the Apex Court that the rules of
limitation are not to jeopardize the right and interest of the parties.
Court is to ensure of course that no dilatory tactics are adopted and if the large amount of tax revenue is at stake, the Court should be slow
in dismissing such plea of condonation of delay..
3.2 Judgment rendered in case of State of Haryana v. Chandra Mani [1996] 3 SCC 132 is pressed into service, wherein, the Apex Court has reiterated liberal approach in condoning the delay.
3.3 In short, the submission that has been emphasized is to the effect that in absence of any intention to flout any legal provision or Act, the
attempt to deliberately jeopardize the interest of the otherside, an
explanation of delay as put forth should be accepted and this being the
administrative cause involving revenue for the State, the Court may
approach this request with a liberty attitude.
4. On thus having heard the learned AGP and on having consciously considered
the materials on record, this application is not being entertained for
the reasons to follow hereinafter.
5. We are conscious that ordinarily the Courts have liberally condoned the
delay and are also expected to adopt "justice oriented approach" rather
than giving any undue importance to the technicalities. We are also not
oblivious of the fact that the delay is not to be explained by the
litigant on literal sense on day-to-day basis. However, we cannot
disregard the vital requirement of law that when there is no
justification for delay, the substantial law of limitation cannot be
marred advancing the cause of liberal approach."
6. It will not be out of place to refer to the judgment of the Apex Court rendered in case of Lanka D. Venkateswarlu v. State of A.P. AIR 2011 SC 1199 wherein the delay was caused and there was insufficient
explanation. The Apex Court set-aside the order of the High Court in
condoning the delay, by holding that the concept of liberal approach and justice oriented approach cannot be employed to jettison the
substantial law of limitation. In the words of the Apex Court —
'26. We are at a loss to fathom any logic or rationale, which could have
impelled the High Court to condone the delay after holding the same to
be unjustifiable. The concepts such as "liberal approach" , "justice
oriented approach" , "substantial justice" can not be employed to
jettison the substantial law of limitation. Especially, in cases where
the Court concludes that there is no justification for the delay. In our opinion, the approach adopted by the High Court tends to show the
absence of judicial balance and restraint, which a Judge is required to
maintain whilst adjudicating any lis between the parties. We are rather
pained to notice that in this case, not being satisfied with the use of
mere intemperate language, the High Court resorted to blatant sarcasms.
The use of unduly strong intemperate or extravagant language in a
judgment has been repeatedly disapproved by this Court in a number of
cases. Whilst considering applications for condonation of delay under
Section 5 of the Limitation Act, the Courts do not enjoy unlimited and
unbridled discretionary powers. All discretionary powers, especially
judicial powers, have to be exercised within reasonable bounds, known to the law. The discretion has to be exercised in a systematic manner
informed by reason. Whims or fancies; prejudices or predilections can
not and should not form the basis of exercising discretionary powers.'
6.1 The Apex Court in a decision, rendered in case of Balwant Singh v. Jagdish Singh AIR 2010 SCW 4848 has given the test for a sufficient cause and what is to
be seen is as to whether the party by the exercise of due care and
attention could have avoided the delay. It reiterated that sufficient
powers and discretion is available with the Courts for applying this law in a meaningful manner but sufficient cause would mean presence of
legal and adequate reasons.
6.2 It would be profitable to reproduce the relevant observations of the Apex Court in this case :
"14. In the case of Union of India v. Tata Yodogawa Ltd., [1988 (38) Excise Law Times 739 (SC)], this Court while granting some
latitude to the Government in relation to condonation of delay, still
held that there must be some way or attempt to explain the cause for
such delay and as there was no whisper to explain what legal problems
occurred in filing the Special Leave Petition, the application for
condonation of delay was dismissed. Similarly, in the case of Collector of Central Excise, Madras v. A.MD. Bilal and Co., [1999 (108) Excise Law Times 331 (SC)] / (1999 AIR SCW 4740), the
Supreme Court declined to condone the delay of 502 days in filing the
appeal because there was no satisfactory or reasonable explanation
rendered for condonation of delay. The provisions of Order 22, Rule 9,
CPC has been the subject-matter of judicial scrutiny for considerable
time now. Sometimes the Courts have taken a view that delay should be
condoned with a liberal attitude, while on certain occasions the Courts
have taken a stricter view and wherever the explanation was not
satisfactory, have dismissed the application for condonation of delay.
Thus, it is evident that it is difficult to state any straight-jacket
formula which can uniformly be applied to all cases without reference to the peculiar facts and circumstances of a given case. It must be kept
in mind that whenever a law is enacted by the Legislature, it is
intended to be enforced in its proper perspective. It is an equally
settled principle of law that the provisions of a statute, including
every word, have to be given full effect, keeping the legislative intent in mind, in order to ensure that the projected object is achieved. In
other words, no provisions can be treated to have been enacted
purposelessly. Furthermore, it is also a well-settled canon of
interpretative jurisprudence that the Court should not give such an
interpretation to provisions which would render the provision
ineffective or odious. Once the Legislature has enacted the provisions
of Order 22, with particular reference to Rule 9, and the provisions of
the Limitation Act are applied to the entertainment of such an
application, all these provisions have to be given their true and
correct meaning and must be applied wherever called for. If we accept
the contention of the Learned Counsel appearing for the applicant that
the Court should take a very liberal approach and interpret these
provisions (Order 22, Rule 9 of the CPC and Section 5 of the Limitation
Act) in such a manner and so liberally, irrespective of the period of
delay, it would amount to practically rendering all these provisions
redundant and inoperative. Such approach or interpretation would hardly
be permissible in law. Liberal construction of the expression
'sufficient cause' is intended to advance substantial justice which
itself presupposes no negligence or inaction on the part of the
applicant, to whom want of bona fide is imputable. There can be
instances where the Court should condone the delay; equally there would
be cases where the Court must exercise its discretion against the
applicant for want of any of these ingredients or where it does not
reflect 'sufficient cause' as understood in law. [Advanced Law
Lexicon,P. Ramanatha Aiyar, 2nd Edition, 1997] The expression
'sufficient cause' implies the presence of legal and adequate reasons.
The word 'sufficient&# 39; means adequate enough, as much as may be necessary to answer the purpose intended. It embraces no more than that which
provides a plenitude which, when done, suffices to accomplish the
purpose intended in the light of existing circumstances and when viewed
from the reasonable standard of practical and cautious men. The
sufficient cause should be such as it would persuade the Court, in
exercise of its judicial discretion, to treat the delay as an excusable
one. These provisions give the Courts enough power and discretion to
apply a law in a meaningful manner, while assuring that the purpose of
enacting such a law does not stand frustrated. We find it unnecessary to discuss the instances which would fall under either of these classes of cases. The party should show that besides acting bona fide, it had
taken all possible steps within its power and control and had approached the Court without any unnecessary delay. The test is whether or not a
cause is sufficient to see whether it could have been avoided by the
party by the exercise of due care and attention. [Advanced Law Lexicon,
P. Ramanatha Aiyar, 3rd Edition, 2005]."
6.3 In yet another recent decision of the Apex Court rendered in case of Office of the Chief Post Master General. v. Living Media India Ltd.[2012] 348 ITR 7/207 Taxman 163/20 taxmann.com 347 (SC), in absence of plausible and acceptable explanation, the Court refused
to condone the delay mechanically only because it was a Government Wing, by observing thus —
"27. It is not in dispute that the person(s) concerned were well aware or
conversant with the issues involved including the prescribed period of
limitation for taking up the matter by way of filing a special leave
petition in this Court. They cannot claim that they have a separate
period of limitation when the Department was possessed with competent
persons familiar with Court proceedings. In the absence of plausible and acceptable explanation, we are posing a question why the delay is to be condoned mechanically merely because the Government or a wing of the
Government is a party before us."
7. From the explanation rendered by the applicant, it can be noted that the
same is if general terms. The Department appears to have sent a proposal to the Finance Department, which had approved it on 2nd February, 2013
and after the same was received back alongwith necessary papers and
orders permitting the Office of the Government Pleader to file Tax
Appeal, it appears that the Tax Appeal which was to be filed on or
before 3rd August, 2009, came to be filed after huge delay of 1371
days.. What is stated for explaining such delay is that due to
Government administrative mechanism, within the statutory time period,
tax appeal could not be filed. In absence of any specific details and
explanation, this explanation in general terms does not satisfy us.
There can be no straight-jacket formula adopted which can be applied
uniformly in all matters, without considering the facts and
circumstances of the case. In absence of any satisfactory explanation
coming forth for condonation of delay, we are of the opinion that no
liberal attitude requires to be adopted; particularly considering the
inordinate delay in preferring this Application. Only because the
applicant is the State, it cannot be absolved of its responsibility to
fulfil the mandate of law. Even if day today explanation is not desired, for a long period after the sanction of Finance department also,
nothing emerges on record to indicate due care or diligence to satisfy
the requirement of explaining sufficiency of cause.
8. As a parting note, we would like to specifically mention that dismissal of the appeal preferred by the applicant consequent to rejection of this
application for condonation of delay is neither going to have any far
reaching ramification on the exchequer, nor would it result into denying an opportunity in respect of the substantial question of law, which may jeopardize the State's interest in the assessment year in question or
beyond the same.
9. Resultantly, this application for condonation of delay fails and consequently, Tax Appeal {Stamp} No. 1345
Gains from sale of land isn't business income if land is held with an intention to carry agricultural operations
IT : Where intention of assessee from inception was to carry on
agricultural operation on land in question, gain from its sale could not be taxed as profit arising from adventure in nature of trade, merely
because of short period of holding
■■■
[2013] 36 taxmann.com 545 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Tulla Veerender
v.
Additional Commissioner of Income-tax, Range-6*
SAKTIJIT DEY, JUDICIAL MEMBER
AND CHANDRA POOJARI, ACCOUNTANT MEMBER
IT Appeal Nos. 550 & 551 (Hyd.) of 2012
[ASSESSMENT YEAR 2007-08]
JULY 4, 2013
Section 2(13), read with section 2(14), of the Income-tax Act, 1961 -
Adventure in nature of trade [Land dealings] - Assessment year 2007-08 - Assessee purchased land and leased it for purpose of cultivation - Soon after, lease was cancelled and land was sold - Assessing Officer held
that amount received on sale was on account of adventure in nature of
trade, and taxed same as business income - Whether, where land in
question was classified as agricultural land in revenue records, mere
future possibility of non-agricultural use would not change character of such agricultural land at time of sale - Held, yes - Whether,
therefore, mere fact that land in question was bought by a developer
cannot be a determining factor to say that land was converted into use
for non-agricultural purpose - Held, yes - Whether presence of intention to trade at inception is an essential prerequisite in an adventure in
nature of trade - Held, yes - Whether, therefore, where intention of
assessee from inception was to carry on agricultural operations on land
in question, which was later sold due to compelling circumstances, gain
from sale of such land could not be taxed as profit arising from
adventure in nature of trade, merely because land was sold in a short
period of holding - Held, yes [Para 78] [In favour of assessee]
FACTS
■ The assessee, along with other co-owners, acquired agricultural land used
for cultivating grapes on 8-9-2005. Thereafter, the assessee floated a
company, VVT Ltd. for carrying on agricultural operations. The assessees and the co-owners entered into a lease agreement with VVT Ltd., whereby the entire land was to be given on lease for purpose of cultivation.
Later, the lease was cancelled on 29-9-2006 and the agricultural
property was sold soon thereafter.
■ The
Assessing Officer held that the amount received on sale of the
agricultural property was on account of adventure in the nature of trade and taxed the same as business income. On appeal, the Commissioner
(Appeals) confirmed the order of the Assessing Officer, holding that the assessee was not a regular agriculturist and earned income from
business and other sources.
■ On assessee' s appeal:
HELD
■ In
the facts of the present case, the land in question is classified in the revenue records as agricultural land and there is no dispute regarding
this issue. Actual cultivation has been carried out on this land and
income was declared from this land in the return of income filed by the
assessee for the earlier years as agricultural income. It is also an
admitted fact that the assessee had not applied for conversion of this
agricultural land for non-agricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is
also an admitted fact that neither the impugned property nor the
surrounding areas were subject to any developmental activities at the
relevant point of time of sale of the land. [Para 66]
■ It is an admitted position that mere inclusion or proximity of land to any
Special zone without any infrastructure development thereupon, or
without establishing and proving that the land was put into use for
non-agricultural purposes by the assessee, does not and cannot convert
the agricultural land into non-agricultural land. In the instant case,
at the relevant point of sale of the land in question, the surrounding
area was totally undeveloped, and mere future possibility to put the
land into use for non-agricultural purposes would not change the
character of the agricultural land into non-agricultural land at the
relevant point of time when the land was sold by the assessee. [Para 68]
■ No
material or evidence in support of the fact that the assessees had put
the land in use for non-agricultural purposes was brought on record. The nature of the crop and the person who cultivated the land are duly
mentioned in the assessment order, which shows that at the relevant
point of time the land was used for agricultural purposes only. In view
of the decision of the High Court in the case of Gopal C. Sharma v. CIT(209 ITR 946) (Bom), it is also clear that the profit motive of the assessee in selling the
land without anything more by itself, can never be decisive to say that
the assessee used the land for non-agricultural purposes. The fact that
agricultural land in question is included in urban area is not enough to conclude that the user of the same had been altered with passage of
time. Thus, the fact that the land in question in the instant case is
bought by a developer, cannot be a determining factor by itself to say
that the land was converted into use for non-agricultural purposes.
[Para 68]
■ Gain
on sale of an agricultural land would be exigible to tax only when the
land transferred is located within the jurisdiction of a municipality.
[Para 73]
■ It is nobody's case that the property falls within any area which is
comprised within the jurisdiction of a municipality or cantonment board
or which has a population of not less than 10,000 according to the last
preceding Census of which the relevant figures have been published
before the first day of the previous year. In other words, the land does not fall in sub-clause (a) of section 2(14)(iii), as the land is
outside of any municipality. Clause (b) of section 2(14)(iii) prescribes that any area within such distance, not being more than 8 km from the
local limit of any municipality or cantonment board as referred to in
sub-clause (a) of section 2(14)(iii), as the Central Government may,
having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by
notification in the Official Gazette. [Para 76]
■ In
the present case, admittedly, the agricultural land of the assessee is
outside the Municipal Limits of Hyderabad Municipality and that also 8
km away from the outer limits of this Municipality. Therefore,
assessee' s land does not come within the purview of section 2(14)(iii)
either under sub-clause (a) or (b), hence, the same cannot be considered as capital asset within the meaning of this section. Hence, no capital
gain tax can be charged on the sale transaction of this land entered by
the assessee. [Para 77]
■ From
the facts and circumstances of the case, the intention of the assessees
at the time of acquiring the land or interval action by the assessee
between the period from purchase and sale of the land and the relevant
improvement/ development taken place during this time, is relevant for
deciding the issue whether transaction was in the nature of trade.
Though intention subsequently formed may be taken into account, it is
the intention at the inception which is crucial. One of the essential
elements in an adventure in the nature of trade is the intention to
trade; that intention must be present at the time of purchase. The mere
circumstances that a property is purchased in the hope that when sold
later, it would leave a margin of profit, would not be sufficient to
show, an intention to trade at the inception. In a case where the
purchase has been made solely and exclusively with the intention to
resell at a profit and the purchaser has no intention of holding the
property for himself or otherwise enjoying or using it, the presence of
such an intention is a relevant factor and unless it is offset by the
presence of other factors, it would raise a strong presumption that the
transaction is an adventure in the nature of trade. Even so, the
presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was
not an adventure in the nature of trade. The presumption may be
rebutted. In the present case, considering the facts and circumstances
of the case, it cannot be considered as an adventure in the nature of
trade. The intention of the assessee from the inception was to carry on
agricultural operations, and with this intention assessee entered into
lease agreement with VVT Ltd. on 25-10-2005 and even there was no
intention to sell the land in future at that point of time. It was due
to certain compelling circumstances which came into picture at a later
stage that the assessees were forced to sell the land. Merely because of the fact that the land was sold in a short period of holding, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of
holding should not suggest that the activity was an adventure in the
nature of trade. [Para 78]
■ Further, it is clear that when the land which does not fall under the provisions of section 2(14)(iii), and an assessee who is engaged in agricultural
operations in such agricultural land and also being specified as
agricultural land in revenue records, the land is not subjected to any
conversion as non-agricultural land by the assessee or any other
concerned person, transfers such agricultural land on 'as it is and
where it is basis', in such circumstances, such transfer cannot be
considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax
the income arising out of this transaction as business income.
Accordingly, the ground raised by the assessees is allowed. [Para 79]
CASES REFERRED TO
G. Venkataswamy Naidu & Co. v. CIT [1959] 35 ITR 594 (SC) (para 34), CIT v. Jawahar Development Association [1981] 127 ITR 431 (MP) (para 35), Smt. Indramani Bai v. Addl. CIT [1990] 200 ITR 594/70 Taxman 67(SC) (para 35), P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC) (para 35), Hemachand Hirachand Shah v. CIT [1994] 206 ITR 55/[1995] 83 Taxman 626 (Guj.) (para 35), Mahaveer Enterprises v. UOI [2000] 244 ITR 789/[1997] 95 Taxman 220 (Raj) (para 43), Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 (SC) (para 45), M.K. Abdul Rehiman v. Dy. CIT [2011] 16 taxmann.com 406/[2012] 49 SOT 267 (Coch) (para 46), Rockman Cycle Industries Ltd. v. CWT [2010] 191 Taxman 399 (Punj. & Har.) (para 46), ITO v. Anthony John Pareira [2008] 24 SOT 459 (Mum) (para 47), Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) (para 48), CIT v. Smt. Debbie Alemao [2011] 331 ITR 59/196 Taxman 230/[2010] 8 taxmann.com 243 (Bom) (para 49), K. Radhika v.
Dy. CIT [2011] 47 SOT 180 (URO)/13 taxmann.com 92 (Hyd.)(para 50), CIT v. Siddharth J. Desai [1983] 139 ITR 628/10 Taxman 1 (Guj) (para 59), CWT v. Officer-in-charge( Court of Wards) [1976] 105 ITR 133 (SC) (para 60), Dr. Motibhai D. Patel (No. 2) v. CIT [1981] 127 ITR 671/5 Taxman 147 (Guj.) (para 61), CWT v.H.V. Mungale [1984] 145 ITR 208/[1983] 12 Taxman 201 (Bom) (para 62), CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj) (para 63), Gopal C. Sharma v. CIT [1994] 209 ITR 946/72 Taxman 353 (Bom) (para 64), CWT v. E. Udayakumar [2006] 284 ITR 511 (Mad.) (para 65), CIT v.Smt. Savita Rani [2004] 270 ITR 40/[2003] 133 Taxman 712 (Punj. & Har.) (para 65), N. Srinivasa Rao v. Special Court [2006] 4 SCC 214 (para 68), CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341 (Kar) (para 69), Dy. CIT v. Arijit Mitra [2011] 48 SOT 544/16 taxmann.com 66 (Kol) (para 70) and M.S. Srinivasa Naicker v. ITO [2007] 292 ITR 481/[2008] 169 Taxman 255 (Mad)
(para 77).
S. Rama Rao for the Appellant. D. Sudhakara Rao for the Respondent.
ORDER
Chandra Poojari, Accountant Member - The above two appeals by different assessees are directed against different orders of the CIT(A)-IV, Hyderabad dated 31.1.2012 for A.Y. 2007-08.
2. The assessees have raised various grounds of appeal. However, the crux
of the grounds is that the CIT(A) erred in treating the income arose out of sale of agricultural land as business income being adventure in the
nature of trade though it is an exempted income as capital gain. The
facts in both the cases are similar in nature. For convenience purpose,
we consider the facts narrated in the case of Sri Tulla Veerender,
Hyderabad in ITA No. 550/Hyd/2012.
3. Brief facts of the case are that the assessee in his return of income for
A.Y. 2007-08 had declared total income of Rs. 5,51,23,570 which included long term capital gain of Rs. 5,33,41,751. In the note given in the
computation of income the assessee had stated as under:
"The assessee owns the agricultural lands admeasuring 25 acres and 34 guntas in survey No. 227, 228, 229 bearing patta No. 562, pass book No. 431863 situated at Mankal village in Maheswaram Mandal of R.R. Distt. whose
cost as already reported in the earlier A.Y. 2006-07 is Rs. 5,25,61,860. During the year, i.e., 2007-08, the assessee has sold the entire land
on 1.12.2006 to M/s. Prajay Holding Pvt. Ltd. for a total consideration
of Rs. 24,81,60,000. A Photocopy of the sale deed is herewith enclosed.
The said lands are situated more than 8 Km from the local limits of any
Municipality or Cantonment Board. Mankal village, having less than
10,000 population due to which the agricultural lands in question are
outside the definition of the asset within the meaning of sec. 2(14) of
the IT Act. The Agricultural lands are actually grape gardens which are
assessed to revenue also, as such any gain whether Long term or short
term is not gain taxable under the Act. These lands were purchased by
the assessee during the A.Y. 2006-07 for a total consideration of Rs.
5,25,61,860 and the same fact had been disclosed in the IT Return filed
for the A.Y. 2006-07. The net gain of Rs. 19,55,98,140 is not taxable as such the same is not considered in the computation of income."
4. On verification of facts and records, it was noticed by the Assessing
Officer that the assessee, along with his brother Sri Vijayender Tulla,
aunt Dr. E. Adilakshmi, and brother-in-law Sri M. Ravindcr, had
purchased total area of acres 85.23 guntas agricultural land from Sri
B.K. Khosla, his wife Satish Khosla and his two daughters, Vani Kumra
and Richha Mahindru of New Delhi vide various registered deeds dated
08-09-2005. The details of the purchase of property by the assessee and
the three other relatives were as below:
S.No. Name of the buyer Name of the seller Address Land (Acres: Guntas) Consideration
1. T. Veerender Vani Kumra 26, Bungalow, Kamala Nagar, New Delhi 25.34 5,25,61,860
2. T. Vijayender B.K. Khosla -do- 13.19 2,42,55,000
3. T. Vinayender Satish Khosla -do- 6.32 1,22,40,000
4. T. Vijayender Vani Kumra -do- 6.23 1,18,35,000
26.24 5,29,22,580
5. E. Adilakshmi Richa Mahindru -do- 24.07 5,00,00,000 (approx)
6. M. Ravinder -do- -do- 6.10 1,20,00,000 (approx)
85.32 17,00,00,000 (approx)
5. The Assessing Officer found that on these lands agriculture in the form of cultivating grape gardens was being carried on for past several
years. On acquiring these lands, a company by the name, M/s. VVT
Agritech Pvt. Ltd., (hereinafter called as M/s. VVT) was incorporated on 26.10.2005, whose promoters and shareholders were the assessee and his
brother, Sri Vijayender. The company was incorporated to carry on the
business of agriculture and several other related activities, which have been mentioned in detail in the Memorandum of Association of the
company. The Assessing Officer noticed that the authorized and the paid
up share capital of the company was Rs. 1,00,000, which had been
subscribed by the two brothers Sri Veerender and Sri Vijayender in the
ratio of 50% each.
6. On 25.10.2005, a lease deed had been entered between all the four
owners of freshly purchased land, viz., Dr. E. Adilakshmi, Sri Veerender Tulla, Sri M. Ravinder and Sri Vijayender Tulla, as lessors, with M/s.
VVT as lessee, wherein the entire grape orchard admeasuring acres 85 and 22 guntas was given on lease with effect from 25.10.2005 on the
following terms:
(a) Yearly rent for this entire land was fixed at Rs. 12.80 lakhs. Each lessor was to receive following annual lease rent:
Dr. E. Adilakshmi - Rs. 3,50,000
M. Ravinder - Rs. 1,50,000
T. Vijayender - Rs. 3,97,500
T. Veerender - Rs. 3,82,500
These payments were exclusive of all taxes and other maintenance of the premises.
(b) That the lease is commenced from 26.10.2005 for a period of one year.
However, lessee shall be entitled to exercise his option by giving 2
months advance written notice to the lessors to continue the lease for a maximum period of three years, subject to the condition that 10% of the lease shall be increased every year.
(c) That the lessee shall pay regularly electricity consumption charges, other taxes etc.
(d) That the lessee will carry on the agricultural activity in the name and style of VVT AGRITECH PVT. LTD.
(e) That the lessee shall not run any business other than the development of grape garden as specified in this agreement.
7. On further verification, it was found by' the Assessing Officer that
M/s. VVT had filed its returns for two years only, i.e., A.Ys. 2007-08
and 2008-09. On calling for information from M/s. VVT, it is seen that
all the receipts and expenses for the period from the start of lease in
October, 2005 to 31.03.2006 had been included in the return for A.Y.
2007-08. It was noticed that the total sale of grapes had been shown for A.Y. 2007-08 at Rs. 39,15,951, while expenses were claimed at Rs.
65,86,309, thereby declaring the net loss of Rs. 26,67,142. The payment
of lease rent of Rs. 12,80,000 had been debited to the expenses of the
company. Expenses under the head material and direct expenses had been
debited at Rs. 22,59,806, diesel expenses at Rs. 6,13,368, salaries at
Rs. 1,65,555 and labour charges at Rs. 16,90,423, various administrative expenses were debited at Rs. 4,90,651. For the A.Y. 2008-09, sale of
grapes is shown at Rs. NIL and no expenses under the head material and
direct expenses, salaries and wages were shown, except for small
administrative expenses of Rs. 22,450.
8. It was further noticed that the four owners of the land, including the
assessee and M/s. VVT had later entered into a deed of cancellation on
29.09.2006, wherein it was mentioned that since the lessors proposed to
sell the scheduled property and had informed the lessee in this regard
and the lessee has accepted the same, the lessors and the lessee had
mutually came to an understanding to cancel the said lease deed and
reduce the same into writing. Therefore, it was found that the lease
deed had been cancelled w.e.f. 29.09.2006, as the assessee and the other three persons intended to sell the land. However, it was noticed that
the lease amount of Rs. 12,80,000 was shown as payable to the four
persons.
9. The Assessing Officer further noticed that subsequently, a Memorandum
of Understanding was signed on 15.9.2006, that is exactly within one
year of purchase of the land by assessee, between Sri M. Ravinder, E.
Adlakhshmi and Sri T. Vijayender and a private limited company viz.,
M/s. Prajay Holding Pvt. Ltd., wherein it is mentioned that due to
various financial commitments of the party of the first part, the owners have decided to sell the scheduled property. It was also mentioned that the company, being a leading developer in the city and a renowned
construction company, anticipating good development opportunity in the
said property, have decided to buy the scheduled property from the
owners. A second Memorandum of Understanding was entered between Sri T.
Vijayender and the same company i.e., M/s. Prajay Holding Pvt. Ltd.,
expressing the intention to sell and buy the property on the same date.
At the time of these MOUs on 15.09.2006, an advance of Rs. 3,00,00,000
was received by Sri Vijayender, besides the advance of Rs. 2.5 crore
each by Sri T. Veerender and Dr. E. Adilakshmi and one crore by Sri M.
Ravidner.
10. It was noticed that the sale consideration had been fixed at Rs. 96
lakh per acre and the entire amount of Rs. 23,54,40,000 was received by
Sri T. Vijayender at the time of final registration of the sale deed in
January, 2007. The entire land of Ac. 79. 32 guntas purchased by four
persons, including the assessee, had been sold/entered into agreement
with M/s. Prajay Holding Pvt. Ltd., for Rs. 76 crores approximately, as
below:
S.No. Purchased from Address Type of documents No. & Date Survey Nos. Extent (Ac : GTS)
A. Purchase
1. Dr. A. Adilakshmi -2-598, Rd. No. 8, Banjara Hills, Hyderabad-34. SD No. 586/ 2007 dated 10.1.2007 43, 49, 65, 66, 67 23.07
2. Mr. T. Veerender 8-2-503, Rd. No. 7, Banjara Hills, Hyd-34. SD No. 990/ 2007 dated 20.01.2007 27, 28, 29, 30, 31 & 32 25.34
3. Mr. Vijayender -do- SD No. 3059/2007 dt.31.3.2007 65, 66, 67, 69, 70 & 71 13.19
4. Mr. Vijayender -do- SD No. 3061/2007 dt.31.1.2007 43, 65, 66, 67, 70, 71, 72 06.32
5. Mr. Vijayender -do- SD No. 3060/2007 dated 31.3.2007 65, 66, 69, 70 & 72 04.10
6. Mr. M. Ravinder 3-6-100/1, West Marredpally, Secunderabad- 26 SD No. 2051/2007 dated 1.2.07 41 & 42 06.10
Sub Total 79.32
B. Development Agreement
7. Mr. M. Ravinder 3-6-100/1, West Marredpally, Secunderabad- 26 Dev. Agt./ GPA Doc No. 3700/07 dt. 1.2.2007 41 & 42 03.27
8. Mr. Vijayender 8-2-503, Rd. No. 7, Banjara Hills, Hyd-34. Doc. No. 3699/07 dt. 31.1.2007
02.13
Total 85.32
11. On a consideration of the above facts, the Assessing Officer observed
that land of about 25 acres had been purchased for more than Rs. 5 crore in September, 2005, given on petty lease to a newly created company,
and sold after one year in September, 2006 for about Rs. 24 crore to a
real-estate builder. Significantly, she noted that the assessee and Sri
M. Ravinder had kept about 2.13 and 3.27 acres of land, respectively,
with them and had given it for development purposes to the same company, within the same Integrated Township. They were to get back 30 to 40% of the constructed area from the developer in the said Township. She,
therefore, opined that the entire arrangement with the leading real
estate developer of the city showed the acumen of the assessee as a
seasoned business person to exploit the then over-hyped real-estate
economy of Hyderabad and its surrounding areas.
12. During the course of assessment proceedings, the Assessing Officer proceeded
to find out the intention of the assessee behind these transactions,
whether the same was to hold the land as an investment and earn
agricultural income therefrom or it was a venture in the nature of trade wherein the intention was to sell the land from the beginning itself in the ever spiralling real estate market of Hyderabad at the relevant
time.
13. On delving into the Agricultural history of the impugned lands, the
Assessing Officer noticed that all these agricultural lands were owned
by the family of Sri B.K. Khosla, consisting of his wife Smt. Satish
Khosla, and daughters Richha Mahindru and Vani Kumra. They were in
possession of these lands for close to one and half decade and grape
cultivation was being carried out on these lands. There were three
farms, by the name M/s. Eastern Farms, M/s. Khosla Farms and M/s. Vani
Farms, wherein all these four family members were partners. These farms
were showing agricultural income from the sale of grapes. It was
significantly noted that for years together grape cultivation was being
done on these lands and the sale proceeds from the grapes grown in these farms were shown as under:
Eastern Farm
Financial year Gross Proceeds (Rs.) Net Proceeds (Rs.)
2005-06 74,81,086 62,74,518
2004-05
17,39,000
2003-04 52,63,191 26,44,710
2002-03 54,56,338 26,88,602
2001-02 46,97,634 22,05,440
Khosla Farm
Financial year Gross Proceeds (Rs.) Net Proceeds (Rs.)
2005-06 64,81,880 49,45,534
2004-05
17,00,000
2003-04 92,78,372 40,04,137
2002-03 96,27,396 43,90,582
2001-02 81,02,480 33,02,827
Vani Farm
Financial year Gross Proceeds (Rs.) Net Proceeds (Rs.)
2005-06 52,23,077 45,64,808
2004-05 33,61,610 13,87,509
(It was created during the year)
2003-04 7,16,142 3,18,141
14. The Assessing Officer noted that since entire land was with the said
three firms, and on the entire land grape gardens had been grown, the
year-wise income from these lands was almost more than Rs. 50 lakhs,
consistently for several years. In some years, in fact, it was close to
Rs. 70 lakhs to Rs. 80 lakhs also. The Assessing Officer felt that these figures are significant to know the true capacity of the lands to give
agricultural revenue and to arrive at the intention of assessee by
seeing what treatment was accorded by assessee to land of such
productivity.
15. It was further noted by the Assessing Officer that the crop grown was
of a high quality and was being exported to Europe by M/s. Eastern
Exports, a family concern of the earlier owners. A certificate of
quality production had also been issued by EUREPGAP, some European body. The details of income from grape cultivation on these lands for all the above years clearly showed that rich harvests were being received year
after year. The land, therefore, was very strongly established for its
good quality grape cultivation.
16. However, the Assessing Officer noticed that immediately on purchase of
the land, the total land of acres 85.24 guntas, was given on lease rent
of merely Rs. 12.8 lakhs per year to M/s. VVT, even though the total
cost of purchase of land for all the four persons was Rs. 17 crore. She
noted that M/s. VVT shares were wholly owned by Sri Veerender and Sri
Vijayender in the ratio of 50% each and, therefore, Sri M. Ravinder and
Dr. E. Adilakshmi, the two other owners of the land, were not to get a
single penny more than the lease rental income of Rs. 1.5 lakhs and Rs.
3.5 lakhs per year. She particularly noted that this petty income was
accepted by these persons from M/s. VVT, even though the actual
agricultural income from this land was several times more consistently
for past one decade. Even M/s. VVT had reported a net loss of Rs. 26
lakhs out of gross receipts of Rs. 39,15,000 in the A.Y. 2007-08 while
nil income/receipts was shown for A.Y. 2008-09 by them. Further, it was
seen that the lease deed entered with M/s. VVT was only for one year
initially.
17. In view of the above facts, the Assessing Officer observed that the facade of M/s. VVT got fully exposed from the above arrangement. She further
noted that as per accounts of M/s. VVT, the said company had incurred
various expenditures mentioned below, up to various dates, which are
broadly as under:
Labour charges - up to 03.05.2006
Misc. Expenses - up to 02.05.2006
Printing and Stationery - up to April, 2006
Repair and maintenance - up to April, 2006
Salaries - up to 02.05.2006
18. From the above, the Assessing Officer noticed that after April, 2006, no
activities on the said agricultural land were undertaken. Therefore, she concluded that these facts showed that the assessee did not have the
intention to actually carry on agriculture on the said lands since the
very beginning. She noted that at the time of purchase of the said land
in September, 2005, a new crop started to come. However, after
harvesting the same, no agriculture activity was continued with. The
Assessing Officer opined that the intention of not carrying out
agricultural activities did not come in April, 2006, but existed since
the time of purchase of land itself, as otherwise, no prudent
agriculturist would have given the land on rent of merely three lakh
Rupees per year, even though it was giving income of several more times
consistently for past several years.
19. In view of the above findings, the Assessing Officer issued a
show-cause letter dated 05-11-2009 to the assessee, requiring him to
explain as to why the deal should not be considered as an adventure in
the nature of business in the light of facts of the case. The
submissions of the assessee vide his letter dated 13-11-2009 have been
reproduced in the assessment order as under:
(b) Basically assessee is from agriculture family and the land was
purchased as an investment. The main view in purchasing the grape
gardens was to export grapes. Since, it is difficult to export grapes
individually and also to export grapes in huge quantity the assessee has floated a company with himself and brother as promoters. Further, both
the promoters have taken on lease the grape gardens from their auntie
(Dr. E. Adilakshmi) and brother-in-law (M. Ravinder). These lands were
taken on lease to export more quantity of grapes. The very reason in
floating the company shows that the purchase of land is for investment
and not for re-sale. Therefore, in appreciating these facts your opinion of taking adverse opinion is not correct. By floating a company it
cannot be said or come to the opinion that the assessee has purchased
land for business purposes. There is no bar in law that two persons
float a company take on lease the land from other persons and it should
not be a decisive factor. The land in question is a grape garden, was
existing at the time of purchase. Nobody while purchasing the lands ever dreamt that rise in market price will be manifold i.e., four to five
times in a short period ...
The Central Board of Direct Taxes in its instruction No. 1827 dated
31.8.1999 had laid down certain test of distinguishing between
properties held as stock-in-trade and as an investment. The following
supplementary instructions in this regard will provide further
guidelines for determining whether a person is a trader or an investor -
Land is not a commercial commodity. Land alone is also not a trade in
itself. Normally the purchase of land represents investment of money in
land. A transaction of purchase of land cannot be assumed without more
facts to be a venture in the nature of trade. An investment in
purchasing a property is also made with a view to earning returns on the same investment. Therefore, the mere fact that a person invested money
for the purpose of reselling whenever a suitable opportunity arises does not give a substantive ground to hold that the transaction is in the
nature of trade. Deep Chandra & Co. v. CIT 107 ITR page 716 (All), CIT v. Jawahar Development Association, 127 ITR 431 (MP), Bhageerath Prasad Pilgaiya v.CIT 139 ITR 916 (MP.)
And lastly your observation is of no use in citing the case laws is in
correct and it appears only that you have predetermined mind in the
case.
20. The assessee made the following further submissions vide his letter dated 11-12-2009:
"If a person invests money in land with an intention to hold it enjoys
its income for some time and then sells it at profit, it would be a
clear case of capital accretion and net profit derived from an adventure in the nature of trade. Cases of realization of investments consisting
of purchase and resale though profitable, are clearly outside the domain of adventure in the nature of trade. In deciding the character of such
transactions several factors are treated as relevant—
The following case laws have been quoted;
(a) Venkata Swamy Naidu & Co. v. CIT, 35 ITR 594 (SC)
(b) Michael A. Kallivayalil v. CIT, 102 ITR 202 (Ker)
(c) Saroj Kumar Mazumdar v. CIT, 37 ITR 594 (SC)
(d) Janaki Ram Bahadur Ram v. CIT 57 ITR 21 (SC)
(e) CT v. Dhable, Bobde, Parose, Kale, Lute and Choudary, 202 ITR 98 (Bom)
(f) Fort Properties Pvt. Ltd. v. CIT 208, ITR 232 (Bom)
(g) CIT v. Kasturi Estates Pvt. Ltd., 62 ITR 578 (Mad)
(h) CIT v.Mohanuned Mohiddeen, 176 ITR 393 (Mad)
(i) ACIT v. Ashok Motilal Kataria, 308 ITR (AT) 298 (Pune)
7. To sum up ordinarily whether a person acquired land with a view to
selling it later after developing it and actually divided the land into
plots and sold the same in parcels the activity could only be described
as a business adventure. Generally, speaking the original intention of
the party in purchasing the property, the magnitude of the purchase of
the property, the nature of the property, the length of its ownership
and holding, the conduct and subsequent dealings of the assessee in
respect of the property, the manner of its disposal and the frequency
and multiplicity of transaction afforded valuable guides in determining
whether the assessee was carrying on trading activity and whether a
particular transaction should be stamped with the character of a trading adventure. CIT v. V.A. Trivedi, 172 ITR 95 (Bom) ...
12. Actually the intention of the assessee at the time of purchase of
agricultural land with grape garden was to export grapes as the grape
garden is of seedless grapes and high quality. With that view only in
order to have export benefit on the export of huge quantity of grapes
the assessee along with his brother have formed a private limited
company by taking also on lease the agricultural lands which were
adjacent to the assessee' s lands with grape garden as already submitted
after exporting the seedless grape for 7 days it caught the viral mealy
bug resulting thereby the grapes were not fit for export. Meanwhile the
market price of the lands has gone up to such an extent that in order to make good profit the assessee has sold the lands in question and by
selling the very character or nature of the lands has not changed and as was in the case of Deepchandra & Co. v. CIT, 107 ITR 716 (All) and CIT v. Jawahar Development Association, 127 ITR 431 (MP) land is not a commercial commodity. Land alone is not a trade and
itself. Normally the purchase of land represents investment of money in
land. The transaction of purchase of land cannot be assumed without more facts to be a venture in the nature of trade ...
14. As already submitted in the computation of income the agricultural
lands in question are 16 Km. away from the local limits of Greater
Hyderabad Municipal Corporation at Mankhal (v) of Maheswaram Mandal of
R.R. District. These lands are not an asset within the meaning of
capital asset u/s. 2(14)(iii)(a) or (b). As such they are not capital
assets under the Income-tax Act, and on sale of agricultural lands the
capital gains whether Long/ Short are not taxable"
21. The assessee made further submissions vide his letter dated 24.12.2009 as under:
"2. The assessee claimed the said gain as 'revenue derived from land'
exempt from income tax under section 10(1) in terms of Explanation 1
under clause (1A) of section 2, since the said lands are agricultural
lands upon which agriculture has been carried on and these lands are not situated in any of the areas specified in sub-clause (iii) of clause 14 of section 2.
5. The lands are classified as agricultural lands in the revenue records.
The land has not been subjected to any plotting or development by way of roads and other facilities. In fact the lands have farm buildings
comprising of workers' quarters and office besides machinery to grade
and process the grapes for export. The lands are used exclusively for
agricultural operations for growing grapes and processing them for
export. No other activities are permitted on the said lands by the
assessee or the lessee (VVT Agritech).
6. On the basis of the above facts it is submitted that the land is
agricultural land and the gain sale. thereof is characterized as
agricultural income in terms of section 2(1A) and exempt under section
10(1) of tile Act. In this connection, the assessee draw support from
the decision of Bombay High Court in the case of CIT v. Minguel Chandra Pais (282 ITR 618) (2006) wherein the court laid certain criteria for deciding whether a land
constitutes agricultural land on the basis of Supreme Court decision in
the case of Sarifabibi Mohmed Ibrahim v. CIT (204 ITR 631) [1993). The agricultural lands owned by the assessee fulfil all the conditions
in this regard. The court also cited the decisions of Gujarat High Court in the case of CIT v. Manilal Somnath. (106 ITR 917) and held that merely because a purchaser may be prepared to pay a large price for the potential non-agricultural value of the land, it would
not detract from the character as agricultural land on the date of sale.
8. Once the land is held to be agricultural land, the gain on sale of the
same would be classified as agricultural income falling under section
10(1) of the Act. The Supreme Court in the case of CIT v. Williamson Financial Services (297 ITR 17) (2008) held that once an income is treated as agricultural income, the same is not only exempt but is also to be excluded from computation of total
income and therefore, does not fall under section 14 and under the
various computation sections, sections 15 to 59. it is, therefore,
submitted that on the gain being classified as agricultural income, the
contention that it is an adventure in the nature of trade and taxable
under the head 'income from business' is not correct.
11. As the yield from the crop has been drastically affected due to 'mealy
buy' disease, the assessee could not continue the business and instead
proposed to sell the lands together with the standing crop to others to
mitigate future losses. The sale is made with an intent to mitigate the
losses arising from grape plantation. The gain is incidental to the
intent of disposing the property and is a capital accretion which cannot be termed us 'adventure in the nature of trade'. The sales are mode in
the measure of acreage and not yardage. The assessee has sold the grape
garden: along with the appurtenant farm buildings and equipment."
22. On a consideration of the submissions of the assessee, a final
show-cause notice letter was issued to the assessee on 24.12.2009. In
response, the assessee made further submissions vide letter dated
29.12.2009 as under:
"(1) In
your above reference letter in para-02 your observation that the
assessee not taken any steps either preventive or treatment of Mealy bug is not correct. Mealy bug is a common pest and once affected it will
destroy the grape within two weeks. The assessee who has started
exporting grapes to U.K. and the container of grapes for export from
India to U. K. will normally take two to three weeks to reach its
destination and by the time they reached the grapes are unfit for human
consumption. Mealy bug which has affected the assessee farm severely and in spite of treatment could not be eradicated completely. The assessee
has taken preventive medicines like Methomyl 40 SP (Trade name Lannate
40 SP), Dichlorvos (Trade name Nuvan) other medicines and predators
(Useful insects). Though all the records relating to VVT Agritech are
with you out of remembrance we are able to furnish the above
information. The above medicines have been purchased by the assessee
adequately from M/s. Vanasri Seeds (P) Ltd., Hyderguda, and Rekha
Corporation Pvt. Ltd., Basheerbagh, Hyderabad for the prevention and
eradication of Mealy bug. In spite of his efforts the assessee could not totally eradicate the pest mealy bug and it is only on the advice of
Grape Consultant Mr. A. Appa Rao, MSc. (Agri), Banjara Hills, Hyderabad
was seriously contemplating to destroy the entire plantation. This was
happened in the later part of April-2006.
(2) Due to the mealy bug the assessee could not supply the grapes for
exports to its capacity. It is only the supply for export was affected
for only 7 days due to which the revenue from sale was minimum which
could not even meet the expenditure and finally VVT Agritech ending up
in losses.
(3) It is at this stage the land prices in and around area where the farms
are located risen to maximum and the assessee and co-owners of farmland
have received good offers for the sale of land which was under the
active consideration of the assessee and other co-owners. Ultimately the assessee and others co-owners have agreed to sell the farmland to M/s.
Prajay Holding Pvt. Ltd. and others. Due to this reason only no
significant activity was undertaken by the assessee from May, 2006. Due
to this reason only no adequate labour payments or other payment were
made from May, 2006. It must also be noted that the assessee and others
have received advance money for sale in September, 2006.
(4) What we submit that due to sudden rise in the market prices of the lands in that area the assessee and other co-owners like many others in that
area have sold the properties.
(5) It was never the intention of assessee and other co-owners at the time of
purchase of lands to make profit out of it by selling but they wanted to have income earning by exporting the grapes as the lands were with the
grape gardens. If at all the assessee and other co-owners could
visualize increase in the market price at the time of purchase, so also
original sellers of the farmland whose lands were there from long time
could have visualised the same and in that case why should they sell the same particularly when they are financially well placed,
(6) The assessee and other co-owners have purchased the properties with an
intention to enjoy the income by making efforts to export the grapes. It is only on the favourable conditions the assessee has sold the
properties. It is only a chance sale for the assessee.
(7) We once again bring to your kind notice to para (17) of our letter dated 13.11.2009 wherein we submitted that land is no commercial commodity.
Land alone is also not a trade in itself. Normally the purchase of land
represents investment of money in land and it cannot be ventured in the
nature of trade.
(8) Lastly the claim of the assessee that the land in question is not an
asset within the meaning of section 2(14) of the IT Act is correct and
justified. There is no justification to hold the profit from the sale of land as business profit instead of capital profit."
23. The Assessing Officer has summarised the assessee' s contentions in the above submissions as under:
"(a) Intention of the assessee in the beginning was to do agriculture.
(b) Low income from sale of grape in Assessment Year 2007-08 was due to Mealy Bug disease.
(c) Due to the disease the crop was destroyed and assessee decided to sell the land.
(d) At this time assessee started getting good price for the land and therefore decided to sell it.
(e) Assessee is an agriculturist and he is from an agricultural family.
(f) He is not a dealer in real estate business.
(g) Assessee is basically an investor.
(h) Since it is difficult to export grapes individually a company was
floated with brother and had taken grape gardens from Aunt and
Brother-in-law.
(i) The reason for floating company shows that land was for investment and not for sale.
(j) Agriculture land was shown as investment in the balance sheet.
(k) CBDT's instruction No. 1827 dated 31-08-99 was quoted in his defence.
(l) Commodities sold in short time itself will not indicate nature of trade.
(m) Land is not an asset within section 2(14)(iii)(a & b).
(n) They have purchased agricultural land in the subsequent years.
(o) If assessee and co-owners could visualize increase in market price, at the time of purchase, so also earlier owners could have visualized this
increase. Then why did they sell it.
(p) Various case laws have been quoted in defence of assessee' s arguments."
24. On a consideration of the above contentions, however, the Assessing
Officer opined that those were not sufficient to dispel the presumption
that the assessee' s intention since the beginning was to sell the land
on profits and not to hold as an investment and derive agricultural
income from this. She opined that from the written words but by the
chain of his actions, from the time of purchase of the property.
25. The Assessing Officer opined that for an agricultural land purchased
for around Rs. 5 crore and having consistent healthy agricultural income for over a decade, the annual lease rent deed of Rs. 3.5 lakh could not be considered as genuine. She held that such a low value deed exposed
the hollowness and falseness of the arrangement. She felt that the lease rent of as low as an amount as Rs. 12.8 lakh, exposed the fact that
assessee never actually wanted to do agriculture on this land which in
the past was producing high quality grapes which was being exported
abroad. Besides, she noted that the lease deed was only for one year,
which again highlighted the nature of the stopgap arrangement which was
created till the land was sold. The Assessing Officer agreed that the
investment in the land will be of higher value than the income received
from it, but in the assessee' s case the actual income being earned in
the earlier years was several times more than Rs. 12.80 lakh of rentals
fixed in the lease deed. She, therefore, held that this one act at the
time of purchase of property singly brought out that from the day one
the true intention was not to do the agriculture on this land.
26. The Assessing Officer opined that if the assessee did not know the real income being received from this land at the time of its purchase, it
could only lead to the conclusion that the intention was never to do
agriculture on this land. She observed that any agriculturist, who buys
land with an intention to do agriculture, will invest in the land only
after knowing what returns it will give to him as return. In the instant case, however, considering the agreed lease rentals of Rs. 12.8 lakh it was clear that the assessee was not even aware of potential of income
from the land, or, in fact, he was not bothered about it. She,
therefore, concluded that if the assessee knew the real income being
generated from this land, a low rental of Rs. 12.8 lakh could not be
justified. She held that the ignorance or carelessness on account of
assessee to know the extent of income being generated clearly showed
that his intention was never to earn agriculture income from this land.
He actually wanted to sell it from the beginning and earn profit from
the sale. That is why extent of agricultural income was immaterial to
him.
27. The Assessing Officer further observed that even if a disease hits the
crop, a genuine agriculturist will not immediately sell away the land,
especially in the light of consistent agricultural income being drawn
from it. She noted that the National Research Centre for Grapes (NRCG),
Pune, which is an arm of Indian Council of Agriculture and Research, in
its official site on the internet have enumerated various fungal
diseases like Downy Mildew, Powdery Mildew, Anthracnose, various fungal
diseases and pest based diseases like mealy bug, flea beetle, Thrips and hoppers etc., which regularly hit the grape crop in the country
throughout the year and there are established treatments for them.
Therefore, the attack of mealy bug disease in the assessee' s case could
not be said to be an exceptional feature, but a regular thing which has
to be dealt with by any agriculturist of grape gardens. She, therefore,
concluded that the argument of mealy bug disease is only an afterthought for explaining the sale of land. In fact, NRCG has stated that mealy
bug is a disease which occurs throughout the year and since grape is a
perennial crop, one has to look after full one year cycle of crop both
in the vegetative growth period and fruit development period.
28. She further noted that the agricultural activity in this case was
stopped in April, 2006, i.e. almost within 6 to 7 months of its
purchase. Even though the agreement to sell land was entered in
September, 2006 and the lease deed was cancelled in September, 2006. She felt that this showed that the assessee was never interested in the
agriculture on this land. Therefore, after harvesting the crop in
March/April 2006, for which the fruit had appeared at the time of
purchase of the land, all the agricultural activities were abandoned.
29. It was further noted by the Assessing Officer that even though the
assessee had stated in his reply that he is an agriculturist and is from an agricultural family, the facts of the case were totally different.
She observed that the assessee himself had admitted that he is a
businessman, as was apparent from all the sale/purchase deeds of the
land, wherein the occupation of the assessee was mentioned as business.
She noted that such a reference was not causal or by default, but a true indicator of the assessee' s own version about himself. She noted that
in an agricultural economy like India, a link with some agricultural
family in some village alone cannot make a person an agriculturist.
30. In addition to the above observations, the Assessing Officer opined
that even though ups and downs in agriculture is an accepted fact, the
floating of a company by itself cannot prove the intention of doing
agriculture. Similarly, the treatment of land as 'investment&# 39; in the
balance sheet is also immaterial, particularly when the assessee' s
conduct speaks otherwise. She felt that even in view of the CBDT
Circular dated 31.8.2009, the real conduct of the assessee is to be seen and in the assessee' s case, it was clear that the real and true
intention at the time of purchase of land was to sell it to earn profit
from it. Similarly, she opined that purchase of land in subsequent year
is also inconsequential
31. As regards, the argument of the assessee that the earlier owners also
could have anticipated the price rise. The Assessing Officer opined that the same is only an attempt to put various facts of the case in a
distorted way. She felt that there cannot be any comparison between
status of earlier owners and the assessee, because there are crucial
differences between them. She noted that the earlier owners were all
residents of Delhi and Sri Khosla was doing his business from far-off
Delhi in all the three years. Since they were not residents of
Hyderabad, and their knowledge of the city and the economic boom could
not be compared with first hand knowledge of the assessee in this
regard. Besides, she noted that the earlier owners had purchased the
land way back in mid-nineties and had been regularly doing grape
cultivation in it. They had purchased it for very small amount, and the
subsequent sale for several crore, had definitely fetched them multiple
times of the value.
32. As regards the assessee' s argument that the land under consideration
was an agricultural land, and the same was situated in areas specified
in sub-clause (iii) of clause 14 of section 2, and therefore, its income will be exempt u/s. 10(1), the Assessing Officer opined that such
argument was of no significance. She noted that in this case neither the agricultural produce was being assessed as taxable income nor the
transaction was being assessed as capital gains. She observed that in
the instant case, purchase and sale of property, by its specific nature, was being assessed as an adventure in the nature of trade as per
section 2(13) of the IT Act. The fact that the land is agricultural land is of no significance for being treated as adventure in the nature of
trade.
33. The Assessing Officer also felt that the conduct of assessee was to be
interpreted in the entire economic context of city of Hyderabad during
the relevant period. She noted that the period when there was real
estate boom in Hyderabad and its surrounding areas and the Urban
Development Authorities had notified various villages including the
Maheswaram village for special development meant for various in and
around international Airport and Shamshabad. There were various specific notifications in this regard, which have been placed by her in the
file. However, without going into the details, she considered it fit to
mention that the overall conduct and intention of the assessee was to be examined in the overall economic context of that time and his intention to enter into this adventure to make quick profit.
34. Examining the facts of the case in the light of various legal
pronouncements on this issue, the Assessing Officer noted that one basic principle which flows from each one of the case law, including those
not quoted by assessee in his submission, is that the specific facts,
considered in totality alone, will determine the conduct of assessee and will prove whether a particular transaction was in the nature of
adventure of trade or not. She observed that even though the courts have laid down certain principles, those have to be interpreted in the light of particular facts and it is only with the conjunction of facts with
the principles that a particular decision can be arrived at in a
particular case. She particularly noted the decision of the Hon'ble
Supreme Court in the case of G. Venkataswamy Naidu & Co. v. CIT[1959] 35 ITR 594, wherein it was opined that ".... The intention to resell may in such
cases be coupled with the intention to hold the property. Cases may,
however, arise where the purchase has been made solely and exclusively
with the intention to resell at a profit and the purchaser has no
intention of holding the property for himself or otherwise enjoying or
using it. The presence of such an intention is no doubt a relevant
factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the
nature of trade. Even so, the presumption is not conclusive, and it is
conceivable that, on considering all the facts and circumstances in the
case, the court may despite the said initial intention, be inclined to
hold that the transaction was an adventure in the nature of trade. We
thus come back to the same position and that is that the decision about
the character of a transaction in the context cannot be based solely on
the application of any abstract rule, principle or test and must in
every case depend upon all the relevant facts and circumstances. " She,
therefore, opined that in view of such judicial pronouncements, a single transaction of purchase and sale outside assessee' s line of business
may constitute an adventure in the nature of trade. It is not essential
for assessee to be in business in the line of real estate. She felt that the assessee' s case falls in the category of adventure in the nature of trade, precisely because real estate transactions are not his regular
business and assessee' s conduct and intentions in the purchase and sale
of this particular property puts him in the category of adventure in the nature of business.
35. The Assessing Officer noted that in various cases, such as CIT v. Jawahar Development Association [1981] 127 ITR 431 (MP) , Smt. Indramani Bai v. Addl. CIT [1990] 200 ITR 594/70 Taxman 67(SC), P.M. Mohammed Meerakhan v. CIT [1994] 73 ITR 735 (SC) and Hemchand Hirachand Shah v. CIT [1994] 206 ITR 55/[1995] 83 Taxman 626 (Guj.), on the specific conduct of assessee, it was held to be adventure in the nature of trade.
36. Lastly, the Assessing Officer referred to the Plato's Theory of
'Knowledge&# 39; and opined that one should not go by the 'appearance of
reality' , but comprehend the 'substance of reality' . She also took note
of the maxim that "whole" is more than merely the mathematical sum total of the "parts" that constitute it. On a complete analysis of all the
facts of the case and the conduct of the assessee since from the time of purchase of land to its sale, besides in the light of the economic
scenario of the Hyderabad city during the period and the principles laid by Apex court for analyzing such a case, she concluded that the
assessee had not purchased the land with an intention to do agriculture
on it. Instead, the land had been purchased with the only intention of
selling it at profit in the booming economy of Hyderabad. She had,
therefore, summarised her finding in the assessment order as under:
"(a) Assessee is not an agriculturist. He is a 'Businessman&# 39; by his own admission.
(b) He purchased the agricultural land with sole motive of selling it on
profit in view of, the then, real-estate boom in and around Hyderabad.
(c) Actually no intention to do agriculture done; the floating of company VVT Agritech was a facade.
(d) Claim of sale due to destruction of crop by mealy bug is contrary to his stated intention of doing agriculture. Any person doing agriculture of
grapes would be dealing with this disease in a routine way.
(e) Sale within a year to real-estate company for huge profit reflects the true state of entire adventure.
(f) Keeping of a small part of land by Shri Vijayender & Shri M.
Ravinder and giving it on development of Hi-end villas to same real
estate company proves the point that it was adventure in trade and,
therefore, the profits earned in this transaction are treated as
adventure in the nature of trade and held as business income."
37. In the light of the above, the profit on sale of the impugned land of
Rs. 19,55,98,140 was assessed as business income, being adventure in the nature of trade by the Assessing Officer. Similar is the position in
the case of Sri T. Vijayender except change in figures.
38. On appeal to the CIT(A), it was observed by the CIT(A) that the
assessee is not a regular "agriculturist " and assessee is earning income from business, capital gains and other sources. He has also observed
that the assessee mentioned his status and occupation as business in the registered sale deed as business. It is also observed that mere
assessees' family background being agriculture cannot lead to the
conclusion that the assessees is 'agriculturist& #39;. As in the present case the assessee sold the land in a short time after purchasing the same to M/s. Prajay Holding Pvt. Ltd., which is a construction company, for
non-agricultural purposes after cancelling the lease agreement with M/s. VVT for huge consideration which leads to the conclusion that the
assessees carried on the business in the land. According to the CIT(A),
the intention of the assessee in acquiring the land is not for the
purpose of carrying on agricultural activities on his own on the said
land and with sole intention of selling the land for profit. According
to the CIT(A), the assessees entered into lease agreement with M/s. VVT
just to create a facade with a view to give semblance of doing of
agricultural operations. Even after taking the land on lease by M/s. VVT there was no agricultural operation on the said land after payment of
lease rent. The real intention of the assessee is not to carry on
agricultural operations. He further observed that the company, VVT, was
floated as it was difficult to export grape individually, it is clear
that while the said company did not have any experience therein, the
Directors thereof were also inexperienced in this area. As stated
earlier, no expert had been employed to handle the agricultural
operations or the export thereof. Therefore, floating of such a company
itself could not have solved the problems likely to be faced in
exporting grapes individually. Rather, the facts of the case clearly go
to show that the said company was created as a facade only and not for
any real agricultural operations.
39. The CIT(A) observed that one of the reasons cited by the assessee for
dis-continuation of agricultural operations and sale of lands is that
the grape crop caught the mealy bug virus, which rendered the grapes
unfit for export. From the literature available on the internet on this
issue, however, it is seen that diseases of this nature are common in
grape cropping and effective treatment is available for them. Under the
circumstances, mere affliction of the crop by such a disease could not
have resulted in discarding of the so-called intention of carrying out
agricultural operations altogether, and selling the land acquired at a
huge cost. This strengthens the view that the initial intent in purchase of the land was not to pursue agriculture but to earn quick profits
from sale of land in view of the emerging market conditions.
40. The CIT(A) observed that the entire scheme of the assessee, therefore,
proves that while the basic intention was to earn huge profits by
undertaking the above transactions, the assessee arranged the events in a manner to give it the colour of an intention of carrying out
agricultural operations on the land acquired as an investment. However,
the facts of the case clearly show that in substance the transaction
only an adventure in the nature of trade.
41. He further observed that as regards the contention that the land so
purchased had been treated as an 'investment&# 39; in balance sheet, it is a
trite law that the treatment or nomenclature given by the assessee to
any transaction in his books of account is not conclusive and is not the sole test to decide the real character of that account / transaction.
Similarly, the argument that the assessee is not a dealer in real estate business is of no avail, as in the light of several judicial
pronouncements, such as G. Venkataswamy Naidu (supra),
even a single transaction can constitute a business. Likewise, the
intention of the assessee regarding agricultural operations on the
impugned land does not get substantiated from his subsequent purchases
of land, as the issue to be determined is whether the impugned land had
been purchased as an investment for carrying out agriculture.
42. The CIT(A) observed as regards the contention that the appreciation in
the value of land could have been visualized by the earlier owners also, the Assessing Officer has rightly brought out that the assessee and his other co-owners, who hailed from Hyderabad itself, had a better
knowledge of the economic boom, while the earlier owners from Delhi
might not be having the real life knowledge of the economic scenario.
Besides, their expectation of appreciation might also have been
achieved, as they had already earned substantial return on their
investments, both in the form of substantial agricultural produce over
the years and the huge consideration received by them on sale thereof.
43. He observed that so far as the contention that the land under
consideration was an agricultural land, sale whereof was to be exempt
u/s. 10(1), it is seen that the land was in Maheswaram village, which
had been notified, along with other villages by the Urban Development
Authorities. Under the circumstances, the true nature of the land sold
by the assessee is to be determined by applying the tests laid down by
the Hon'ble Courts in this regard. It is seen that the Hon'ble Rajasthan High Court in the case of Mahaveer Enterprises v. UOI [2000] 244 ITR 789/[1997] 95 Taxman 220 have considered the following as the relevant tests, which can act as
guidelines in determining the nature or the character of land as
agricultural or otherwise:
(1) The proximity of the land to building and building sites;
(2) Sale of land for non-agricultural purposes.
(3) Sale of land by a measure with reference to square yards and not acres.
(4) Price being such as to be non-viable, if the land is put to agricultural use
by the purchaser, while it is more consistent with the price fetched for urban plots than for agricultural land.
(5) Character of the land.
(6) The
purpose for which the land was held by the present owner. A firm which
holds it may well be presumed to have held it as stock-in-trade and not
for carrying out agricultural operations.
(7) As regards use of the land for agricultural purposes prior to sale, more use in remote past though land revenue is paid, would not make it
agricultural.
(8) Mere capability of being used as agricultural land is not enough.
44. The CIT(A) observed that applying the tests mentioned above, it can be
seen that the land was sold at a time when there was a real estate boom
in land around the city of Hyderabad and the Government was issuing
various notifications for urban development, which included the
Maheswaram village for Special Development meant for in and around the
International Airport at Shamshabad. It was for this reason only that it was sold to a construction or Real Estate company, who purchased it not for agricultural operations, but obviously for developing the same. The criteria regarding 'measure of sale of land' in the instant case is not of much importance, as in this case the land was acquired in its
entirety in terms of acre for the purpose of massive construction
activities by a big construction company. Further, it is also clear that the price of Rs. 96 lakh per acre was non-viable, if the land was to be put to agricultural use by the purchaser. In view of these factors, as
held by several judicial pronouncements, the 'character of land'
mentioned in the revenue records also fades into insignificance. Even if any agricultural operations were at all carried on the impugned land
during the intervening period, it is clear that the assessee was only
waiting for an opportune movement for earning the best price in respect
of the land, whose very use and status had changed after the
notifications. Obviously, the mere capability of the land for being used as agricultural land cannot be considered as a decisive factor.
45. The CIT(A) opined that the Hon'ble Apex court in the case of Smt.Sarifabibi Mohmed Ibrahim v.CIT [1993] 204 ITR 631/70 Taxman 301 have clearly opined that whether a particular land is agricultural or
not is essentially a matter of fact. In this regard their observation is that several tests evolving in the decisions on this issue are "more in the nature of guidelines" . The question, therefore, has to be answered
in each case, having regard to the facts and circumstances of that case. They had observed that there may be factors both for and against a
particular point of view, and therefore, the question has to be answered on a consideration and evaluation of all of them. The inference,
accordingly, has to be drawn on a "cumulative consideration" of all of
the relevant factors. On a consideration of the relevant facts in the
case of the present assessee, it becomes abundantly clearly that almost
all of the tests laid down lead to the conclusive inference that the
agricultural land sold by the assessee was not an agricultural land at
the time of sale.
46. The CIT(A) observed that under similar facts even the Cochin Bench of the ITAT have taken a similar view in the case of M.K. Abdul Rehiman v. Dy. CIT [2011] 16 taxmann.com 406/[2012] 49 SOT 267 (Coch) by relying on the decisions discussed above. Besides, the decision of the Hon'ble P & H High Court in the case of Rockman Cycle Industries Ltd. v. CWT (Appeals)(central) [2010] 191 Taxman 399 also supports the view that the change in the land use is indeed the
determining factor. In the case of the present assessee, the Government
notifications and the imminent development of the area indeed establish
that the land sold by the assessee in the said area was not agricultural land at the time of sale.
47. The CIT(A) observed that the case laws relied upon by the
representative of the assessee, it is seen that the Assessing Officer
has duly distinguished those from the facts of the assessee case. So far as the decision in the case of ITO v. Anthony John Pareira [2008] 24 SOT 459 (Mum) is concerned, it is seen that in the said case 450 acres of
agricultural land had been purchased by that assessee between 1986 to
1992 and a part thereof was sold during the year. The land in question
was away from the developed area and was in a green zone, surrounding
whereof had not been developed. Besides, the assessee had been earning
agricultural income therefrom, which was being shown in the returns of
income. There was no other activity on the land for the last 9 years,
and hence, there was found no intention to do any business. It was under these facts that the Mumbai of ITAT held that the entries in Revenue
records gave a presumption in favour of the assessee, which could not be rebutted. Since there was no evidence that the assessee intended to
trade, it was held as not been an adventure in the nature of trade. In
the case of the present assessee, however, the facts, as discussed in
foregoing paragraphs are entirely different and such facts do show that
the assessee intended to undertake an adventure in the nature of trade.
48. So far as the reliance of assessee' s representative on the decision of the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 is concerned, in the said case also the assessee had agreed to purchase the Jute Press, subject to litigation pending in the High Court of
Calcutta. The Hon'ble Apex Court opined that the nature of transactions
must be determined on a consideration of all the facts and
circumstances. They noted that there was nothing to show that the
assessee desired to convert the property to some other use. He did not
employ any brokers for sale, rather the purchaser himself had approached the company from whom the assessee had purchased the Press. He
contacted the assessee thereafter, who agreed to sell the Press. The
Hon'ble Apex court opined that the Jute Press could have been purchased
for own business or for being let out also, and therefore, it could not
be said that there was a venture intended. Therefore, it is clear that
considering the nature of Jute Press, which was already subject to
litigation, the Hon'ble Court opined that the property purchased was not such that an inference that a venture in the nature of trade must have
been intended could be raised. In the case of the present assessee,
however, the facts are entirely different and these go to show that the
assessee only want to make quick profits from the transaction in a land
which was very much in demand in the rising real estate market.
49. So far as the decision of the Hon'ble Bombay High Court in the case of CIT v. Smt. Debbie Alemao [2011] 331 ITR 59/196 Taxman 230/[2010] 8 taxmann.com 243 (Bom) is concerned, the Hon'ble High Court noted that Sec. 30 of the Goa,
Daman and Diu Land Revenue Code, 1968 provides that no land used for
agriculture shall be used for any non-agricultural purpose and no land
assessed for one non-agricultural purpose shall be used for any other
Non-agricultural purpose, except with the permission of the Collector.
They noted that the permission for non-agricultural use of the said land was obtained for the first time by the Verca Holiday Beach Resort P.
Ltd., the purchaser, only after the purchase of land. Accordingly, they
held that prior to such permission, the land was agricultural only. In
the case of the present assessee, however, the facts are totally
different, as there was no such restriction regarding exclusive
agricultural user of the land. On the other hand, the lands of the area
had been notified by the Government for development.
50. Similarly, the reliance of the representative of the assessee on the
recent decision of the Jurisdictional ITAT, Hyderabad in the case of K. Radhika & Ors. v. Dy. CIT [2011] 47 SOT 180 (URO)/13 taxmann.com 92 is misplaced. From the order of the ITAT, it can be seen that the
assessee therein had been purchasing lands right from the year 1995,
which were sold in subsequent years. The ITAT opined that had the
assessee being in real estate business, she would not have kept the land for such a long period. With regard to the lands sold within short
time, it was found that sales were made under compelling such
circumstances, as those were falling under Bio Conservation Zone/Green
Belt, of which the assessee was not aware. Therefore, such lands were
sold under compelling circumstances to realize the investments only and
avoid any future disputes. It is clear that the above facts are not at
all existing in the case of the present assessee. Rather, in this case,
the assessee has entered into the land deal and invested a huge sum
therein only after analyzing the business prospects with a profit motive in a manner which indeed matches with the conduct of a businessman.
51. In the light of the above discussion, the CIT(A) was of the considered
view that the various factors discussed above, including the background
of the assessee, commercial potential of the impugned land after
Government notifications regarding development, huge investments by the
assessee in hitherto unexplored areas, as followed by post-purchase
operations of the assessee thereon, indeed establish that the profit of
Rs. 19,55,98,140 from the sale of the impugned land was assessable as
'Business income', being an adventure in the nature of trade. Thus, the
CIT(A) decided the grounds against the assessees. Against these findings the assessees are in appeal before us.
52. The learned AR submitted that the impugned land is an agricultural land and not covered by the definition of capital assets u/s. 2(14) of the
Act. He submitted that the land is situated in an area outside any
municipality or cantonment board having a population of not less than
10,000 and also beyond the distance notified by the Central Government
from the limit of any such municipality or cantonment board. According
to the AR, the said land was purchased by the assessee' s along with
other co-owners for the purpose of carrying on agricultural activities
on 8.9.2005 with the sole intention of carrying on the agricultural
activities. According to the AR sale of agricultural land cannot be
treated as transfer u/s. 45 to attract capital gain tax and also it
cannot be treated as an adventure in the nature of trade treating the
income arising out of that transaction as business income. He submitted
that the land sold by the assessee was never converted into
non-agricultural land. The character of the land remains as agricultural land till the date of sale, unless the character of the land changed,
it cannot be treated as non-agricultural land.
53. The learned AR submitted that the lands are classified as agricultural
land in the Revenue records, even as on the date of sale and they were
sold on acreage basis. In fact, there was actual cultivation at the
relevant point of time, not only by the assessees but also by M/s. VVT
and the assessee derived agricultural income from such land. Mere
selling of land by the assessees for non-agricultural purposes, cannot
be a reason for treating the sale of land by the assessee as adventure
in the nature of trade. The AR further submitted that the impugned land
was sold, in fact, not voluntarily but was made under compelling
circumstances. There was a boom in the real estate market and at the
same time the yield from the grape garden has been drastically affected
due to mealy bug disease. The assessee could not continue agricultural
activities instead proposed to sell the land to avoid future loss and to get advantage of higher rising prices. If the assessee misses this
opportunity they would have suffered huge financial losses. In view of
this he submitted that the assessee used the opportunity and sold the
land for better price and mere capability of land being used for other
than agricultural purposes cannot be a reason to hold that the assessee
is engaged in buying and selling of land. He submitted that the
assessees are not dealers in real estate business and they invested in
agricultural land. The AR relied on the following case-laws.
54. On the other hand, the learned DR relied on the orders of lower authorities and also on the judgment of Sarifabibi Mohmed Ibrahim' s case (supra) wherein their Lordships held as under:
"Whether a piece of land is agricultural land or not is essentially a question
of fact. Several tests have been evolved in decisions of the Supreme
Court and the High Courts, but all of them are more in the nature of
guidelines. The question has to be answered in each case, having regard
to the facts and circumstances of that case. There may be factors both
for or against a particular point of view. The court has to answer the
question on a consideration of all of them - a process of evaluation.
The inference has to be drawn on a cumulative consideration of all the
relevant facts.
The appellants were co-owners of a plot of land inherited from an ancestor
through their father. On March 15, 1967 they agreed to sell the land to a housing co-operative society and, to enable them to complete the
transaction, they applied in June, 1968, and March, 1969, for permission to transfer the land for a non-agricultural purpose and the permission
was granted in April, 1969. A number of sale deeds were executed in May, 1969 and the purchasing society applied for conversion of the land to
non-agricultural purposes, viz., construction of buildings. The question was whether the profit from the sale of the land was assessable to
capital gains tax. The facts in favour of the appellants were: the land
was registered as agricultural land in the revenue records and land
revenue had been paid in respect thereof till the year 1968-69; there
was no evidence that the land was put to non-agricultural use and the
land was actually cultivated till and including the agricultural year
1964-65; there were agricultural lands abutting the land; and the
appellants had no other source of income except the income from those
lands. The facts against the appellant were the land was situated within the municipal limits of the Surat Municipality and at a distance of one kilometre from the railway station: the land was not cultivated from
1965-66 until it was sold in 1969; the appellants had entered into an
agreement with a housing co-operative society to sell the land for
construction of houses, they had applied in June, 1968, and March, 1969, for permission to sell the land for non-agricultural purposes and soon
after obtaining permission they executed the sale deeds in May, 1969:
and the land was sold at a rate of Rs. 23 per sq. yard and the
purchasing society commenced construction operations within three days
of purchase. On a consideration of the contending factors the High Court held that the land was non-agricultural land and tax was leviable on
the capital gains arising from the transfer. On appeal to the Supreme
Court:
"Held, affirming the decision of the High Court, that the entering into the
agreement to sell the land for housing purposes, the applying for and
obtaining permission to sell the land for non-agricultural purposes, and its sale soon thereafter and the fact that the land was not cultivated
for a period of four years prior to its sale, coupled with its location
and the price at which it was sold outweighed the circumstances
appearing in favour of the appellants&# 39; case and established that the
land was not agricultural land when it was sold. The appellants had no
intention to bring it under cultivation at any time after 1965-66 and
certainly not after they entered into the agreement to sell the land to
the housing co-operative society. The High Court was right in holding
that the land was not agricultural land at the time of its sale and the
profit arising from its sale was liable to capital gains tax."
55. We have heard both the parties and perused the material on record. In
the present case there is no dispute that the assessees along with other co-owners acquired landed property of 85 acres 23 guntas of
agricultural land on 8.9.2005. There is also no dispute that there was
cultivation of grape in this land before sale of this land and there is
no dispute regarding the fact that the assessee herein floated a company by name of VVT Agritech Pvt. Ltd. on 26.10.2005. The main object of
that company was to carry on agricultural operations. Later, the
assessees and the other co-owners entered into a lease agreement on
25.10.2005 with M/s. VVT wherein the entire grape orchard measuring 85
acres 23 guntas was given on lease that company with effect from
25.10.2005 on rental basis for the purpose of cultivation.
56. M/s. VVT has filed return of incomes for A.Ys. 2007-08 and 2008-09
declaring nil income. Later there was cancellation of lease deed dated
29.9.2006 wherein the lease of the agricultural property was cancelled
as the lessor intend to sell the agricultural property. Accordingly,
this agricultural property was sold to one M/s. Prajay Holding Pvt. Ltd. The Revenue authority are of the opinion that the amount received on
sale of this agricultural property is nothing but on account of
adventure in the nature of trade and the same was brought into income
from business. In these cases, the assessee held the land always as
investment and not at all converted into stock-in-trade. The character
of the land in the hands of the assessee has not changed. There is no
material on record to show that the assessee carried on activities of
buying and selling of land in a systematic manner so as to justify the
action of the Revenue authorities in treating the activities of the
assessee as adventure in the nature of trade. The land was sold by the
assessees in acreage and not by making plots.
57. Now the question as to whether a land is agricultural land or not is
essentially a question of fact. The question has to be answered in each
case having regard to the facts and circumstances of that case. There
may be factors both for and against a particular point of view. We have
to answer the question on a consideration of all of them, a process of
evaluation and the inference has to be drawn on a cumulative
consideration of all the relevant facts. It may be stated here that not
all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that
ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances.
58. The expression 'agricultural land' is not defined in the Act, and now,
whether it is agricultural land or not has got to be determined by using the tests or methods laid down by the Courts from time to time.
59. The Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim (supra) has approved the decision of a Division Bench of the Hon'ble Gujarat High Court in the case of CIT v. Siddharth J. Desai [1983] 139 ITR 628/10 Taxman 1 (Guj) and has laid down 13 tests or factors which are required to be
considered and upon consideration of which, the question whether the
land is an agricultural land or not has got to be decided or answered.
We reproduce the said 13 tests as follows :
"1. Whether the land was classified in the Revenue records as agricultural and
whether it was subject to the payment of land revenue?
2. Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time?
3. Whether such user of the land was for a long period or whether it was of a
temporary character or by any of a stopgap arrangement?
4. Whether the income derived from the agricultural operations carried on
in the land bore any rational proportion to the investment made in
purchasing the land?
5. Whether, the permission under S. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the
vendor or the vendee)? Whether such permission was in respect of the
whole or a portion of the land? If the permission was in respect of a
portion of the land and if it was obtained in the past, what was the
nature of the user of the said portion of the land on the material date?
6. Whether the land, on the relevant date, had ceased to be put to
agricultural use? If so, whether it was put to an alternative use?
Whether such cesser and/or alternative user was of a permanent or
temporary nature?
7. Whether the land, though entered in Revenue records, had never been
actually used for agriculture, that is, it had never been ploughed or
tilled? Whether the owner meant or intended to use it for agricultural
purposes?
8. Whether the land was situated in a developed area? Whether its physical
characteristics, surrounding situation and use of the lands in the
adjoining area were such as would indicate that the land was
agricultural?
9. Whether the land itself was developed by plotting and providing roads and other facilities?
10. Whether there were any previous sales of portions of the land for non-agricultural use?
11. Whether permission under s. 63 of the Bombay Tenancy and Agricultural Lands
Act, 1948, was obtained because the sale or intended sale was in favour
of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturists was for non-agricultural or agricultural user?
12. Whether the land was sold on yardage or on acreage basis?
13. Whether an agriculturist would purchase the land for agricultural purposes at
the price at which the land was sold and whether the owner would have
ever sold the land valuing it as a property yielding agricultural
produce on the basis of its yield?"
60. A reference could be made to the case of CWT v. Officer-in-charge( Court of Wards) [1976] 105 ITR 133 (SC) wherein the Constitution Bench of the Hon'ble Supreme Court stated that the term 'agriculture&# 39; and 'agricultural purpose' was not defined in
the Indian IT Act and that we must necessarily fall back upon the
general sense in which they have been understood in common parlance. The Hon'ble Supreme Court has observed that the term 'agriculture&# 39; is thus
understood as comprising within its scope the basic as well as
subsequent operations in the process of agriculture and raising on the
land all products which have some utility either for someone or for
trade and commerce. It will be seen that the term 'agriculture&# 39; receives a wider interpretation both in regard to its operation as well as the
result of the same. Nevertheless there is present all throughout the
basic idea that there must be at the bottom of its cultivation of the
land in the sense of tilling of the land, sowing of the seeds, planting
and similar work done on the land itself and this basic conception is
essential sine qua non of any operation performed on the land
constituting agricultural operation and if the basic operations are
there, the rest of the operations found themselves upon the same, but if the basic operations are wanting, the subsequent operations do not
acquire the characteristics of agricultural operations. The Constitution Bench of the Hon'ble Supreme Court in the aforesaid case observed that
the entries in Revenue records were considered good prima facie
evidence.
61. The Hon'ble Gujarat High Court in the case of Dr. Motibhai D. Patel (No. 2) v. CIT [1981] 127 ITR 671/5 Taxman 147 referring to the Constitution Bench of the Hon'ble Supreme Court had
stated that if agricultural operations are being carried on in the land
in question at the time when the land is sold and further if the entries in the Revenue records show that the land in question is agricultural
land, then, a presumption arises that the land is agricultural in
character and unless that presumption is rebutted by evidence led by the Revenue, it must be held that the land was agricultural in character at the time when it was sold. The Division Bench of the Hon'ble Gujarat
High Court further held that there was nothing on record to show that
the presumption rose from the long user of the land for agricultural
purpose and also the presumption arising from the entries of the Revenue records are rebutted.
62. The Hon'ble Bombay High Court in the case of CWT v.H.V. Mungale [1984] 145 ITR 208/[1983] 12 Taxman 201 (Bom) held that the Hon'ble Supreme Court had pointed out that the entries
raised only a rebuttable presumption and some evidence would, therefore, have to be led before taxing authorities on the question of intended
user of the land under consideration before the presumption could be
rebutted. The Court further held that the Supreme Court had clearly
pointed out that the burden to rebut the presumption would be on the
Revenue. The Hon'ble Bombay High Court held that the ratio of the
decision of the Supreme Court was that what is to be determined is the
character of the land according to the purpose for which it was meant or set apart and can be used. It is, therefore, obvious that the assessee
had abundantly proved that the subject land sold by them was
agricultural land not only as classified in the Revenue records, but
also it was subjected to the payment of land revenue and that it was
actually and ordinarily used for agricultural purpose at the relevant
time.
63. We may also refer to the case of CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj), wherein the Division Bench of the Hon'ble Gujarat High Court observed
that the potential non- agricultural value of the land for which a
purchaser may be prepared to pay a large price would not detract from
its character as agricultural land on the relevant date of sale.
64. We may also refer to the case of Gopal C. Sharma v. CIT [1994] 209 ITR 946/72 Taxman 353 (Bom), in which, the case of Smt. Sarifabibi Mohamed Ibrahim (supra) was referred to and relied, amongst other cases. In this case, the
Division Bench of the Bombay High Court has stated that the profit
motive of the assessee selling the land without anything more by itself
can never be decisive for determination of the issue as to whether the
transaction amounted to an adventure in the nature of trade. In other
words, the price paid is not decisive to say whether the land is
agricultural or not.
65. We may refer to a judgment of the Hon'ble Madras High Court in the case of CWT v. E. Udayakumar [2006] 284 ITR 511 where the Hon'ble Madras High Court has referred to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt. Savita Rani [2004] 270 ITR 40/[2008] 133 Taxman 712 and has observed and held as under :
"8. It is well settled in the case of CIT v.Smt. Savita Rani [2004] 186 CTR (P&H) 240 : [2004] 270 ITR 40 (Punj. & Har.), wherein it is held that the land being located in a commercial area or
the land having been partially utilised for non-agricultural purposes or that the vendees had also purchased it for non-agricultural purposes,
were totally irrelevant consideration for the purposes of application of s. 54B.
9. In the abovesaid case, the assessee an individual sold 15 karnals, 18
marlas of land out of her share in 23 karnals, 17 marlas land during the financial year 1990-91, relevant to the asst. yr. 1991-92, the sale was effected by three registered sale deeds. While filing her return of
income, she claimed exemption from levy of capital gains under s. 54B of the Act on the ground that the land sold by her was agricultural land
and the sale proceeds were invested in the purchase of agricultural land within two years. The AO rejected the claim of the assessee holding
that the land sold by the assessee was not agricultural land and this
was upheld by the CIT(A). On further appeal, the Tribunal accepted the
claim of the assessee holding that the transaction in question duly
fulfilled the conditions specified for relief. On further appeal to the
High Court, the Punjab & Haryana High Court found that the finding
that the land had been used for agricultural purposes was based on
cogent and relevant material. The Revenue record supported the claim.
Even the records of the IT Department showed that the assessee had
declared agricultural income from this land in her returns for the
preceding two years. The land being located in commercial area or the
land having been partially utilised for non-agricultural purposes or
that the vendees had also purchased it for non-agricultural purposes,
were totally irrelevant consideration for the purposes of application of s. 54B.
10. It is seen from the aforesaid decision that the agricultural land sold
by the assessee with an intent to purchase another land within two years had also been permitted to claim exemption under s. 54B of the IT Act,
1961. In the instant case, even though there was no sale as such, the
assessee owned agricultural land within the limits of Tirunelveli
Corporation and he had not put up any construction thereon, the assessee is entitled to claim exemption from the WT Act for the assessment of
wealth-tax. That the land in question is adjacent to the hospital is
totally irrelevant."
66. Adverting to the facts of the present case, the land in question is
classified in the Revenue records as agricultural land and there is no
dispute regarding this issue and actual cultivation has been carried on
this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It
is also an admitted fact that the assessee has not applied for
conversion of this agricultural land for non-agricultural purposes and
the assessee has not put the land to any purposes other than
agricultural purposes. It is also an admitted fact that neither the
impugned property nor the surrounding areas were subject to any
developmental activities at the relevant point of time of sale of the
land.
67. The provisions of Andhra Pradesh Agricultural Land (conversion for
non-agricultural purposes) Act, 2006 also prescribed the procedure for
conversion of agricultural land into non-agricultural land. Being so,
whenever the agricultural land to be treated as non-agricultural land,
the same has to be converted in accordance with the provisions of Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes)
Act, 2006. If by a Government Notification, the nature and character of
land changes from agriculture into non-agriculture then there is no
question of conversion of this land for non-agricultural purposes by the Revenue authorities concerned. To our understanding nature of land
cannot be changed by any State Government notification and the
landowners are required to apply to the concerned Revenue authorities
for the purpose of conversion of the agricultural land into
non-agricultural land and there is no automatic conversion per se by
State Government Notification.
68. It is also an admitted position that mere inclusion or proximity of
land to any Special zone without any infrastructure development
thereupon or without establishing and proving that the land was put into use for non-agricultural purposes by the assessee does not and cannot
convert the agricultural land into non-agricultural land. In the instant case, at the relevant point of sale of the land in question, the
surrounding area was totally undeveloped and except mere future
possibility to put the land into use for non-agricultural purposes would not change the character of the agricultural land into non-agricultural land at the relevant point of time when the land was sold by the
assessee. It is also an admitted position that the assessee had not
applied for conversion of the land in question into non-agricultural
purposes and no such permissions were obtained from the concerned
authority. In the Revenue records, the land is classified as
agricultural land and has not been changed from agricultural land to
non-agricultural land at the relevant point of time when the land was
sold by the assessee. It is also not in dispute that there was no
activity undertaken by the assessee of developing the land by plotting
and providing roads and other facilities and there was no intention also on the part of the assessee herein to put the same for non-agricultural purposes at time of their ownership that land. No such finding has been given by the Department. No material or evidence in support of the fact that the assessee have put the land in use for non-agricultural
purposes has been brought on record. The nature of the crop and the
person who cultivated the land are duly mentioned in the assessment
order shows that at the relevant point of time the land was used for
agricultural purposes only and nothing is brought on record to show that the land was put in use for non-agricultural purposes by the assessee.
In view of the decision of the Hon'ble High Court in the case of Gopal C. Sharma (supra), it is also clear that the profit motive of the assessee in selling the
land without anything more by itself can never be decisive to say that
the assessee used the land for non-agricultural purposes. We may also
refer to a decision of the Hon'ble Supreme Court in the case of N. Srinivasa Rao v. Special Court [2006] 4 SCC 214 where it was observed that the fact that agricultural
land in question is included in urban area without more, held not enough to conclude that the user of the same had been altered with passage of
time. Thus, the fact that the land in question in the instant case is
bought by Developer cannot be a determining factor by itself to say that the land was converted into use for non-agricultural purposes.
69. Recently the Karnataka High Court in the case of CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341 (Kar) held as follows:
"9. An agricultural land in India is not a capital asset but becomes a
capital asset if it is the land located under Section 2(14)(iii)(a)
& (b) of the Act, Section 2(14) (iii) (a) of the Act covers a
situation where the subject agricultural land is located within the
limits of municipal corporation, notified area committee, town area
committee, town committee, or cantonment committee and which has a
population of not less than 10,000.
10. Section 2(14)(m)(b) of the Act covers the situation where the subject
land is not only located within the distance of 8 kms from the local
limits, which is covered by Clause (a) to section 2(14)(iii) of the Act, but also requires the fulfilment of the condition that the Central
Government has issued a Notification under this Clause for the purpose
of including the area up to 8 kms, from the municipal limits, to render
the land as a "Capital Asset.
11. In the present case, it is not in dispute that the subject land is not
located within the limits of Dasarahalli City Municipal Council
therefore, Clause (a) to section 2(14][iii] of the Act is not attracted.
12. However, though it is contended that it is located within 8 knits,,
within the municipal limits of Dasarahalli City Municipal Council in the absence of any Notification issued under Clause (b) to section
2(14)(iii) of the Act, it cannot be looked in as a capital asset within
the meaning of Section 2(14)(iii)(b) of the Act also and therefore
though the Tribunal may not have spelt out the reason as to why the
subject land cannot be considered as a 'capital asset' be giving this
very reason, we find the conclusion arrived at by the Tribunal is
nevertheless the correct conclusion."
70. Further the Kolkata Bench of the Tribunal in the case of Dy. CIT v. Arijit Mitra [2011] 48 SOT 544/16 taxmann.com 66 (Kol) held as follows:
"7. From the above, it is clear that agricultural land situated in areas
lying within a distance not exceeding 8 km from the local limits of such Municipalities or Cantonment Boards are covered by the amended
definitions of 'capital asset', if such areas are, having regard to the
extent of and scope for their urbanization and other relevant
considerations, is notified by the Central Government in this behalf.
Central Government in exercise of such powers has issued the above
Notification, as amended latest by Notification No. 11186 dated
28.12.1999 clearly clarifies that agricultural land situation in rural
areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance
notified by Central Government from local limits i.e. the outer limits
of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view
of sub-clause (b) of section 2(14)(iii) of the Act even under the
amended definition of expression 'capital asset', the agricultural land
situated in rural areas continues to be excluded from that definition.
And as in the present case, admittedly, the agricultural land of the
assessee is outside the Municipal Limits of Rajarhat Municipality and
that also 2.5 KM away from the outer limits of the said Municipality,
assessee' s land does not come within the purview of section 2(14)(iii)
either under sub clause (a) or (b) of the Act, hence the same cannot be
considered as capital asset within the meaning of this section. Hence,
no capital gain tax can be charged on the sale transaction of this land
entered by the assessee. Accordingly, we quash the assessment order qua
charging of capital gains on very jurisdiction of the issue is quashed.
The cross-objection of the assessee is allowed."
71. It was held in the case of Manilal Somnath (supra) as follows:
'Under the Income-tax Act of 1961, agricultural lend situated in India
was excluded from the definition of " capital asset" and any gain from
the sale thereof was not to be included in the total income of an
assessee under the head "capital gains". In order to determine whether a particular land is agricultural land or not one has to first find out
if it is being put to any use. If it is used for agricultural purposes
there is a presumption that it is agricultural land. If it is used for
non-agricultural purposes the presumption is that it is non-agricultural land. This presumption arising from actual use can be rebutted by the
presence of other factors. There may be cases where land which is
admittedly non-agricultural is used temporarily for agricultural
purposes. The determination of the question would, therefore, depend on
the facts of each case.
The assessee, Hindu, undivided family, had obtained some land on a
partition in 1939. From that time, up to the time of its sale,
agricultural operations were carried on in the land. There was no
regular road to the land and it was with the aid of a tractor that
agricultural operations were being carried on. The land was included
within a draft town planning scheme. The assessee got permission of the
Collector to sell the land for residential purposes and sold it. On the
question whether the land was agricultural land:
Held, that what had to be considered is not what the purchaser did with the
land or the purchaser was supposed to do with the land, but what was the character of the land at the time when the sale took place. The fact
that the land was within municipal limits or that it was included within a proposed town planning scheme was not by itself sufficient to rebut
the presumption arising from actual use of the land. The land had been
used for agricultural purposes for a long time and nothing had happened
till the date of the sale to change that character of the land. The
potential non-agricultural value of the land for which a purchaser may
be prepared to pay a large price would not detract from its character as agricultural land at the date of the sale. The land in question was,
therefore, agricultural land.'
72. Further the word "Capital Asset" is defined in Section 2(14) to mean
property of any kind held by an assessee, whether or not connected with
his business or profession, but does not include—
(iii) agricultural land in India, not being land situate—
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area
committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten
thousand according to the last preceding census of which the relevant
figures have been published before the first day of the previous year;
or
(b) in any area within such distance, not being more than eight kilometres,
from the local limits of any municipality or cantonment board referred
to in item (a), as the Central Government may, having regard to the
extent of, and scope for, urbanization of that area and other relevant
considerations, specify in this behalf by Notification in the Official
Gazette;
73. It is very clear from the above that the gain on sale of an
agricultural land would be exigible to tax only when the land
transferred is located within the jurisdiction of a municipality. The
fact that all the expressions enlisted after the word municipality are
placed within the brackets starting with the words 'whether known as'
clearly indicates that such expressions are used to denote a
municipality only, irrespective of the name by which such municipality
is called. This fact is further substantiated by the provisions
contained under clause (b) wherein it has been clearly provided that the authority referred to in clause (a) was only municipality.
74. We also perused the meaning of the term local authority as referred in section 10(20) of the Act.
'(20) the income of a local authority which is chargeable under the head "Income from house property" , "Capital gains" or "Income from other
sources" or from a trade or business carried on by it which accrues or
arises from the supply of a commodity or service (not being water or
electricity) within its own jurisdictional area or from the supply of
water or electricity within or outside its own jurisdictional area.
Explanation. - For the purposes of this clause, the expression "local authority" means —
(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or
(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or
(iii) Municipal Committee and District Board,
legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);'
75. It is also evident from the Memorandum explaining the provisions of
Finance Act, 1970, whereby s. 2(14) was amended so as to include the
agricultural lands located within the jurisdiction of a municipality in
the definition of the expression 'Capital Asset'. The relevant portion
of the said memorandum is reproduced hereunder:
'30. ... The Finance Act, 1970 has, accordingly, amended the relevant
provisions of the Income-tax Act so as to bring within the scope of
taxation capital gains arising from the transfer of agricultural land
situated in certain areas. For this purpose, the definition of the term
"capital asset" in section 2(14) has been amended so as to exclude from
its scope only agricultural land in India which is not situate in any
area comprised within the jurisdiction of a municipality or cantonment
board and which has a population of not less than ten thousand persons
according to the last preceding census for which the relevant figures
have been published before the first day of the previous year. The
Central Government has been authorised to notify in the Official Gazette any area outside the limits of any municipality or cantonment board
having a population of not less than ten thousand up to a maximum
distance of 8 kilometres from such limits, for the purposes of this
provision. Such Notification will be issued by the Central Government,
having regard to the extent of, and scope for, urbanisation of such
area, and, when any such area is notified by the Central Government,
agricultural land situated within such area will stand included within
the term "capital asset". Agricultural land situated in rural areas,
i.e., areas outside any municipality or cantonment board having a
population of not less than ten thousand and also beyond the distance
notified by the Central Government from the limits of any such
municipality or cantonment board, will continue to be excluded from the
term "capital asset".
76. Further it is nobody's case that the property falls within any area
which is comprised within the jurisdiction of a municipality or
cantonment board or which has a population of not less than 10,000
according to the last preceding Census of which the relevant figures
have been published before the first day of the previous year. In other
words, the land does not fall in sub-clause (a) of section 2(14)(iii) of the Act as the land is outside of any municipality including GHMC.
Further we have to see whether the land falls in clause (b) of section
2(14)(iii). This section prescribes that any area within such distance,
not being more than 8 km from the local limit of any municipality or
cantonment board as referred to in sub-clause (a) of section 2(14)(iii)
of the Act, as the Central Government may, having regard to the extent
of, and scope for, urbanisation of that area and other relevant
considerations, specify in this behalf by notification in the Official
Gazette.
77. We have carefully gone through the notification issued by the Central
Government u/s. 2(1A)(c) proviso (ii)(B) and 2(14)(3b) vide No. 9447 (F. No. 164/(3)/87/ITA- I) dated 6th January, 1994 as amended by
Notification No. 11186 dated 28th December, 1999. In the schedule
annexed to the notification dated 6.1.1994, Entry No. 17 is relating to
Hyderabad wherein mentioned that the areas up to a distance of 8 km from the municipal limits in all directions. In the notification 11186 dated 28.12.1999 there is no entry relating to Hyderabad. It is clear from
the Notifications that agricultural land situated in areas lying within a distance not exceeding 8 km from the local limits of Hyderabad
Municipality (GHMC) is covered by the amended definitions of 'capital
asset'. Central Government in exercise of such powers has issued the
above Notification, as amended latest by Notification No. 11186 dated
28.12.1999 clearly clarifies that agricultural land situation in rural
areas, areas outside the Municipality or cantonment board etc., having a population of not less than 10,000 and also beyond the distance
notified by Central Government from local limits i.e. the outer limits
of any such municipality or cantonment board etc., still continues to be excluded from the definition of 'capital asset'. Accordingly, in view
of sub-clause (b) of section 2(14)(iii) of the Act even under the
amended definition of expression 'capital asset', the agricultural land
situated in rural areas continues to be excluded from that definition.
And as in the present case, admittedly, the agricultural land of the
assessee is outside the Municipal Limits of Hyderabad Municipality and
that also 8 km away from the outer limits of this Municipality,
assessee' s land does not come within the purview of section 2(14)(iii)
either under sub clause (a) or (b) of the Act, hence the same cannot be
considered as capital asset within the meaning of this section. Hence,
no capital gain tax can be charged on the sale transaction of this land
entered by the assessee. This is supported by the order of Kolkata Bench of this Tribunal in the case of Arijit Mitra (supra), Harish V. Milani (supra) and M.S. Srinivasa Naicker v. ITO [2007] 292 ITR 481/[2008] 169 Taxman 255 (Mad). By borrowing the meaning from the above section, we are not able to
appreciate that the land falls within the territorial limit of any
municipality without notification of Central Government as held by the
Karnataka High Court in the case of Madhukumar N. (HUF) (supra).
78. From the facts and circumstances of the case, as narrated before us, it is important to note that what was the intention of the assessee at the time of acquiring the land or interval action by the assessee between
the period from purchase and sale of the land and the relevant
improvement/ development taken place during this time is relevant for
deciding the issue whether transaction was in the nature of trade.
Though intention subsequently formed may be taken into account, it is
the intention at the inception is crucial. One of the essential elements in an adventure of the trade is the intention to trade; that intention
must be present at the time of purchase. The mere circumstances that a
property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to
trade at the inception. In a case where the purchase has been made
solely and exclusively with the intention to resell at a profit and the
purchaser has no intention of holding the property for himself or
otherwise enjoying or using it, the presence of such an intention is a
relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an
adventure in the nature of trade. Even so, the presumption is not
conclusive and it is conceivable that, on considering all the facts and
circumstances in the case, the court may, despite the said initial
intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be
considered as an adventure in the nature of trade. The intention of the
assessee from the inception was to carry on agricultural operations and
with this intention assessee entered into lease agreement with M/s. VVT
Agritech on 25th October, 2005 and even there was no intention to sell
the land in future at that point of time. It was due to certain
compelling circumstances came into picture at a later stages, the
assessees were forced to sell the land. Merely because of the fact that
the land was sold in a short period of holding, it cannot be held that
income arising from the sale of land was taxable as profit arising from
the adventure in the nature of trade. The period of holding should not
suggest that the activity was an adventure in the nature of trade.
79. Further, we make it clear that when the land which does not fall under the
provisions of section 2(14)(iii) of the IT Act and an assessee who is
engaged in agricultural operations in such agricultural land and also
being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is
and where it is basis, in such circumstances, in our opinion, such
transfer like the case before us cannot be considered as a transfer of
capital asset or the transaction relating to sale of land was not an
adventure in the nature of trade so as to tax the income arising out of
this transaction as business income. Accordingly, the ground raised by
the assessee is allowed.
80. In the result, assessees' appeals in ITA No. 550 and 551/Hyd/12 are allowed.
IT: Sitting fees paid to directors do not amount to fees paid for any
professional services as per Explanation to section 194J(1)
IT: Payments made by assessee towards testing and inspection charges could
not be construed as payments towards professional service as per
provisions of section 194J and assessee had rightly deducted tax under
section 194C
IT: Where cranes were provided by parties along with driver/operator and
all expenses were borne by owners only, provisions of section 194C were
only applicable for such payment and not provisions of section 194-I
IT: Payment towards windmill operation and maintenance attracts provisions of section 194C
IT: Payment towards annual maintenance charges for software maintenance
attracts provisions of section 194C and not provisions of section 194J
IT: Training and seminar expenses do not fall under definition of
professional services and, accordingly, tax to be deducted under section 194C
■■■
[2013] 36 taxmann.com 574 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Bharat Forge Ltd.
v.
Additional Commissioner of Income-tax*
SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND R.K. PANDA, ACCOUNTANT MEMBER
IT Appeal Nos. 1326, 1327, 1357 & 1358 (Pune) of 2010
[ASSESSMENT YEARS 2007-08 AND 2008-09]
JANUARY 31, 2013
I. Section 194J of the Income-tax Act, 1961 - Deduction of tax at
source - Technical services fee [Sitting fees to directors] - Assessment years 2007-08 and 2008-09 - Whether sitting fees paid to directors do
not amount to fees paid for any professional services as per Explanation to section 194J(1) and, accordingly no tax is required to be deducted
under section 194J out of such director' s sitting fees - Held, yes [Para 8.1][In favour of assessee]
II. Section 194J, read with section 194C of the Income-tax Act, 1961 -
Deduction of tax at source - Fees for professional or technical services [Testing and inspection charges] - Assessment years 2007-08 and 2008-09 - Assessee had paid an amount to various entities for testing and
inspection of material on which assessee had deducted tax under section
194C - Assessing Officer held that services provided by parties were in
nature of technical or professional services and, therefore, TDS should
have been made under section 194J instead of section 194C - Whether
payments made by assessee towards testing and inspection charges could
not be construed as payments towards professional service as per
provisions of section 194J and assessee had rightly deducted tax under
section 194C - Held, yes [Para 13.1][In favour of assessee]
III. Section 194C, read with section 194-I, of the Income-tax Act, 1961 -
Deduction of tax at source - Contractors/ sub-contractors, payments to
[Hiring of cranes with driver] - Assessment years 2007-08 and 2008-09 -
Assessee had made payment for hiring of cranes and loading and unloading of material at factory and had deducted tax under section 194C -
According to Assessing Officer, assessee should have deducted tax under
section 194-I - Whether since cranes were provided by parties along with driver/operator and all expenses were borne by owners only, provisions
of section 194C were only applicable for such payment and not provisions of section 194-I - Held, yes [Para 18.2][In favour of assessee]
IV. Section 194C, read with section 194J, of the Income-tax Act, 1961 -
Deduction of tax at source - Contractors/ sub-contractors, payments to
[Windmill operation and maintenance] - Assessment years 2007-08 and
2008-09 - Whether payment towards windmill operation and maintenance
attracts provisions of section 194C and not provisions of section 194J - Held, yes [Para 25][In favour of assessee]
V. Section 194C, read with section 194J, of the Income-tax Act, 1961 -
Deduction of tax at source - Contractors/ sub-contractors, payments to
[AMC] - Assessment years 2007-08 and 2008-09 - Whether payment towards
annual maintenance charges for software maintenance attracts provisions
of section 194C and not provisions of section 194J - Held, yes [Para
31.1 and 42] [In favour of assessee]
VI. Section 194J, read with section 194C, of the Income-tax Act, 1961 -
Deduction of tax at source - Fees for professional or technical services [Training and seminar expenses] - Assessment years 2007-08 and 2008-09 - Assessee paid certain sum towards training programmes and seminars
organized by various entities including CII towards attending training
and seminars by its employees - Assessing Officer held that such payment attracted provisions of section 194J - Whether training and seminar
expenses of nature under consideration did not fall under category of
services rendered under section 194J and assessee had rightly deducted
tax under section 194C - Held, yes [Para 36][In favour of assessee]
Circulars & Notifications : Circular No. 558, dated 28-3-1990, Circular No. 715, dated 8-8-1995
CASE REVIEW-III
CIT (TDS) v. Swayam Shipping Services (P) Ltd. [201l] 339 ITR 647/199 Taxman 249/11 taxmann.com 137 (Guj.) and CIT v. Shree Mahakuani Transport Co. [2011] 339 ITR 484/211 Taxman 232/19 taxmann.com 144 (Guj.) (para 18.2) followed.
CASE REVIEW-IV
Skycell Communications Ltd. v.Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) and Gujarat State Electricity Corpn. Ltd, v. ITO [2004] 3 SOT 468 (Ahd.) (para 25) followed.
CASE REVIEW-V
Nuclear Corpn. of India Ltd. v. ITO [IT Appeal No. 3081 (Ahd.) of 2009, dated 30-9-2011] (para 31.1) followed.
CASES REFERRED TO
Jahangir Biri Factory (P.) Ltd. v. Dy. CIT [2009] 126 TTJ 567 (Kol.) (para 6), Glaxosmithkline Pharmaceuticals Ltd. v. ITO [2011] 48 SOT 643/15 taxmann.com 163 (Pune) (para 12), Skycell Communications Ltd. v.Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.) (para 12), Dy. CIT v. Pararrampuria Synthetics Ltd. [2008] 20 SOT 248 (Delhi) (para 12), CIT (TDS) v. Swayam Shipping Services (P) Ltd. [201l] 339 ITR 647/199 Taxman 249/11 taxmann.com 137 (Guj.) (para 17), CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/211 Taxman 232/19 taxmann.com 144 (Guj.) (para 17), ITO v. Indian Oil Corpn. (Marketing Division) [2011] 15 taxmann.com 210 (Delhi) (para 17), Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.) (para 24), Nuclear Corpn. of India Ltd. v. ITO [IT Appeal No. 3081 (Ahd.) of 2009, dated 30-9-2011] (para 29) and Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 (SC) (para 45).
Nikhil Pathak for the Appellant. Ms. Ann Kapthuama for the Respondent.
ORDER
R.K. Panda, Accountant Member - These are cross-appeals filed by the assessee and the Revenue and are directed against the separate orders dt. 9th Aug., 2010 and 10th Aug.,
2010 of the CIT(A)-V, Pune relating to asst. yrs. 2007-08 and 2008-09
respectively. Since common issues are involved in the above
cross-appeals, therefore, these were heard together and are being
disposed of by this common order for the sake of convenience.
ITA No. 1357/Pn/2010 (by assessee-asst yr. 2007-08) :
2. The grounds raised by the assessee are as under :
"1. On the facts of the case and in law, the learned CIT(A)-V, Pune erred in confirming that:
(a) payment of sitting fees aggregating to Rs. 3,50,000 to resident non-executive
directors is covered under s. 194J of the IT Act, 1961 as against the
appellant company' s contention that no tax was deductible at source on
above payments and thus there was shortfall of deduction of tax to the
extent of Rs. 17,850 thereon.
(b) payments of testing charges and inspection charges aggregating to Rs.
16,96,774 are covered under s. 194J as against under s. 194C as per the
appellant company' s contention and thus there was shortfall of deduction of tax of Rs. 55,368 thereon.
(c) payment of hiring of cranes (with driver/operator) for loading and/or
unloading of material at factory of Rs. 24,35,285 is in the nature of
'rent' as defined in the Explanation to s. 194-1 as against
covered under s. 194C as per the appellant company' s contention and thus there was shortfall of deduction of tax of Rs. 3,16,419 thereon.
2. The learned CIT(A)-V, Pune erred in confirming that the appellant company
was to be treated as assessee in default for non-deduction/ short
deduction to tax within the meaning of ss. 201 and 201(1A) in respect of amounts mentioned in ground Nos. 1 (a) to (d) above.
3. The appellant company craves leave to add to, alter, amend, modify and/or delete any or all of the above grounds of appeal."
3. The learned counsel for the assessee while arguing the first
issue in the grounds of appeal submitted that the assessee has paid an
amount of Rs. 3,50,000 as directors sitting fees to resident directors
on which no TDS was made. According to the AO the provisions of s. 194J
are applicable for such payments since director is also a manager under
the provisions of Companies Act, 1956 and therefore a technical
personnel. Since the assessee had not deducted the tax out of such
payments the AO held that there is short deduction of tax to the tune of Rs. 17,850.
4. Before the CIT(A) it was submitted that s. 194J was inserted by the
Finance Act, 1995 w.e.f. 1st July, 1995 and that the Department has all
along accepted the position that sitting fees paid to non-executive
resident directors are not covered under S.194J. The dispute arose only
for the asst. yrs. 2007-08 and 2008-09. It was submitted that the
assessee has deducted tax from salary and commission paid to such
non-executive resident directors and the provisions of s. 194J are not
applicable to the sitting fees paid to the directors.
5. However, the learned CIT(A) was not convinced with the arguments advanced by the assessee and upheld the action of the AO in holding that there is short deduction of tax from the sitting fees paid to the directors. According to him, director is also a manager under the provisions of the
Companies Act, 1956 and therefore, a technical personnel. Merely because the Department has not taken any action in the past cannot act as an
estoppel against taking the correct legal position for the current year.
6. The learned counsel for the assessee reiterated the same arguments as
made before the AO and the CIT(A). Referring, to the provisions of s.
194J he submitted that as per the Explanation professional
service means service rendered by a person in the course of carrying on
legal, medical, engineering or architectural profession or the
profession of accountancy or technical consultancy or interior
decoration or advertising or such other profession as is notified by the Board. Therefore, director' s sitting fees do not fit into any of the
categories. Further, s. 194J(l)(ba) which was introduced by the Finance
Act, 2012 w.e.f. 1st July, 2012 has amended the provisions of s. 194J
according to which TDS should be deducted on any remuneration or fee or
commission paid to a director. This amendment is applicable from 1st
July, 2012. Referring to the copy of the Memorandum Explaining the
Provisions of Finance Bill, 2012, he drew the attention of the Bench to
the following :
"TDS on remuneration to a director:
Under the existing provisions of the IT Act, a company, being an
employer, is required to deduct tax at the time of payment to its
employees including managing director/whole- time director. However,
there is no specific provision for deduction of tax on the remuneration
paid to a director which is not in the nature of salary.
It is proposed to amend s. 194J to provide that tax is required to be
deducted on the remuneration paid to a director, which is not in the
nature of salary, @ 10 per cent of such remuneration.
This amendment will take effect from 1st July, 2012."
He accordingly submitted that TDS is required to be deducted out of the
director sitting fees. He also relied on the decision of the Kolkata
Bench of the Tribunal in the case of Jahangir Bin Factory (P.) Ltd. v. Dy. CIT [2009] 126 TTJ 567 (Kol.).
7. The learned Departmental Representative, on the other hand, heavily relied on the orders of the AO and the CIT(A).
8. We have considered the rival arguments made by both the sides, perused
the orders of the AO and the CIT(A) and the paper book filed on behalf
of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. The only dispute in this
ground is regarding deduction of tax at source from the sitting fees
paid to the directors. According to the learned counsel for the assessee the provision of s. 194J is not applicable to such sitting fees since
fees do not fall in any of the categories of professional service as per Explanation to s. 194J. Further, no such objection was taken in the
past by the Department for such non-deduction and in view of insertion
of sub-s. (ba) to s. 194J(1) TDS is required to be made out of such
director sitting fees w.e.f. 1st July, 2012. Therefore, for
non-deduction of tax at source from the sitting fees for the impugned
assessment year, there is no default on the part of the assessee.
According to the Revenue the director is also a manager under the
provisions of the Companies Act and therefore, a technical personnel and therefore the company is liable to deduct tax at source under the
provisions of s. 194J.
8.1 As per the Explanation to provisions of s. 194J, professional services
mean services rendered by a person in the course of carrying on legal,
medical, engineering or architectural profession or the profession of
accountancy or technical consultancy or interior decoration or
advertising or such other profession as is notified by the Board. We,
therefore, find force in the submission of the learned counsel for the
assessee that sitting fees paid to the directors do not amount to fees
paid for any professional services as has been mentioned in the
Explanation to s. 194J(1). We further find from the Memorandum
Explaining the Provisions of the Finance Bill, 2012 that as per cl. No.
71, it was specifically mentioned that there was no specific provision
for deduction of tax on the remuneration paid to a director which is not in the nature of salary. We find the provisions of s. 194J(1)(ba) speak of any remuneration or fees or commission by whatever name called other than those on which tax is deductible under s. 192 to a director of a
company on which tax has to be deducted at the applicable rate and the
above provision has been inserted by the Finance Act, 2012 w.e.f., 1st
July, 2012. We, therefore, find force in the submission of the learned
counsel for the assessee that no tax is required to be deducted under s. 194J out of such director' s sitting fees for the asst. yr. 2007-08. In
this view of the matter, the order of the CIT(A) is set aside and the
ground raised by the assessee on the issue of TDS on sitting fees paid
to directors is allowed.
9. The second issue raised by the assessee relates to deduction of tax
under s. 194C from testing charges and inspection charges as against
deduction of tax under s. 194J as held by the AO and upheld by the
CIT(A).
10. The learned counsel for the assessee submitted that the assessee had
paid an amount of Rs. 69,25,844 to various entities for testing and
inspection of material on which the assessee had deducted tax under s.
194C. According to the AO the assessee should have deducted TDS under s. 194J since the services rendered by the said parties are in the nature
of technical/professio nal service. The AO accordingly calculated short
deduction of tax at Rs. 55,586.
11. Before the CIT(A) it was submitted that the charges were paid for
getting jobs done like testing, inspection of materials etc. and were of the nature of material and labour contract. Although technical
expertise may be used, the charges paid cannot be construed to be fees
for professional service or technical service. It was further argued
that merely because the payee used technical knowledge or installs
sophisticated equipments, it does not result into the above services to
be professional or technical services. It was further submitted that the Department in the past had never objected to such deduction under s.
194C. However, the learned CIT(A) was not convinced with the arguments
advanced by the assessee and upheld the action of the AO. While doing
so, he held that the payments made by the assessee in the instant case
for testing/inspection of materials can be described as technical
consultancy and therefore provisions of s. 194J are applicable.
12. The learned counsel for the assessee drew the attention of the Bench to some sample copies of the bills. Referring to page No. 31 of the paper
book, he submitted that the bill issued by Engineers and Testing
Instruments (P) Ltd. for Rs. 24,850 gives the description as servicing
and calibration of impact machine. Similarly the bill issued by Datta
Company, copy of which is placed at paper book p. 33, is towards
stamping, verification and repair of various weighing seals and weights. Referring to the bill issued by Krupa Engineering he submitted that the same is for impact machining, grinding and notching, micro cutting and
macro cutting, machining and grinding etc. He submitted that none of the items is coming under the category of professional service as defined
in the Explanation to s. 194J. Referring to the following decisions he
submitted that payment for technical services in order to cover under s. 194J should be a consideration for acquiring or using technical
know-how simpliciter provided or made available by human element. There
should be direct and live link between payment and receipt/use of
technical services/informatio n :
1. Tribunal, Pune decision in the case of Glaxosmithkline Pharmaceuticals Ltd. v. ITO [2011] 48 SOT 643/15 taxmann.com 163;
2. Skycell Communications Ltd. v.Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.);
3. Dy. CIT v. Parasrampuria Synthetics Ltd. [2008] 20 SOT 248 (Delhi)
12.1 The learned Departmental Representative, on the other hand heavily relied on the order of the CIT(A).
13. We have considered the rival arguments made by both the sides, perused
the orders of the AO and the CIT(A) and the paper book filed on behalf
of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. We find in the instant case
the AO applying the provisions of s. 194J on account of payments made to various entities for testing and inspection of material held that there is short deduction/lower deduction since the assessee has deducted the
tax under the provisions of s. 194C. According to the AO the services
provided by the parties are in the nature of technical or professional
services, therefore, TDS should have been made under s. 194J instead of
s. 194C. According to the CIT(A) the payments made by the assessee for
testing and inspection of material can be described as technical
consultancy and therefore provisions of s. 194J are attracted.
13.1 In the preceding paras we have already noted that the Explanation to s. 194J(1) defines professional service to mean the service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical
consultancy or interior decoration or advertising or such other
profession as is notified by the Board. The nature of expenditure made
by the assessee towards payments made to various persons as mentioned in the bills, in our opinion, cannot be considered as payment for
technical consultancy. The Pune Bench of the Tribunal in the case of Glaxosmithkline Pharmaceuticals Ltd. (supra) has held that any payment technical services in order to cover under s. 194J should be a consideration for acquiring or using technical
know-how simpliciter provided or made available by human element. There
should be direct and live link between the payment and receipt/use of
technical services/informatio n. If the conditions of s. 194J r/w s.
9(1), Expln. 2 cl. (vii) are not fulfilled, the liability under this
section is ruled out. We, therefore, hold that the payments made by the
assessee in the instant case towards testing and inspection charges
cannot be consumed as payments towards professional service as per the
provisions of s. 194J and the assessee has rightly deducted the tax
under s. 194C. In this view of the matter, we set aside the order of the CIT(A) and hold that there is no short deduction of tax. The ground
raised by the assessee on this issue is accordingly allowed.
14. The third issue in the grounds raised by the assessee relates to
deduction of tax under s. 194C from the payment of hiring of cranes
(with driver/operator) for loading and unloading of the material at
factory.
15. Facts of the case, in brief, are that during the impugned financial
year the assessee has made payment for hiring of cranes and loading and
unloading of material at the factory and has deducted the tax under s.
194C. According to the AO the assessee should have deducted tax under s. 194-I. In response to the show-cause notice it was explained by the
assessee that the contract for hiring is a composite contract for hiring of crane with driver who shall follow the instructions of the assessee
company. The petrol, repairs and maintenance expenses are also on
account of the contractor. Therefore, the charges are paid in terms of a service contract and do not amount to rent contract. The CBDT Circular
No. 558, dt. 28th March, 1990 [(1990) 82 CTR (St) 404] was also brought
to the notice of the AO.
16. However, the AO was not satisfied with the arguments advanced by the
assessee. According to him the definition of rent under s. 194-I means'
any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any machinery, plant, equipment, fittings whether or not
any or all of the above are owned by the payee. Since the assessee
company has taken cranes on hire being plant and not bus for carrying
passengers as per Circular No. 558, IDS should have been deducted under
s. 194-I instead of. s. 194C. He accordingly held that there is short
deduction of tax. In appeal, the learned CIT (A) upheld the action of
the AO.
17. The learned counsel for the assessee reiterated the same arguments as
made before the AO and the CIT(A). He submitted that it is not a case of simple hiring of crane. The crane owner provides the operator and is
also responsible for the day-to-day maintenance and its operational
costs. Relying on the following decisions he submitted that payment made for the use of cranes or for hiring of tankers is covered under s. 194C and not under s. 194-I:
1. CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [201l] 339 ITR 647/199 Taxman 249/11 taxmann.com 137;
2. CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/211 Taxman 232/19 taxmann.com 144 (Guj.)
3. ITO v. Indian Oil Corpn. (Marketing Division) [2011] 15 taxmann.com 210 (Delhi).
17.1 The learned Department Representative on the other hand heavily relied on the orders of the AO and CIT(A).
18. We have considered the rival arguments made by both the sides, perused
the orders of the AO and the CIT(A) and the paper book filed on behalf
of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. The only dispute to be decided in the instant ground is regarding the applicability of provisions of
s. 194C or 194-I on account of payments for hiring of cranes for loading and unloading of material at its factory when the cranes are provided
by the parties along with driver/operator and all expenses are borne by
the owners only. We find the Hon'ble Gujarat High Court in the case of Shree Mahalaxmi Transport Co. (supra) has discussed an identical issue and has observed as under :
"Chapter XVII of the IT Act, 1961, makes provision for collection and recovery
of tax. Part B thereof makes provision for deduction at source and is
comprised of ss. 192 to 206AA. Sec. 194C bears the heading 'Payments to
contractors&# 39; and lays down that any person responsible for paying any
sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the
contractor and a specified person shall, at the time of credit of such
sum to the account of the contractor or at the time of payment thereof
in cash of by issue of cheque or draft or by any other mode, whichever
is earlier, deduct an amount equal to the percentage specified
thereunder of such sum as income-tax on income comprised therein.
Sec. 194-I of the Act which bears the heading 'Rent' provides that any
person, not being an individual or an HUF, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit
of such income to the account of the payee or at the time of payment
thereof in cash or by issue of cheque or by draft or by any other mode,
whichever is earlier, deduct income-tax thereon at the rate specified
thereunder.
Thus, s. 194C of the Act makes provision for deduction of tax at source in
respect of payments made to contractors whereas s. 194-I makes provision for deduction of tax at source in respect of income by way of rent.
Examining the facts of the present case in the light of the aforesaid statutory
provisions, from the findings of fact recorded by the CIT(A), it is
apparent that the assessee has not taken the dumpers on hire/rent from
the parties in question. The assessee has given contracts to the said
parties for the transportation of goods and has not taken machineries
and equipment on rent. In the circumstances, the CIT(A) was justified in holding that the transactions in question being in the nature of
contracts for shifting of goods from one place to another would be
covered as works contracts, thereby attracting the provisions of s. 194C of the Act. That since the assessee had given sub-contracts for
transportation of goods and not for the renting out of machineries or
equipment, such payments could not be termed as rent paid for the use of machinery and the provisions of s. 194-I of the Act would not be
applicable. The Tribunal was, therefore, justified in upholding the
order passed by the CIT(A).
In view of the above discussion, it is not possible to state that the
Tribunal has committed any legal error so as to warrant interference. No question of law, much less, a substantial question of law can be stated to arise out of the impugned order of the Tribunal. The appeal is,
accordingly, dismissed."
18.1 We find the Hon'ble Gujarat High Court in the case of Swayam Shipping Services (P.) Ltd. (supra) has held as under (short notes) :
"Held, dismissing the appeal, that there was nothing to indicate that the
assessee had taken trailers/cranes on rent so as to attract the
provisions of s. 194-I of the Act. The assessee had given sub-contracts
for transportation of goods. Therefore, the transactions would fall
within the purview of s. 194C of the Act as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such the
assessee was required to deduct tax at source at the rate prescribed
under that section. The CIT(A) was, therefore, justified in holding that the assessee was not an assessee in default within the meaning of the
expression as contemplated under s. 201 of the Act and, consequently,
the Tribunal was justified in confirming the order passed by the
CIT(A)."
18.2 Since the facts in the instant case are identical to the cases decided
by Hon'ble Gujarat High Court, therefore, respectfully following the
same we hold that provisions of s. 194C are only applicable for such
payments and not provisions of s. 194-I. The order of the CIT(A) on this issue is accordingly set aside and the ground raised by the assessee is allowed.
18.3 Since the assessee succeeds on all the issues, therefore, the assessee
cannot be held as an assessee in default. Accordingly, ground No. 2 of
the assessee' s appeal is allowed.
ITA No. 1358/Pn/2010 (by assessee- asst yr. 2008-09) :
19. The grounds raised by the assessee are as under :
"I On the facts of the case and in law, the learned CIT(A)-V, Pune erred in confirming that:
(a) payment of sitting fees aggregating to Rs. 4,15,000 to resident non-executive
directors is covered under s. 194J of the IT Act, 1961 as against the
appellant company' s contention that no tax was deductible at source on
above payments and thus there was shortfall of deduction of tax to the
extent of Rs. 35,022 thereon.
(b) payments of testing charges and inspection charges aggregating to Rs.
18,45,719 are covered under s. 194J as against under s. 194C as per the
appellant company' s contention and thus there was shortfall of deduction of tax of Rs. 1,48,550 thereon.
(c) payment of hiring of cranes (with driver/operator) for loading and/or
unloading of material at factory of Rs. 70,52,375 is in the nature of
'rent as defined in the Explanation to s. 194-I as against covered under s. 194C as per the appellant company' s contention and thus there was
shortfall of deduction of tax of Rs. 4,29,131 thereon.
2. The learned CIT(A)-V, Pune erred in confirming that the appellant
company was to be treated as assessee in default for non-deduction/ short deduction to tax within the meaning of ss. 201 and 201(1A) in respect
of amounts mentioned in ground No. 1 (a) to (d) above.
3. The appellant company craves leave to add to, alter, amend, modify
Vaild/or delete any or all of the above grounds of appeal."
20. After hearing both the sides, we find the grounds raised by the
assessee in the impugned appeal are identical to grounds in ITA No.
1357/Pn/2010. We have already decided the issues and the grounds raised
by the assessee have been allowed. Following the same ratio, the grounds in the instant appeal are allowed.
ITA No. 1326/Pn/2010 (by Revenue-asst yr. 2007-08) ;
21. Ground of appeal No. 1.1 by the Revenue reads as under :
"The learned CIT(A) erred in holding that the payments of Rs. 27,84,766 made by the assessee to Enercon India Ltd. for windmill operation and
maintenance were rightly covered by the assessee under s. 194C and hot
under s. 194J. The learned CIT(A) erred in placing reliance on the
decision of Madras High Court in the case of Skyceil Communications Ltd. v.Dy. CIT [2001] 170 CTR (Mad) 238 : [2001] 251 ITR 53 (Mad.), the facts of which are not applicable in the instant assessee' s case."
22. Facts of the case, in brief, are that the assessee company has
installed windmill near Satara, manufactured by Enercon India Ltd.
During the relevant financial year, the assessee company made payments
amounting to Rs. 27,84,790 to the said company. The assessee explained
that the payment was made to the company towards maintenance of
windmill, replacement of parts and spares at no cost to the assessee
company, assistance in complying with statutory duty of reporting
periodically to Governmental agencies, implementing safety norms, and
conduct of training programmes, prevention of damage, injury or loss in
the event of an emergency, provision of round the clock security at
windmills site. The assessee, therefore, contended before the AO that
the contract was a comprehensive contract for material and labour
services required. The AO, however, held that the operation and
maintenance of windmill, repair and replacement of parts, and other work carried out by M/s Enercon India Ltd. requires technical skills and
knowledge and is covered under s. 194J of the Act and therefore, tax
should have been deducted under s. 194J instead of s. 194C of the Act.
He thus worked out the short deduction on this count at Rs. 93,735.
23. Before CIT(A) it was submitted that the company has correctly deducted
tax at source under s. 194C. A copy of the contract entered into between the company M/s Enercon India Ltd. was furnished by the assessee. It
was further submitted that the position that the said payment is covered under S.194C has been accepted in one of the cases of Enereon' s
customers by CIT(A), Mumbai.
24. Based on the arguments advanced by the assessee, the learned CIT(A) allowed the ground by holding as under :
"I have given careful consideration to the matter. On perusal of the order passed by the learned CIT(A), Mumbai, it is seen that the same is
regarding operations performed in connection with installation of the
windmill and the facts of that case cannot directly be compared to the
present case. As already stated, the main contention of the learned AO
is that the functions performed by M/s Enercon for which payment was to
be made by the assessee company required technical skill and knowledge,
and, therefore, was covered under s. 194J. In Skycell Communications Ltd. (supra), however, the Madras High Court observed as follows:
'When a person hires a taxi to move from one place to another, he uses the
product of science and technology, namely, an automobile. It cannot on
that ground be said that the taxi driver who controls the vehicle, and
monitors its movement is rendering the technical service to the person
who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is
rendering a technical service to the passenger and, therefore, the
passenger is under an obligation to deduct tax at source on the payments made to the railways to the airline for having used it for travelling
from one destination to another.... The electricity supplies to a
consumer cannot on the ground that generators are used to generate
electricity, transmission lines to carry the power, transformers to
regulate the flow of current, meters to measure the consumption, be
regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on payment
made for the power consumed and remit the same to the Revenue.
Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such
equipment does not result in the provision of technical service to the
customer for a fee'.... ........
When a person decides to subscribe to a cellular telephone service in order
to have the facility of being able to communicate with others, he does
not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact
that the telephone service provider has installed sophisticated
technical equipment in the exchange to ensure connectivity to its
subscriber does not on that score, make it provision of a technical
service to the subscriber. The subscriber is not concerned with the
complexity of the equipment installed in the exchange, or the location
of the base station. All that he wants is the facility of using the
telephone when he wishes so, and being able to get connected to the
person at the number to which he desires to be connected. What applies
to cellular mobile telephone is also applicable to fixed telephone
service. Neither service can be regarded as 'technical service' for the
purpose of s. 194J of the Act.'
Considering the above decision of the Hon'ble Madras High Court, I am of the view
that the mere fact that technical skill and knowledge was required for
rendering the type of services which were rendered by M/s Enercon to the assessee company did not render the amount paid by the assessee company for a comprehensive contract covering annual maintenance, replacement,
security, emergency services etc. 'fees for technical services' . The
said payment was of the nature of payment for a comprehensive contract
covering all these functions and others, on which the appellant company
had rightly deducted tax under s. 194C and not s. 194J. This view is
also supported by the decision of Tribunal, Ahmedabad in Gujarat State Electricity Corpn. Ltd. v. ITO [2004] 3 SOT 468 (Ahd.) wherein it was held that a composite contract for operation and
maintenance would come within the ambit of s. 194C and not s. 194J. This issue is therefore decided in the appellant' s favour."
24.1 Aggrieved with the order of the CIT (A), the Revenue is in appeal before us.
25. We have considered the rival arguments made by both the
sides. We find in the instant case, the learned CIT(A) while holding
that provisions of s. 194C are applicable for payments towards windmill
operation and maintenance has followed the decision of Hon'ble Madras
High Court and the decision of Tribunal, Ahmedabad Bench in the case of Gujarat State Electricity Corporation Ltd.(supra). The learned Departmental Representative could not distinguish the
decisions relied on by the learned CIT(A). In absence of any contrary
material brought to our notice against the order of the CIT(A) and since the learned CIT(A) while deciding the issue has relied on the decision
of Hon'ble Madras High Court and the Tribunal, Ahmedabad Bench,
therefore, we find no infirmity in the same and uphold the order of the
learned CIT(A) on this issue. The ground raised by the Revenue is
therefore dismissed.
26. Ground of appeal No. 1.2 by the Revenue reads as under :
"The CIT(A) erred in coming to the conclusion that the payments of Rs.
1,21,61,895 made by the assessee to various parties were contractual
payments requiring deduction of tax under s. 194C and not under s. 194J
by placing reliance on the Madras High Court decision, supra, the facts
of which are not applicable to the instant assessee' s case. While coming to the conclusion, the CIT(A) erred in not appreciating the true import of the answer to question No. 29 of the Board's Circular No. 715, dt.
8th Aug., 1995 [(1995) 127 CTR (St) 13)."
27. Facts of the case, in brief, are that for the impugned financial year
the assessee made payments amounting to Rs. 1,21,61,895 to various
parties including Reliance Communications, Bharti Airtel, Blue Star
Ltd., Aircool Services, Avery India Ltd. and various other parties. The
assessee has deducted tax as per provisions of s. 194C. According to the AO, these payments were towards technical, managerial and professional
services rendered by these parties and therefore the assessee should
have deducted tax under the provisions of s. 194J. The AO accordingly
determined the short deduction at Rs. 2,49,005.
28. Before CIT(A) it was submitted that these payments were made towards
annual maintenance contract. The CBDT Circular No. 715, dt. 8th Aug.,
1995 [(1995) 127 CTR (St) 13] was also brought to the notice of the
CIT(A) according to which routine/normal maintenance contract including
supply of spares are covered under s. 194C. Further, the decision of
Hon'ble Madras High Court in Skycell Communications Ltd. (supra) was also cited. Based on the arguments advanced by the assessee, the
learned CIT(A) decided the issue in favour of the assessee and held that provisions of s. 194C are applicable for such AMC charges Daid and
credited.
28.1 Aggrieved with such order of the CIT(A), the Revenue is in appeal before us.
28.2 The learned Departmental Representative heavily relied on the order of the AO.
29. The learned counsel for the assessee, on the other hand, while relying
on the order of the CIT(A) also relied on the following decisions :
(a) Tribunal, Pune decision in the case of Fluent India (P) Ltd.;
(b) Skycell Communications Ltd. (supra);
(c) Parasrampuria SyntheticsLtd. (supra)
(d) Nuclear Corpn. of India Ltd. v. ITO [IT Appeal No. 3081 (Ahd.) of 2009, dated 30-09-2011]
(e) Tribunal, Pune decision in the case of Glaxosmithkline Pharmaceuticals Ltd. (supra).
30. After hearing both the sides, we find the Ahmedabad Bench of the Tribunal in the case of Nuclear Corporation of India Ltd. (supra) has held that payments made for AMC of telephone exchange and computer
cannot be considered as fees for technical services within the meaning
of s. 194J. The relevant observation of the Tribunal at para 19 of the
order reads as under :
"19. After hearing both the sides, we have carefully gone through the orders of the authorities below. The Hon'ble Madras High Court, in the case of Skycell Communication Ltd. (supra), held that
installation and operation of sophisticated equipments with a view to
earn income by allowing customers to avail of benefit of the user of
such equipment does not result in the provision of technical service to
the customer for a fee. Keeping in view the ratio of this decision, in
the instant case, there might be use of services of technically
qualified persons to render for maintenance of telephone exchange,
annual maintenance contract for VHF wireless set, repairs and annual
maintenance of computers, etc., but that itself did not bring the amount paid as 'fees for technical services' within the meaning of Expln. 2 to s. 9(l)(vii). Therefore, the amount paid towards annual maintenance
contract of telephone exchange and computers by the assessee, in the
present case, could not be considered as fee for technical services
within the meaning of s. 194J. We, therefore, following the decision of
the Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra), which is followed by the Tribunal, Delhi Bench 'H' in the case of Parasrampuria Synthetics Ltd. (supra), held that the assessee was i required to deduct TDS under s. 194C and
not under s. 194J of the IT Act. Consequently, it is held that the
assessee cannot be deemed to be 'assessee in default' within the meaning of s. 201(1) in respect of such tax. Accordingly, it is held that the
assessee rightly deducted the IDS under s. 194C of the IT Act, 1961.
Consequently, no interest under s. 201(1A) of the IT Act is leviable.
Hence, ground No. 4 of the assessee' s appeals for all the three
assessment years is allowed. The ground Nos. 5 and 6 in respect of all
the assessment years need no separate adjudication, in view of our
decision in respect of each and every item of shortfall (supra)" .
31. We find the CBDT vide Circular No. 715 dt. 8th Aug., 1995 [1995] 127 CTR
(St) 13] has replied to question No. 29 which reads as under :
"Question No. 29 : Whether a maintenance contract including supply of spares would be covered under s. 194C or 194J of the Act ?
Answer : Routine, normal maintenance contracts including supply of spares will be covered under s. 194C. However, where technical services are
rendered, the provision of s. 194J will apply in regard to TDS."
31.1 Since in the instant case the assessee has made payments to various
parties for AMC, therefore, respectfully following the decision of the
Ahmedabad Bench of the Tribunal cited (supra) and in view of answer to
question No. 29 in CBDT Circular No. 715 dt 8th Aug., 1995 we hold that
the assessee has rightly deducted tax at source under s. 194C on account of payments for annual maintenance charges. We accordingly uphold the
order of the CIT(A) on this issue and the ground raised by the Revenue
is dismissed.
32. Ground of appeal No. 1.3 by the Revenue reads as under :
"The learned CIT(A) erred in holding that the payments of Rs. 81,53,188
by the assessee towards training programmes and seminars organised by
various entities would be covered under s. 194C and not under s. 194J.
The learned CIT(A) erred in holding that the training and seminars do
not fall in the list of activities of professional services enumerated
in s. 194J."
33. Facts of the case, in brief, are that an amount of Rs. 81,53,188 was
paid by the assessee towards training programmes and seminars organised
by various entities including CII towards attending training and
seminars by its employees. The AO noted that the assessee had made short deduction of tax on the payments made to the above concerns. In
response to the show-cause notice issued by the AO, the assessee replied that the company has deducted tax at source under s. 194J in most of
the cases except in a few cases where the fees are on delegate basis for employees attending the seminars. Further, no TDS has been made in
respect of lunch and banquet expenses, reimbursed or contributed at the
request of CII or other charitable/mutual associations etc. The AO noted that the payments made on this account are covered under s. 194J of the IT Act. The employees are getting training from experts in various
fields having professional knowledge to give training and lectures to
the employees for the benefit of the company. Therefore, tax should have been deducted under s. 194J in respect of such payments and not under
s. 194C. He accordingly calculated such short deduction at Rs. 1,06,364.
34. In appeal the learned CIT(A) held that training and seminar expenses do not fall under the definition of professional services and accordingly
decided the issue in favour of the assessee.
34.1 Aggrieved with such order of the CIT(A), the Revenue is in appeal
before us. The learned Departmental Representative heavily relied on the order of the AO.
35. The learned counsel for the assessee, on the other hand, while
supporting the order of the CIT(A) submitted that most of the payments
are for attending seminars organised by CII and other reputed institutes and such payments are basically reimbursement of the lunch, banquet
expenses and other expenses. He submitted that by attending the seminars the employees of the assessee company come to know about the latest
developments in various fields. There is no technical or professional
services rendered by anybody and therefore the payments made are not
covered under s. 194J.
36. We have considered the rival arguments made by both the sides, perused
the orders of the AO and the CIT(A) and the paper book filed on behalf
of the assessee. In our opinion, the payments made to various
organisations towards attending seminars by the employees of the
assessee company cannot be considered as towards rendering of
professional services by those training institutes as per the provisions of s. 194J. We, therefore, agree with the findings given by the learned CIT(A) that training and seminar expenses of the nature under
consideration in the instant case do not fall under the category of
services rendered under s. 194J and the assessee has rightly deducted
tax under s. 194C and there is no snort deduction of tax. The ground
raised by the Revenue is accordingly dismissed.
37. Ground of appeal No. 1.4 by the Revenue reads as under :
"The learned CIT(A) erred in holding that the amount of Rs. 38,58,905
paid by assessee to TLC, Zenith Infotech and Wipro Ltd. was covered
under s. 194C and not under s. 194J. The learned CIT(A) once again
failed to appreciate the true import of answer to question 29 of Board's Circular No. 715, dt. 8th Aug., 1995, supra."
38. After hearing both the sides, we find the assessee company made payment of Rs. 38,58,905 to M/s Tata Consultancy Service, Zenith Infotech Ltd., Wipro Ltd. during the year towards EDP expenses for professional,
technical and managerial services rendered by the above parties. The
assessee has deducted tax under the provisions of s. 194C. However, the
AO held that provisions of s. 194J are applicable for such payments and
that the assessee has made short deduction of tax at Rs. 1,19,217, the
details of which are as under:
S.No. Name of the company Amount paid Short deduction
1 Tata Consultancy Services 18,50,000 57,100
2 Zenith Infotech Ltd. 14,83,905 45,877
3 Wipro Ltd. 5,25,000 16,230
Total 38,58,905 1,19,297
39. Before the CIT(A) it was submitted that the above payments are in the
nature of routine AMC contracts for software maintenance. The answer to
question No. 29 of the CBDT Circular No. 715, dt. 8th Aug., 1995 was
brought to the notice of the CIT(A).
40. Based on the arguments advanced by the assessee the learned CIT(A)
field that since the payments made are in the nature of AMC, therefore,
provisions of s. 194C are applicable. Aggrieved with such order of the
learned CIT(A), the Revenue is in appeal before us.
40.1 The learned Departmental Representative heavily relied on the order of the AO.
41. The learned counsel for the assessee, on the other hand while Supporting the order of the CIT(A) also relied on the following
decisions :
1. Swayam Shipping Services (P) Ltd. (supra);
2. Shree Mahalaxmi Transport Co. (supra);
3. Indian Oil Corpn. (Marketing Division) (supra).
42. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of
the assessee. We have also considered the various decisions cited before us. We find the learned CIT{A) has given a finding that the AO has not
discussed the nature of these payments but has simply stated that the
payments were for professional, technical and managerial services on
which tax was deductible under s. 194J. The finding given by the learned CIT(A) that the payments are in fact in the nature of AMC could not be controverted by the learned Departmental Representative. We have
already held in ground of appeal No. 1.2 of the Revenue that payments
made for AMC are covered under s. 194C and not under s. 194J. Following
the same ratio, we hold that the payments made to the parties mentioned
above are covered under s. 194C and not under s. 194J. Accordingly, the
order of the CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed.
43. Ground of appeal No. 2 by the Revenue reads as under :
"The learned CIT(A) erred in directing the AO to admit fresh evidence in respect of payment of taxes by deductee assessee. The CIT(A) failed to
appreciate that no such evidence was adduced by the assessee at the time of proceeding under ss. 201(1) and 201(1A). The CIT(A) also failed to
appreciate the correct import of two decisions and Board's circular dt.
29th Jan., 1997 cited by him in his order. The CIT{A) has failed to
appreciate that by issuing such a direction, he is rendering the
proceedings under s. 201(1) redundant."
44. The learned Departmental Representative submitted that the CIT(A) was
not justified in directing the AO that if the payees have ultimately
paid the tax, the tax which is not deducted by the assessee should not
be collected from the assessee.
45. The learned counsel for the assessee on the other hand submitted that
in view of decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 (SC) the learned CIT(A) was justified in directing the AO for non-collection of short deduction of tax in case the payees have ultimately paid the
tax.
46. In the preceding paras we have already allowed the appeal filed by the
assessee and dismissed the appeal filed by the Revenue. Therefore, there is no short deduction of tax by the assessee. Therefore, this ground
raised by the Revenue becomes infructuous and therefore is dismissed.
ITA No. 1327/Pn/2010 (by Revenue) (asst yr. 2008-09) :
47. Grounds raised by the Revenue are as under :
"The learned CIT(A) erred in holding that the payment of Rs. 22,96,845 made
by the assessee to Enercon India Ltd. for windmill operation and
maintenance was rightly covered by the assessee under s. 194C and not
under s. 194J. The learned CIT(A) erred in placing reliance on the
decision of Madras High Court in the case of Skycell Communications Ltd. [2001] 251 ITR 53 (Mad.), the facts of which are not applicable in the instant assessee' s case.
The CIT(A) erred in coming to the conclusion that the payments of Rs.
53,43,163 made by the assessee to various parties were contractual
payments requiring deduction of tax under s. 194C and not under s. 194J
by placing reliance on the Madras High Court decision, supra, the facts
of which are not applicable to the instant assessee' s case. While coming to the conclusion, the CIT{A) erred in not appreciating the true import of the answer to question No. 29 of the Board's Circular No. 715, dt.
8th Aug., 1995.
The learned CIT(A) erred in holding that the payments of Rs. 52,74,226 by
the assessee towards training programmes and seminars organised by
various entities would be covered under s. 194C and not under s. 194J.
The learned CIT(A) erred in holding that the training and seminars do
not fall in the list of activities of professional services enumerated
in s. 194J.
The learned CIT(A) erred in holding that the amount of Rs. 8,75,431 paid by assessee to TLC, Faxon Imaging Technology, GEM Integrators, RAC, IT
Solutions and Synise Technology Ltd. were covered under s. 194C and not
under s. 194J. The learned CIT(A) once again failed to appreciate the
true import of answer to question 29 of Board's Circular No. 715 dt. 8th Aug., 1995, supra.
The learned CIT(A) erred in directing the AO to admit fresh evidence in
respect of payment of taxes by deductee assessee. The CIT(A) failed to
appreciate that no such evidence was adduced by the assessee at the time of proceeding under ss. 201(1) and 201(1A). The CIT(A) also failed to
appreciate the correct import of two decisions and Board's circular dt.
29th Jan., 1997 cited by him in his order. The CIT(A) has failed to
appreciate that by issuing such a direction, he is rendering the
proceedings under s. 201(1) redundant.
The appellant prays that the order of the CIT(A) be vacated and that of .the AO be restored."
48. After hearing both the sides, we find the above grounds by the Revenue
are identical to grounds in ITA No. 1326/Pn/2010 filed by the Revenue.
We have already decided the issues and the grounds raised by the Revenue have been dismissed. Following the same ratio, the above grounds by the Revenue are dismissed.49. In the result, both the appeals filed by the assessee are allowed and the appeals filed by the Revenue are dismissed.
IT : Right of revenue to initiate reassessment proceeding within
time-limit prescribed under unamended section 149 cannot be curtailed by subsequent amendment
IT : Reopening of assessment was justified where Assessing Officer,
while making assessment, had not examined question whether
assessee-trust fulfilled condition laid down in section 13 read with
section 11
■■■
[2013] 36 taxmann.com 553 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Sadhu Singh Hamdard Trust
v.
Assistant Commissioner of Income-tax, Jalandhar*
HEMANT GUPTA AND MS. RITU BAHRI, JJ.
C.W.P. NOS. 16890, 16891 AND 16893 TO 16899 OF 1995
JULY 4, 2013
Section 149 of the Income-tax Act, 1961 - Income escaping assessment -
Time-Limit for issuance of notice [Effect of amendment] - Assessment
years 1984-85 to 1992-93 - Whether Amending Act 1989 making amendments
to section 149 changing period of limitation for issuance of notice for
reassessment has not made provision of amending Act applicable
retrospectively - Held, yes - Whether therefore, where revenue had right to initiate proceedings for reassessment within time limit prescribed
under unamended section 149, such right could not be curtailed by
subsequent amendment, when no specific provision was made to curtail
period of limitation for initiating such proceedings - Held, yes [Para
21] [In favour of revenue]
Section 11, read with section 147, of the Income-tax Act, 1961 - Charitable or
religious trust - Exemption of income from property held under
[Reassessment] - Assessment years 1984-85 to 1991-92 - Assessee was a
public charitable trust - Its assessments had been completed allowing
exemption under section 11 - Subsequently, it was found that Assessing
Officer, while passing order under section 143(3), had not examined
question whether trust fulfilled conditions laid down in section 13,
read with section 11, and assessability of income earned from business
carried on; and that assessee did not fulfil conditions laid down in
clause (b) of sub-section (4A) of section 11, i.e., there was no named
beneficiaries of trust and income was wrongly allowed exemption under
section 11 - Whether subsequent Assessing Officer was justified in
issuing notices for reopening assessment - Held, yes [Paras 26,27 and
28] [In favour of revenue]
FACTS
■ The assessee was public charitable trust registered under section 12A and
derived income by running daily newspaper and other. The principle
object was general public utility, namely, promotion of interest of
Punjabi and Punjabiat.
■ In respect of assessment years 1984-85, 1985-86, 1986-87 and 1990-91, the
returns filed by the assessee had been finalized in terms of section
143(3); in respect of assessment years 1987-88 and 1988-89, the returns
were accepted finalized under the then existing provisions of section
143(1); whereas in respect of assessment years 1989-90, 1991-92 &
1992-93, the assessee was intimated about the acceptance of returns in
terms of section 143(1)(a).
■ Subsequently, the reassessment notices were issued to the assessee for all the
assessment years on the grounds that the Assessing Officer failed to
examine question whether trust fulfilled conditions laid down in section 13, read with section 11, and assessability of income earned from
business carried on; and that the assessee did not fulfil the conditions laid down in clause (b) of sub-section (4A) of section 11, i.e., there was no named beneficiary of the trust and the income was wrongly allowed exemption under section 11.
■ The assessee challenged the said notices contending that:
- notices were based on mere change of opinion as assessments were framed under section 143(3).
- The show-cause notice was issued beyond the period of limitation as per amended provision of Finance Act No. 2 of 1991.
HELD
■ In respect of subsequent assessment years when more beneficial sub-section (4A) was in force, the Court in assessee' s own case has remanded the
matter to the Tribunal to re-adjudicate the issue relating to exemption
claimed under section 11 with reference to provisions of section
11(1)(a). The issue in respect of originally inserted sub-section 4(A),
which is restricted in language, is required to be examined by the
authorities under the Act in respect of application of its income for
stated purpose of general public utility. [Para 15]
■ As regards
time-limit for reopening assessment, issue is required to be examined
keeping in view section 6 of the General Clauses Act, 1897. As per
section 6 of the said Act, the repeal of any enactment shall not affect
any right, privilege, obligation or liability acquired, accrued or
incurred under any enactment so repealed, as also affect any
investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty, forfeiture or punishment as
aforesaid. [Para 18]
■ In the instant
case, the reassessment proceedings could be initiated within the
time-limit prescribed under the unamended section 149 subject to the
fulfilment of certain conditions. If such conditions are satisfied, the
revenue has right to initiate proceedings for reassessment. Such right
cannot be curtailed by subsequent amendment, when no specific provision
was made to curtail the period of limitation for initiating such
proceedings. The right to reassess the income is vested with revenue
after following the procedure prescribed. The amending Act changing the
period of limitation for issuance of notice for assessment has not made
provision of the amending act applicable retrospectively. Though the
limitation is a provision dealing with procedure and all amendments in
respect of procedure are retrospective but where the amendment has the
effect to curtail a right vested, then the amended provisions cannot be
applicable to the vested rights. [Para 21]
■ It is well-settled that each of the assessment year is independent proceeding. Reference may be made to Radhasoami Satsang v. CIT[ 1992] 193 ITR 321/60 Taxman 248 (SC), wherein it has been held that strictly speaking res judicata does not apply to income tax proceedings. Each assessment year being a unit, what is decided in one year may not apply to the following year.
Therefore, the right to initiate re-assessment in terms of the unamended provisions of section 149 cannot be curtailed by an amendment. Such
right to reassessment is protected in favour of the revenue in terms of
section 6 of the General Clauses Act, 1897, as vested rights cannot be
taken away by amendment. [Para 23]
■ The assessee has
vehemently argued that it has disclosed all material facts in its return filed and, therefore, assessment finalized by the Assessing Officer
cannot be reopened only on the basis of change of opinion by a
subsequent Assessing Officer. Such argument is primarily restricted to
the assessments framed under section 143(3) in respect of the assessment years 1984-85, 1985-86, 1986-87 and 1990-91. The assessment in respect
of other assessment years was finalized either under section 143(1)
prior to its amendment with effect from 1-4-1989 or thereafter in terms
of section 143(1)(a) accepting the return
filed subject to correction of the mistakes. Since the intimation of the assessment was given to the assessee, it cannot be said that the
Assessing Officer has examined the return which may bar the Assessing
Officer to reopen the assessment. [Para 24]
■ In relation to
assessment year 1984-85, there is a communication addressed by the
assessee to the Income-tax Officer on 15-3-1984, wherein it is asserted
that the assessee was a trust wholly for charitable purposes; the
business was in furtherance of the objects of the trust and was wholly
for charitable purposes; the work in connection with the business was
mainly carried on by the beneficiaries of the trust and not by the
trustees and the separate books of account were maintained by the trust
in respect of such business. In the revised returns filed pursuant to
the show-cause notice served, the assessee has asserted that total
amount of income was applied to charitable purposes. In part IV of the
return, it was asserted that the business of the trust was incidental to the attainment of the objective of the institution and separate books
of account were maintained in respect of business and such is not hit by section 11(4A). [Para 25]
■ However, it may be observed that in the communication dated 15-3-1984, it is asserted that the work in connection with the business is mainly carried on by the
beneficiaries of the trust. The trustees are running the newspaper and
cannot be the beneficiaries of the trust. The trustee and the
beneficiary have the conflicting interest and, thus, one person cannot
be a trustee and a beneficiary. Though there is assertion that separate
books of account are maintained, but the balance sheets produced by the
assessee do not show that separate books of account were maintained in
respect of charitable activities undertaken by it. The income and the
expenditure account in the balance sheet does not reflect the separate
books in respect of charitable activities, which is the requirement of
sub-section (4A). [Para 26]
■ Even in respect of assessment years 1984-85, 1985-86, 1986-87 & 1990-91, the returns
were finalized in terms of section 143(3). The Assessing Officer was
within its jurisdiction to issue a show-cause notice for re-assessment.
The order of assessment shows that the Assessing Officer has returned a
finding that income has been applied for the purpose of the trust in
view of the noting of the assessee in the return filed. The reason for
re-assessment is that the Assessing Officer has not examined the
question whether the trust fulfilled the condition laid down in section
13, read with section 11, and whether the income earned from the
business is exempt from tax as it has been utilized for the
beneficiaries and by keeping separate accounts. These are the
requirements for claiming exemption in view of the judgment of the
Supreme Court in Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 as also the Division Bench of this Court in the assessee' s own case for
the subsequent assessment years. Since the question was not examined by
the Assessing Officer while framing assessment under section 143(3) and
the assessment framed was in ignorance of the statutory provisions, the
test that the income has escaped assessment on the basis of return filed stands satisfied. A perusal of the record produced by the assessee does not show that separate books of account were maintained in respect of
income for charitable purposes, the test categorically laid down in Thanthi Trust'scase (supra). [Para 27]
■ Since the question is one of a fact, it is left open to the Assessing Officer to examine
the question of fact, but it cannot be accepted that the assessment is
sought to be reopened only on account of change of opinion. In fact, the return is sought to be reopened on account of non-disclosure of
material facts relating to application of the income for charitable
purposes. [Para 28]
■ Consequently, there is no merit in the writ petitions. The same are accordingly dismissed.
CASE REVIEW
Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 (SC) (para 27) followed.
CASES REFERRED TO
Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 7), Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 7), CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 7), Vipan Khanna v. CIT[ 2002] 255 ITR 220/122 Taxman 1 (Punj. & Har.) (para 7), Chandi Ram v. ITO [1997] 225 ITR 611/[1996] 87 Taxman 418 (Raj.) (para 8),CIT v. Sandhu Singh Hamdard Trust [IT Appeal No. 75 of 2004, dated 26-7-2012] (para 10), Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 (SC) (para 11), Vinod Gurudas Raikar v. National Insurance Co. Ltd. [1991] 4 SCC 333 (para 20), T. Kaliamusthi v. Five Gori Thaikkal Wakf [2008] 9 SCC 306 (para 22), Radhasomi Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) (para 23).
Sanjay Bansal, Rajiv Sharma and Gurjeet Singh for the Petitioner. Vivek Sethi for the Respondent.
ORDER
Hemant Gupta, J. - Challenge in the
afore-mentioned writ petitions is to the show cause notices served upon
the petitioners under Sections 147 & 148 of the Income Tax Act, 1961 for re-assessment of the income. Before invoking the jurisdiction of
this Court, the petitioner has filed returns in pursuance of the show
cause notices served for re-assessment. The details of the assessment
years; the dates of issuance of show cause notices and the dates on
which the revised returns were filed in pursuance of such notices are as under:
Sr.No. CWP Numbers Assessment Years Dates of issuance of show cause notices Dates on which revised returns were filed
1. CWP No. 16897 of 1995 1984-85 04 08.1994 02.09.1994
2. CWP No. 16894 of 1995 1985-86 30.03.1995 11.08.1995
3. CWP No. 16899 of 1995 1986-87 04.08.1994 02.09.1994
4. CWP No. 16890 of 1995 1987-88 30.05.1995 11.08.1995
5. CWP No. 16896 of 1995 1988-89 30.05.1995 11.08.1995
6. CWP No. 16898 of 1995 1989-90 30.05.1995 11.08.1995
7. CWP No. 16895 of 1995 1990-91 19.08.1994 30.11.1990
8. CWP No. 16893 of 1995 1991-92 19.08.1994 30.09.1994
2. In respect of Assessment Years 1984-85, 1985-86, 1986-87 & 1990-91,
the returns filed by the petitioner have been finalized in terms of
Section 143(3) of the Act; in respect of Assessment Years 1987-88 &
1988-89, the returns were accepted finalized under the then existing
provisions of Section 143(1) of the Act; whereas in respect of
Assessment Years 1989-90, 1991-92 & 1992-93, the assessee was
intimated about the acceptance of returns in terms of Section 143(l)(a)
of the Act.
3. The petitioner - Sadhu Singh Hamdard Trust, was registered as a Public
Charitable Trust under Section 12A of the Act. The Trust was created by
Deed of Trust executed on 17.08.1977 by S. Sadhu Singh Hamdard, the sole owner of the properties i.e. assets of 'Ajit' Newspaper including good
will & l/3rd share of 'Gobind Farm' situated at Village Bal,
District Roop Nagar. The said two properties including the business
undertaking of 'Ajit' Newspaper were conveyed and transferred to the
petitioner - Trust. The principal object of the Trust was general public utility namely promotion of the interest of Punjab, Punjabi and
Punjabiat. The author of the Trust by Supplementary Deed of Trust dated
22.11.1977 conveyed and transferred the property of Daily Ajit Printers
including its machinery, goodwill, stock etc. to the Trust. The
Assessment Years in question are Assessment Years 1984-85 to 1992-93.
4. The basis of the notices issued to the petitioner is insertion of
sub-section (4A) in Section 11 of the Act by Finance Act, 1983 w.e.f.
01.04.1984. Sub-section (4A) has been again substituted by Finance (No.
2) Act, 1991 w.e.f. 01.04.1992. The relevant statutory provisions before insertion/substitut ion and after insertion/substitut ion, for the
Assessment Years in question, read as under:
Section 11. Income from property held for charitable or religious purposes
** ** **
Inserted by Finance Act, 1983 w.e.f. 01.04.1984 Substituted by Finance (No.2) Act, 1991 w.e.f. 01.04.1992
(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section
(3A) shall not apply in relation to any income, being profits and gains
of business, unless –
(a) the business is carried on by a trust wholly for public religious
purposes and the business consists of printing and publication of books
or publication of books or is of a kind notified by the Central
Government in this behalf in the Official Gazette; or
(b) the business is carried on by an institution wholly for charitable
purpose and the work in connection with the business is mainly carried
on by the beneficiaries of the institution,
And separate books of account are maintained by the Trust or institution in respect of such business. (4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an
institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the
case may be, institution, and separate books of account are maintained
by such trust or institution in respect of such business.
Section 147 - Income escaping assessment
As it existed in the year 1984 As substituted by the Direct Tax Laws (Amendment) Act w.e.f. 1.4.1989
147. If –
(a) the Assessing Officer has reason to believe that, by reason of the
omission or failure on the part of an assessee to make a return under
section 139 for any assessment year to the Assessing Officer or to
disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that
income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or
reassess such income or recomputed the loss or the depreciation
allowance, as the case may be, for the assessment year concerned
(hereafter in sections 148 to 153 referred to as the relevant assessment year) 147. If the Assessing Officer has reason to believe that any income
chargeable to tax has escaped assessment for any assessment year, he
may, subject to the provisions of sections 148 to 153, assess or
reassess such income and also any other income chargeable to tax which
has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or
the depreciation allowance or any other allowance, as the case may be,
for the assessment year concerned (hereafter in this section and in
sections 148 to 153 referred to as the relevant assessment year)
Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be
taken under this section after the expiry of four years from the end of
the relevant assessment year, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the failure on
the part of the assessee to make a return under section 139 or in
response to a notice issued under sub-section (1) of section 142 or
section 148 or to disclose fully and truly all material facts necessary
for his assessment, for that assessment year
Section 148 - Issue of notice where income has escaped assessment
As it existed in the year 1984 As Substituted by the Direct Tax Laws (Amendment) Act w.e.f. 1.4.1989
148. (1) Before making the assessment, reassessment or recomputation
under section 147, the Assessing Officer shall serve on the assessee a
notice containing all or any of the requirements which may be included
in a notice under sub-section (2) of section 139; and the provisions of
this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. 148. (1) Before making the assessment, reassessment or recomputation under
Section 147, the Assessing Officer shall serve on the assessee a notice
requiring him to furnish within such period, not being less than thirty
days, as may be specified in the notice, a return of his income or the
income of any other person in respect of which he is assessable under
this Act during the previous year corresponding to the relevant
assessment year, in the prescribed form and verified in the prescribed
manner and setting forth such other particulars as may be prescribed;
and the provisions of this Act shall, so far as may be, apply
accordingly as if such return were a return required to be furnished
under section 139.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
Section 149 - Time limit for notice
As it existed in the year 1984 As substituted by the Direct Tax Laws (Amendment) Act w.e.f. 1.4.1989
149. (1) No notice under section 148 shall be issued,
(a) in cases falling under clause (a) of section 147 –
(i) for the relevant assessment year, if eight years have elapsed from the
end of that year, unless the case falls under sub-clause (ii);
(ii) for the relevant assessment year, where eight years, but not more than
sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely
to amount to rupees fifty thousand or more for that year;
(b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
(3) If the person on whom a
notice under section 148 is to be served is a person treated as the
agent of a non-resident under section 163 and the assessment,
reassessment or recomputation to be made in pursuance of the notice is
to be made on him as the agent of such non-resident, the notice shall
not be issued after the expiry of a period of two years from the end of
the relevant assessment year. 149. (1) No notice under section 148 shall be issued for the relevant assessment year –
(a) in a case where an assessment under sub-section (3) of Section 143 or section 147 has been made for such assessment year –
(i) if four years have elapsed from the end of the relevant assessment
year, unless the case falls under sub-clause (ii) or sub-clause (iii);
(ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax
which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year;
(iii) if seven years, but not more than ten years, have elapsed from the end
of the relevant assessment year, unless the income chargeable to tax
which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year;
(b) in any other case –
(i) if four years have elapsed from the
end of the relevant assessment year, unless the case falls under
sub-clause (ii) or sub-clause (iii);
(ii) if four years, but not more than seven years, have elapsed from the end of the relevant assessment year,
unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees twenty-five thousand or more for
that year;
(iii) if seven years, but not more than ten years, have elapsed from the end
of the relevant assessment year, unless the income chargeable to tax
which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year.
(2) no change
(3) no change
5. Learned counsel for the petitioner
vehemently argued that the returns for the Assessment Years 1984-85,
1985-86, 1986-87 & 1990-91 were finalized in terms of Section 143(3) of the Act. The petitioner has truly and completely disclosed all the
facts and the assessment was completed thereafter. Learned counsel for
the petitioner referred to the order of assessment dated 18.09.1986
respect of assessment for the year 1984-85, which reads as under:
"Return declaring Nil income has been filed on 30.03.1985. The return is
supported by Statement of Income and Expenditure statements, Balance
Sheet, Audit Report in Form No. 10B. In response to notice u/s 143(2),
Shri Partap Singh, Accountant appeared alongwith Sh. J.K. Sood,
Advocate. The case has been discussed with them. On examination of the
account, I find that the income has been applied for the purpose of
trust. It is a case of public Charitable trust. The registration has
been granted to the trust u/s 12A(a) of the Income Tax Act by the
Commissioner of Income Tax, Jull vide order dated 12.11.1979. The object of the trust for this year is the same as in the earlier years. Keeping in view the past history of the case, income declared at Nil figure is
accepted.
Requisite documents are issued."
6. Learned counsel for the petitioner
referred to the identical reasons recorded for re-assessment in respect
of all the assessment years in question, which are as under:
'The assessee M/s Sadhu Singh Hamdard Trust filed return of income on
30.03.1985 for the Financial Year ending 31.12.1983 relevant to
assessment year 1984-85. The assessee derived income from business
activities by running Daily Ajit newspaper and others. After adjusting
the loss from Ajit English weekly, depreciation and unabsorbed loss of
earlier year net income was shown at Rs. 737153/-. However, the same was claimed exempt u/s 11 with the noting:
"Total amount applied to charitable purposes"
The exemption claimed was allowed on the basis that registration u/s 12A(a) has already been granted by the CIT.
Since Section 12A(a) is only one of the conditions for registration of so
called Trust and registration does not mean confirmation of exemption
u/s 11, 12 or u/s 80G(v) of the Act. As is apparent that the then AO
while passing order u/s 143(3) on 18.09.1986 had not examined the
question; whether the trust fulfilled conditions laid down in Section 13 read with section 11 and assessability of income earned from the
business carried on. The then AO allowed exemption as claimed u/s 11 on
the basis of registration allowed u/s 12A(a).
I have examined the records and found that the assessee did not fulfill
the conditions laid down in Cl. (b) of sub-sec. (4A) of Section 11 i.e.
there was no named beneficiaries of the Trust and the income wrongly
allowed exempt u/s 11 of the Income Tax Act, 1961.
I have, therefore, reasons to believe that by allowing exemption u/s 11
wrongly at Rs. 737153/- the income chargeable to tax has escaped
assessment for the assessment year 1984-85.
In view of the above facts, necessary sanction to issue notice u/s 148 may kindly be accorded.'
7. It is, therefore, contended that the show cause notice for re-assessment
is based upon mere change of opinion in respect of four assessment years as mentioned above as the assessment was framed under Section 143(3) of the Act, thus, the notice for re-assessment is without jurisdiction of
the Assessing Authority. It is contended that since the Assessing
Officer has returned a finding that income has been applied for the
purposes of Trust, therefore, the reasons recorded that the Assessing
Officer has not examined the question; whether the Trust fulfilled the
conditions laid down in Section 13 read with Section 11 and that income
earned from the business has escaped assessment is merely a change of
opinion of the Assessing Officer. Reliance is, inter alia, placed upon
Supreme Court judgments reported as Calcutta Discount Co. Ltd. v.ITO [1961] 41 ITR 191; Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) & CIT v. Kelvinato r of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) apart from the judgment of this Court in Vipan Khanna v. CIT [ 2002] 255 ITR 220/122 Taxman 1 (Punj. & Har.).
8. Learned counsel for the petitioner has also argued that the provisions
including the provisions in respect of time limits as are existed on the date of issuance of show cause notices of re-assessment have to be
examined to determine the legality and validity of the show cause
notices and not the provisions as were in existence during the
Assessment Years in question. In support of such argument, reliance is
placed upon Circular No.549 dated 31.10.1989 issued by the Central Board of Direct Taxes and the judgment of Chandi Ram v. ITO [1997] 225 ITR 611/[1996] 87 Taxman 418 (Raj.).
9. On the other hand, Mr. Sethi, learned counsel for the Revenue, vehemently
argued that the assessment under Section 143(3) of the Act has been
framed by the Assessing Officer without taking into consideration the
statutory provisions contained in substituted sub-section (4A) of
Section 11 of the Act. The assessment has been framed merely on the
basis of the fact that the petitioner is a registered Charitable Trust
under Section 12A of the Act. The Assessing Officer has failed to
examine the application of income in terms of the amended provisions of
the Statute. Therefore, the notices of re-assessment are within the
jurisdiction to examine; whether the income of the petitioner has been
applied for general public utility, so as to seek exemption from the
provisions of the Act. It is contended that it is not change of opinion, but on account of provisions of the Statute having escaped the notice
of the Assessing Officer either intentionally or negligently, which is
the basis of the show cause notices, therefore, the Revenue is entitled
to re-assess the income of the assessee.
10. It is also contended that after substitution of sub-section (4A) of
Section 11 of the Act w.e.f. 01.04.1992, this Court in IT Appeal No.75
of 2004 titled 'CIT v. Sadhu Singh Hamdard Trust' and other 9 connected appeals decided on 26.07.2012 has remanded the
case to the Tribunal to re-adjudicate the issues relating to the
exemption claimed under Section 11 with reference to Section 11A of the
Act. Therefore, the question of re-assessment in respect of assessments
prior to 01.04.1992 is also required to be re-determined in view of the
statutory provisions.
11. The issue in respect of subsequent assessment years in the assessee' s own
case has been examined by a Division Bench of this Court in ITA No. 75
of 2004 titled Sadhu Singh Hamdard Trust' (supra) decided on 26.07.2012. One of the arguments raised by the assessee was
that for 15 years i.e. for the assessment years 1978-79 to 1992-93, the
assessee was accepted to be charitable institution and income was held
to be non-taxable for all these years, therefore, the revenue was not
entitled to adopt different approach from the assessment years 1993-94.
The said argument raised in the aforesaid case was misleading inasmuch
as the present writ petitions challenging the re-assessment proceedings
pertaining to assessment years 1984-85 to 1992-93 were pending before
this Court at the time of hearing of the said appeals. Be as it may, the fact remains that the Division Bench of this Court in the aforesaid
order has examined the provisions of Section 11(4A) of the Act as
substituted on 01.04.1992. The Court upheld the findings recorded by
Tribunal that the assessee was entitled to exemption under Section 11 of the Act, but in respect of exemption of income, the Court referred to
the Supreme Court judgment in Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 and returned the following finding:
"30. Under Section 11(1)(a) of the Act, the income derived from property
held under trust only for charitable or religious purpose is exempt of
its utilization for that purpose. However, wherever there is
accumulation or setting aside for application to such purposes in India, the accumulation or setting apart is not to be in excess of twenty five per cent of the income from such property. However, this has been
reduced to fifteen per cent by Finance Act, 2002 with effect from
01.04.2003. According to Section 11 (4A) of the Act, an exemption is
permissible where the activities are incidental to the attainment of the objectives of the trust and separate books of account are maintained by the trust or the institution in respect of such business. The Tribunal
recorded that the only activity of the assessee was running newspaper to attain the main object of promoting Punjab, Punjabi and Punjabiat and
the conditions of Section 11(4A), thus, automatically stood satisfied.
However, the CIT(A) had recorded that there was net income of Rs.
22,99,905/- from publication of newspaper and there was nothing to show
that this amount had been utilized for charitable purpose for claiming
exemption under Section 11 of the Act. The Tribunal while allowing the
appeal of the assessee had not adverted to this aspect with reference to any material on record."
12. The Supreme Court in Thanthi Trust's case (supra), was examining a case of publication of newspaper by a Trust registered
as a charitable trust. The argument of the revenue before the Supreme
Court in respect of the provisions of sub-section (4A) as inserted vide
Finance Act, 1983 and also the substituted sub-section (4A) inserted by
Finance Act No.2 of 1991 was as under:
"20. This brings us to the second controversy, relevant to Assessment Years
1984-85 to 1991-92 during which period of time sub-section (4A) of
Section 11, as originally enacted, was in operation. It was contended by the learned Solicitor General that by reason of sub-section (4A) the
income derived from a business held under trust wholly for charitable or religious purposes would not be included in the total income of the
previous year in the case only of (a) a trust for public religious
purposes, if the business was of printing and publishing books or of a
notified kind; or (b) an institution wholly for charitable purposes, if
the work in connection with the business was mainly carried on by the
beneficiaries of the institution, provided that separate books of
accounts had been maintained in respect of such business."
13. The Court held that sub-section (4A) restricts the benefit under Section 11 so that it is not available for income derived from business unless (a) the business is carried on by a trust only for public religious
purposes and it is of printing and publishing books or any other
notified kind, or (b) it is carried on by an institution wholly for
charitable purposes and the work in connection with the business in
mainly carried on by the beneficiaries off the institution, provided, in both cases, separate books of accounts are maintained by the trust or
the institution in respect of such business. It was held that the Trust
was not entitled to the exemption contained in Section 11 in respect of
the income of its newspaper.
14. The Supreme Court further noticed that substituted sub-section (4A) as
substituted vide Finance Act No. 2 of 1991 is couched in wide language
and a trust is entitled to the benefit of Section 11 if it utilized the
income of its business for the purposes of achieving its objects. The
Court observed that the scope of substituted sub-section (4A) is more
beneficial to a Trust or institution than was the scope of sub-section
(4A) as originally enacted. The Court observed as under:
"25. The substituted sub-section (4A) states that the income derived from a
business held under trust wholly for charitable or religious purposes
shall not be included in the total income of the previous year of the
trust or institution if 'the business is incidental to the attainment of the objective of the trust or, as the case may be, institution&# 39; and
separate books of accounts are maintained in respect of such business.
Clearly, the scope of sub-section (4A) is more beneficial to a trust or
institution than was the scope of sub-section (4A) as originally
enacted. ..."
15. Thus, in respect of subsequent assessment years, when more beneficial
sub-section (4A) was in force, this Court in assessee' s own case has
remanded the matter to the Tribunal to re-adjudicate the issue relating
to exemption claimed under Section 11 with reference to provisions of
Section 11(1)(a) of the Act. We find that issue in respect of originally inserted sub-section (4A), which is restricted in language, is required to be examined by the Authorities under the Act in respect of
application of its income for stated purpose of general public utility.
16. Since the learned counsel for the petitioner has challenged the issuance of
the show cause notices for re-assessment on other grounds, we will
examine each ground of challenge hereinafter.
17. Firstly, we shall examine the question as to whether the show cause notices are
beyond the period of limitation as per the amended provisions of the Act vide Finance Act No. 2 of 1991. The argument of learned counsel for the petitioner is based upon the circular dated 31.10.1989 issued by the
Board, wherein in paras 7.13 and 7.14, it has been laid down that since
the provisions of Sections 147 to 152 lay down procedural law, these
have retrospective effect. The relevant clauses from the said Circular
read as under:
"7.13 These amendments come into force w.e.f. the 1st April, 1989. However,
it may be clarified that since the provisions of ss. 147 to 152 lay down procedural law, these have retrospective effect, unless the amending
statute provides otherwise. Therefore, the amendments made to these
sections by the Amending Acts, 1987 and 1989, discussed in the preceding paragraphs, which came into force w.e.f. 1st April, 1989, will be
retrospective in the sense that these will apply to all matters which
were pending on 1st April, 1989, and had not become closed or dead on
this date.
7.14 Thus, from 1st April, 1989 onwards, any action for opening or reopening an assessment for the asst. yr. 1988-89, and earlier assessment years
will have to be taken in accordance with the amended provisions. The
following examples will clarify the position:—
(i) No notice under s. 148 can now be issued for the asst. yrs. 1973-74 to
1978-79, even if the escaped income is Rs. 50,000 or more in each year,
although under the old provisions this could have been done with the
Board's approval.
(ii) Notice under s. 148 can now be issued for any of the asst. yrs. 1979-80 to 1981-82, if the following conditions are fulfilled:-
(a) In a scrutiny case (i.e. where an assessment order had been passed under s. 143(3) or
147), if the escaped income is Rs. 1 lakh or more in each year and
approval of the Chief CIT or CIT has been obtained.
(b) In a non-scrutiny
case, if the escaped income is Rs. 50,000/- or more in each year, and
approval of the Dy. CIT has been obtained.
(Under the old
provisions, there was no distinction between a scrutiny and a
non-scrutiny case. Action could have been taken in respect of both types of cases for the asst. yr. 1981-82, with the approval of the Chief CIT
or CIT, whatever be the amount of escaped income, while for the asst.
yrs. 1979-80 and 1980-81, action could have been taken with the Board's
approval if the escaped income was Rs. 50,000 or more in each year.
These old provisions, however, have no application now from 1st April,
1989 onwards).
(iii) Notice under s. 148 can now be issued for any of the asst. yrs. 1982-83 to 1984-85, if the following conditions are fulfilled:-
(a) In a scrutiny
case, if the escaped income is Rs. 50,000 or more in each year and
approval off the Chief CIT or CIT has been obtained.
(b) In a non-scrutiny case, if the escaped income is Rs.25,000 or more in each year and approval of the Dy. CIT has been obtained.
(Under the old
provisions, action could have been taken for these assessment years, in
respect of both types of cases, with the approval of the Chief CIT or
CIT, whatever be the amount of escaped income. These old provisions,
however, have no application now from 1st April, 1989, onwards).
(iv) Notice under s.
148 can now be issued for any of the asst. yrs. 1985-86 to 1988-89,
whatever be the amount of income which has escaped assessment, if the
Assessing Officer has reason to believe that any income chargeable to
tax has escaped assessment.
(Under the old
provisions action could have been taken for these assessment years, if
the circumstances mentioned in cl. (a) or (b) of the old s. 147 were
satisfied. These old provisions, however, have no application now from
1stApril, 1989, onwards).
(v) A scrutiny
assessment for any assessment year cannot be reopened now by an
Assessing Officer below the rank of an Asstt. CIT. Under the old
provisions, there was no such restriction. "
18. The arguments raised by learned counsel for the petitioners is required to
be examined keeping in view Section 6 of the General Clauses Act, 1897.
As per Section 6 of the said Act, the repeal of any enactment shall not
affect any right, privilege, obligation or liability acquired, accrued
or incurred under any enactment so repealed, as also affect any
investigation, legal proceeding or remedy in respect of any such right,
privilege, obligation, liability, penalty, forfeiture or punishment as
aforesaid. Section 6 of the said Act reads as under:
"6. Effect of repeal - Where this Act, or any Central Act or Regulation made after the
commencement of this Act, repeals any enactment hitherto made or
hereafter to be made, then, unless a different intention appears, the
repeal shall not—
(a) Revive anything not in force or existing at the time at which the repeal takes effect; or
(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation or liability acquired, accrued or incurrent under any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
(e) affect any investigation, legal proceeding or remedy in respect of any
such right, privilege, obligation, liability, penalty, forfeiture or
punishment as aforesaid,
and any such investigation, legal proceeding or remedy may be
instituted, continued or enforced, and any such penalty, forfeiture or
punishment may be imposed as if the repealing Act or Regulation had not
been passed."
19. The above said circular issued by the Board has been referred to by Rajasthan High Court in a judgment reported as Chandi Ram's case (supra), wherein the Court has held that the provisions of amended Act would be
applicable only in those cases where the limitation in respect of old
law has not expired. The Court held to the following effect:
"19. It is an established law that no one has vested right in procedural law and whenever a change is made with regard to procedure, it is
retrospective in nature. In a matter of reassessment proceedings under
the IT Act the change has been brought with regard to circumstances and
limitation as well. If the limitation has already expired, then the
amended law would not revive the matters where the limitation is already expired by taking into consideration the amended provisions of law on
the ground that the limitation is extended. The provisions of amended
Act, therefore, would be applicable only in those cases where the
limitation under the old law has not expired. So far as the question as
to whether the phraseology used in the repealed section and in the
amended section is concerned, I am of the view that there was no vested
right in an assessee not to pay the correct tax. The provisions of
assessment are meant for determination of the correct liability of tax
in accordance with law which should be on the basis of correct income
and if there is any escapement, then the ITO has power to reopen the
matter. The repealed section refers to the 'information&# 39; on the basis of which the reassessment proceedings could have been initiated. The
information with regard to correct state of law by way of judgment of
the apex court is also an information on the basis of which the action
could have been taken under the repealed section. Now, the ITO can
reassess for any reason, therefore, the amended section cannot be
considered to be effecting any right of the assessee. .....
** ** **
20. In the case of the assessee, the power could have been exercised under
the repealed section as well as the amended section. The matter with
regard to the applicability of the repealed section is merely an
academic argument, however, in view of the fact that the power of
reopening was existing in respect of escaped assessment prior to 1st
April, 1989, therefore, it cannot be said that any new right has been
acquired by the ITO or the said amendment has effected any vested right
of the assessee. The object of reassessment is to assess the correct
income and is a matter of procedure. The provisions of Section 148,
therefore, have to be considered as procedural in nature. A change in
the procedure may be by way of limitation or otherwise does not effect
the vested right and as such I am of the opinion that the ITO was
competent to invoke the provisions after 1st April, 1989 in accordance
with the amended law, in respect of previous year which have not become
time barred."
20. Hon'ble Supreme Court in a judgment reported as Vinod Gurudas Raikar v. National Insurance Co. Ltd. [1991] 4 SCC 333, examined the provisions of the Motor Vehicle Act, 1988 in
respect of filing of claim petitions with an application for condonation of delay. The argument raised was that the right to seek condonation of delay under the un-amended statute is vested right and cannot be
curtailed. The Court observed as under:
"7. It is true that the appellant earlier could file an application even
more than six months after the expiry of the period of limitation, but
can this be treated to be a right which the appellant had acquired. The
answer is in the negative. The claim to compensation which the appellant was entitled to, by reason of the accident was certainly enforceable as a right. So far the period of limitation for commencing a legal
proceeding is concerned, it is adjectival in nature, and has to be
governed by the new Act - subject to two conditions. If under the repealing Act the remedy suddenly stands barred as a result
of a shorter period of limitation, the same cannot be held to govern the case, otherwise the result will be to deprive the suitor of an accrued
right. The second exception is where the new enactment leaves the
claimant with such a short period for commencing the legal proceeding so as to make it unpractical for him to avail of the remedy. (Emphasis supplied)
** ** **
8. The learned counsel strenuously contended that the present case must be considered as one where an accrued right has been affected, because the option to move an application for condonation of delay belatedly filed
should be treated as a right. This cannot be accepted. There is a vital
difference between an application claiming compensation and a prayer to
condone the delay in filing such an application. Liberty to apply for a
right is not in itself an accrued right or privilege. To illustrate the
point, we may refer to some cases ..... "
21. In the present case, the re-assessment proceedings could be initiated
within the time limits prescribed under the un-amended Section 149 of
the Act subject to the fulfilment of certain conditions. If such
conditions are satisfied, the revenue has right to initiate proceedings
for reassessment. Such right cannot be curtailed by subsequent
amendment, when no specific provision was made to curtail the period of
limitation for initiating such proceedings. The right to reassess the
income is vested with revenue after following the procedure prescribed.
The amending Act changing the period of limitation for issuance of
notice for reassessment has not made provision of the amending Act
applicable retrospectively. Though the limitation is a provision dealing with procedure and all amendments in respect of procedure are
retrospective but where the amendment has the effect to curtail a right
vested, then the amended provisions cannot be applicable to the vested
rights.
22. The Supreme Court in the case of T. Kaliamurthi v. Five Gori Thaikkal Wakf [2008] 9 SCC 306, examined the argument that in terms of the amended
provisions, the suitor has a right to initiate proceedings though under
the un-amended law, the remedy has become time barred. The Court
observed:
"37. Such being the view, we have already expressed on the question of
limitation, let us now examine whether Section 107 of the Wakf Act can
have the effect of reviving a barred claim.
** ** **
39. Section 107 lays down that nothing contained in the Limitation Act,
1963 shall apply to any suit for possession of immovable property
comprised in any wakf or for possession of any interest in such
property. Thus, it can be said that this section virtually repeals the
Limitation Act, 1963 so far as the wakf properties are concerned.
Therefore, it can be concluded without any hesitation in mind that there is now no bar of limitation for recovery of possession of any immovable property comprised in a wakf or any interest therein.
40. In this background, let us now see whether this section has any
retrospective effect. It is well settled that no statute shall be
construed to have a retrospective operation until its language is such
that would require such conclusion. The exception to this rule is
enactments dealing with procedure. This would mean that the law of
limitation, being a procedural law, is retrospective in operation in the sense that it will also apply to proceedings pending at the time of the enactment as also to proceedings commenced thereafter, notwithstanding
that the cause of action may have arisen before the new provisions came
into force. However, it must be noted that there is an important
exception to this rule also. Where the right of suit is barred under the law of limitation in force before the new provision came into operation and a vested right has accrued to another, the new provision cannot
revive the barred right or take away the accrued vested right.
41. At this juncture, we may again note Section 6 of the General Clauses
Act, as reproduced hereinearlier. Section 6 of the General Clauses Act
clearly provides that unless a different intention appears, the repeal
shall not revive anything not in force or existing at the time at which
the repeal takes effect, or affect the previous operation of any
enactment so repealed or anything duly done or suffered thereunder, or
affect any right, privilege, obligation or liability acquired, accrued,
or incurred under any enactment so repealed.
** ** **
47. Let us now look at the other ground taken by the High Court to hold
that Section 107 has a retrospective effect. The High Court has held
that it is a settled proposition of law that in procedural matters,
there is no vested right and hence any amendment to the procedural
matters would apply to pending proceedings also.
** ** **
53. In view of the above authorities, we are of the view that in the
present case, once it is held that the suit for possession of the suit
properties filed at the instance of the Wakf were barred under the
Limitation Act, 1908, the necessary corollary would be to hold that the
right of the Wakf to the suit properties stood extinguished in view of
Section 27 of the Limitation Act, 1963 and, therefore, when Section 107
came into force, it could not revive the extinguished rights. The
authorities relied upon by the learned counsel for the respondents in
this regard in Sree Bank Ltd. v. Sarkar Dutt Roy & Co. AIR 1966 SC 1953, Dhannalal v. D.P. Vijayvargiya [1996] 4 SCC 652, New India Assurance Co. Ltd. v. C Padma [2003] 7 SCC 713and S. Gopal Reddy v. State of A.P. [1996] 4 SCC 596have no application to the facts of the case because in these cases, unlike
the present case, there was no extinguishment of the rights.
54. Let us now answer the submissions on behalf of the learned counsel for
the respondents. The learned counsel for the respondents relied on a
decision of this Court in Dayawati v. Inderjit AIR 1966 SC 1423to suggest that the law affecting procedure is always retrospective and,
therefore, Section 107 should be given retrospective effect.
** ** **
57. After considering this submission of the learned counsel for the
respondents, it may appear that the controversy has narrowed down to the point whether Section 6 of the General Clauses Act would apply in this
case or not. That is to say, it may appear that if we answer this
question in the negative thereby holding that Section 112 is
self-contained, the appeal would fail because then the question of
reviving a barred claim would not arise at all because Section 112 does
not contemplate or provide for any such provision. However, if we answer this question in the affirmative, the inevitable result would be that
the appeal would have to be allowed because on all other points
discussed hereinearlier, the arguments of the learned counsel for the
appellants have been accepted. However, in our view, the authorities
relied upon by the respondents deal only with the question of repeal and savings but do not answer the question raised by the learned counsel
for the appellants, i.e. whether Section 107 can revive an extinguished
right.
58. We may note that the authority relied upon by the learned counsel for the appellant in Yeshwantrao Laxmanrao Ghatge v. Baburao Bala Yadav [1978] 1 SCC 669cannot be ignored. That decision was not a case of repeal and accordingly,
there was no reference to Section 6 at all in that Act. Nevertheless, it was held in that case that a right extinguished under Section 28 of the Limitation Act, 1908 cannot be revived by Section 52-A. Similarly, in
the present case, we are of the opinion that applicability of Section 6
is inconsequential because admittedly, there was an extinguishment of
rights under Section 28, and Section 107 of the Wakf Act cannot revive
those extinguished rights.
59. In view of the above discussions, we are, therefore, of the view that
Section 107 cannot revive a barred claim or extinguished rights."
23. It is well settled that each of the assessment year is independent proceeding. Reference may be made to Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC), wherein it has been held that strictly speaking res judicata does not
apply to income tax proceedings. Each assessment year being a unit what
is decided in one year may not apply to the following year. Therefore,
the right to initiate re-assessment in terms of the un-amended
provisions of Section 149 of the Act cannot be curtailed by an
amendment. Such right to reassessment is protected in favour of the
Revenue in terms of Section 6 of the General Clauses Act, 1897, as
vested rights cannot be taken away by amendment.
24. Learned counsel for the petitioner has vehemently argued that the petitioner
has disclosed all material facts in its return filed, therefore,
assessment finalized by the Assessing Officer cannot be reopened only on the basis of change of opinion of a subsequent Assessing Officer. Such
argument is primarily restricted to the assessments framed under Section 143(3) of the Act in respect of the assessment years 1984-85, 1985-86,
1986-87 & 1990-91. The assessment in respect of other assessment
years was finalized either under Section 143(1) of the Act prior to its
amendment w.e.f. 01.04.1989 or thereafter in terms of Section 143(1)(a)
of the Act accepting the return filed subject to correction of the
mistakes. Since the intimation of the assessment was given to the
assessee, it cannot be said that the Assessing Officer has examined the
return which may bar the Assessing Officer to reopen the assessment.
25. In relation to assessment year 1984-85, the record of which was produced
by learned counsel for the petitioner, there is a communication
addressed by the petitioner to the Income Tax Officer on 15.03.1984,
wherein it is asserted by the petitioner that the petitioner is a Trust
wholly for charitable purposes; the business is in furtherance of the
objects of the Trust and is wholly for charitable purposes; the work in
connection with the business in mainly carried on by the beneficiaries
of the Trust and not the Trustees and the separate books of account are
maintained by the Trust in respect of such business. In the revised
returns filed pursuant to the show cause notice served, the petitioner
has asserted that total amount of income applied to charitable purposes. In part IV of the return, it is asserted that the business of the Trust is incidental to the attainment of the objective of the institution and separate books of accounts are maintained in respect of business and
such is not hit by Section 11(4A) of the Income Tax Act.
26. However, we may observe that in the communication dated 15.03.1984, it is
asserted that the work in connection with the business is mainly carried on by the beneficiaries of the Trust. The trustees are running the
newspaper and cannot be the beneficiaries of the Trust. The trustee and
the beneficiary have the conflicting interest and thus, one person
cannot be a trustee and a beneficiary. Though there is assertion that
separate books of account are maintained, but the balance-sheets
produced by the petitioner do not show that separate books of account
were maintained in respect of charitable activities undertaken by the
petitioner. The income and the expenditure account in the balance sheet
does not reflect the separate books in respect of charitable activities, which is the requirement of sub-section (4A) of the Act.
27. However, we find that even in respect of assessment years 1984-85, 1985-86,
1986-87 & 1990-91, the return was finalized in terms of Section
143(3) of the Act. The Assessing Officer was within its jurisdiction to
issue a show cause notice for re-assessment. The order of assessment, as reproduced above, shows that the Assessing Officer has returned a
finding that income has been applied for the purpose of the Trust in
view of the noting of the assessee in the return filed. The reason for
re-assessment is that the Assessing Officer has not examined; the
question whether the Trust fulfilled the condition laid down in Section
13 read with Section 11 of the Act and whether the income earned from
the business is exempt from Tax as it has been utilized for the
beneficiaries and by keeping separate accounts. These are the
requirements for claiming exemption in view of the judgment of the
Supreme Court in Thanthi Trust's case (supra) as also the Division Bench of this Court in the assessee' s own case for the subsequent assessment years. Since the question was not examined by the Assessing Officer while framing assessment under Section 143(3) of
the Act, and that the assessment framed was in ignorance of the
statutory provisions and thus, the test that the income has escaped
assessment on the basis of return filed stands satisfied. A perusal of
the record produced by the assessee does not show that separate books of account were maintained in respect of income for charitable purposes,
the test categorically laid down in Thanthi Trust'scase (supra).
28. Since the question is one of a fact, we leave it open to the Assessing
Officer to examine the questions of fact, but we are unable to agree
with the argument raised that the assessment is sought to be reopened
only on account of change of opinion. In fact the return is sought to be reopened on account of non-disclosure of material facts relating to
application of the income for charitable purposes.
Consequently, we do not find any merit in the present set of writ petitions. The same are accordingly dismissed.VARSHA
____________ _________ _________ __
*In favour of revenue.
ST : If service provider has imparted training or coaching for a consideration, then, such consideration per sedetermines commercial character of activity and it would be regarded as
'commercial training or coaching' ; absence of profit motive or
constitution of service provider are irrelevant.
ST : Where no final judgment in support of assessee' s views exists during
period of dispute, there cannot be any "bona fide belief based on
decisions" so as to avoid invocation of extended period of limitation;
accordingly, extended period of 5 years is invocable and it can be
reckoned from date of acquisition of knowledge by department.
■■■
[2013] 37 taxmann.com 42 (Bangalore - CESTAT)
CESTAT, BANGALORE BENCH
I.C. Financial Analysts of India
v.
Commissioner of Customs & Central Excise, Hyderabad-II*
P.G. CHACKO, JUDICIAL MEMBER
AND M. VEERAIYAN, TECHNICAL MEMBER
FINAL ORDER NOS. 514 - 520 OF 2012
APPEAL NOS. ST/ 32, 39, 40, 46, 365 & 392 OF 2007 & 194 OF 2008
JULY 31, 2012
I. Section 65(27) of the Finance Act, 1994 - Commercial Training or
Coaching Services - Period from July, 2003 to March, 2007 - In view of
explanation to section 65(105)(zzc) inserted retrospectively with effect from 1-7-2003, absence of profit motive or constitution of service
provider are irrelevant; if service provider has imparted training or
coaching for a consideration, then, such consideration per se determines commercial character of activity and it would be regarded as
'commercial training or coaching' - A line cannot be drawn to separate
"education&quo t; from "training or coaching" ; hence, even 'education&# 39; is
covered by section 65(27) and institutes/establis hments which : (a) do
not issue certificate or diploma or degree or any "educational
qualification" recognized by Indian law; or (b) issue
certificates/ diplomas/ degrees/educatio nal qualifications not recognized
by Indian law, are covered in taxable service - Therefore, in case of
Institute of Chartered Financial Analysts of India issuing
certificate/ diploma/degree in name of "ICFAI UNIVERSITY" , which is not a legally constituted body authorized by law, such courses are liable to
service tax - Further, courses run by Badruka Institute of Foreign Trade (BIFT), Institute of Insurance and Risk Management (IIRM) and Indian
School of Business (ISB), which may be recognized by foreign bodies but
not recognized by Indian law were liable to service tax - Plea as to
benefit of exemption under Notification No. 9/2003-S.T. as vocational
training institute was raised for first time and was, therefore,
remanded [Paras 12 to 19] [In favour of revenue]
II. Section 73, read with sections 76, 77 and 78, of the Finance Act, 1994 - Recovery of service tax not levied or paid or short-levied or
short-paid or erroneously refunded - Invocation of extended period of
limitation - Where assessee did not disclose relevant facts and
materials to department and did not take steps to obtain
registration/ file returns/pay tax and disclosed facts only during
investigations by department and, that too, under compulsion and in a
piecemeal manner, assessee is guilty of suppression of facts - Moreover, where no final decision of appellate authorities/ Court in support of
assessee' s views existed during period of dispute, there was no
substance in plea of "bona fide belief based on decisions" so as to
avoid invocation of extended period of limitation - Accordingly,
extended period of 5 years was invocable and period of 5 years could be
reckoned from date of acquisition of knowledge by department - Penalty
under section 78 was upheld but penalties under sections 76 and 77 were
set aside [Para 20] [Partly in favour of Assessee]
Circulars and Notifications : Notification No. 9/2003-S.T. dated 20-6-2003, Notificat ion No. 10/2003-S.T. dated 20-6-2003,Circular No. 59/8/2003-S. T., dated 20-6-2003, Circular No. 107/1/2009-S. T. dated 28-1-2009, Circular No. 334/3/2011, dated 28-2-2011
Words and Phrases : 'Education&# 39;, 'Educational Institutions&# 39;, as used in section 65(27) of the Finance Act, 1994
FACTS
Facts
■ Assessee 1 :
■ The assessee The Institute of Chartered Financial Analysts of India
(ICFAI), Hyderabad, was a society registered under the Andhra Pradesh
(Telengana Area) Public Societies Registration Act. The ICFAIAN
Foundation was also a society registered under the same Act.
■ The ICFAI University, Dehradun was established under the ICFAI University Act, 2003 of the State of Uttaranchal.
■ The ICFAI University, Tripura was established in 2004, under the ICFAI University Tripura Act, of the State of Tripura.
■ Other assessees :
■ Institute of Foreign Trade (BIFT,), Hyderabad was an institution
belonging to an Educational Society registered under the aforesaid
Public Societies Registration Act.
■ The Institute of Insurance and Risk Management (IIRM), Hyderabad and the Indian School of Business (ISB) are companies incorporated in 2002 and
1997, respectively under Section 25 of the Companies Act, 1956 as per
the Certificates of Incorporation.
■ In case of ICFAI entities, Department demanded service tax on the fees
collected from students in the name of 'ICFAI UNIVERSITY&# 39; and accounted
for in the books of account of the various ICFAI entities during July,
2003 to March, 2005. Demand was raised on ground that assessee was
carrying "commercial training or coaching" in a variety of areas such as finance, banking, insurance, accounting, law, management, commerce,
information technology etc. but not issuing any certificate or diploma
or degree recognized by any law for the time being in force. Exemption
under Notification No. 10/2003-S.T. dated 20-6-2003 was also denied.
■ In case of BIFT, service tax was demanded on tuition fees from students
for imparting training/coaching on a commercial basis in the field of
management and international business during the period July, 2003 to
September, 2005.
■ In case of IIRM, service tax was demanded on fees collected from PGDI
(Postgraduate Diploma in Insurance) students from July, 2004 to March,
2006.
■ In case of ISB, demand was raised for the periods July, 2003 to March,
2007 on the fees collected by ISB from students of Postgraduate
Programme (PGP) in Management and Executive Education Programme (EEP).
■ The Tribunal' s judgment in favour of assessees holding them not liable to
service tax under Commercial Training or Coaching Services on account of being a non-profit entity was challenged before the Supreme Court, who
remanded the matter back to Tribunal for fresh consideration in light of Explanation to section 65(105)(zzc) inserted by the Finance Act, 2010
retrospectively w.e.f. 1-7-2003.
Assessee' s arguments
■ The assessees were all educational bodies/societies and not commercial
training or coaching centres; they existed solely for imparting
education and "not-for- profit" .
■ The ICFAI was recognized as private universities under University Grants Commission (UGC) Act, 1956 and various courses conducted by these
universities were recognized by other universities like Indira Gandhi
National Open University (IGNOU).
■ Educational institutions/ bodies are different from commercial training or coaching
centres, as is clear from provisions of section 65(20) (definition of
'cab' ), section 65(90a) (definition of
'renting of immovable property' ) and section 65(115) (definition of
'tour operator' ), which contain references to "educational body" and
"commercial training or coaching centre" separately. The legislative
intent is to treat an educational institution/ body imparting skill or
knowledge or lessons on any subject or field, differently from a
commercial training or coaching centre. Hence, the assessees being
educational institutions are not liable to pay service tax under Section 65(105)(zzc) .
■ Only the act of coaching or training provided to the students for preparing them for entrance examinations is taxable.
■ The ISB, the IIRM and the BIFT were, in any case, eligible for the benefit of Notification No. 9/2003-S.T., dated 20-6-2003 as they would satisfy the definition of "vocational training institute" .
■ The extended period of limitation was not invocable as the decisions prior
to insertion of retrospective explanation were in favour of assessees
and there was no intention to evade payment of tax on part of assessee.
■ The practical application of knowledge and skills is part of the curriculum and does not take away the basic character of the activity of providing education. The conduct of specialized courses cannot be considered as
'training or coaching' .
■ Degrees/certificate s were conferred in the name of 'ICFAI University&# 39;. Had such conferment
of degrees/certificate s been in violation of any notification issued by
the Government, the UGC would have taken action against 'ICFAI
University&# 39;. There was no such action by the UGC. Hence, degree was
recognized by law.
■ The centralized collection of fees and transfer of the same to the accounts of the different universities or about maintenance of common facilities for the benefit of all the universities was common.
Revenue' s Arguments
■ The so-called "ICFAI University" was an informal consortium of the ICFAI Society, the ICFAIAN Foundation and the ICFAI Universities, Dehradun
and Tripura. This consortium was not a legally recognized entity. All
the degrees and certificates were conferred by the above consortium
called "ICFAI University" which was not a body recognized by law.
Therefore, the degrees/certificate s issued in the name of "ICFAI
University" which was not a legally recognized university cannot be
considered to be degrees/certificate s recognized by law.
■ As per ICFAI's websites their object was "to impart training in
management, science & technology, law and education to students,
working executives and professionals in India". Therefore, it fell
within the meaning of 'commercial training or coaching centre' appearing in section 65(26) and (27) and retrospectively explained in explanation to section 65(105)(zzc) .
■ In case of ISB, the PG courses in management, the Executive Educational
programmes and the short term courses were nothing but courses that
imparted skills, knowledge or lessons in the field of management and
other specialized areas. That the diplomas or certificates issued by the ISB were accepted by institutions abroad does not alter ISB's tax
liability. As the diplomas/certificat es issued by the ISB were not
recognized by law, this assessee cannot claim exclusion from section
65(27) even as it stood prior to the addition of explanation to section
65(105)(zzc) .
■ The assessees cannot escape tax liability on the premise that they are
educational institutions conducting purely educational courses or
programmes. Any institute or establishment which issues any certificate
or diploma or degree or any educational qualification not recognized by
law for the time being in force would get covered by the definition of
'commercial training or coaching centre'. Thus, certain educational
institutions can fall under the definition.
■ The degrees/certificate s/diplomas issued by the ISB or by the consortium of the ICFAI institutions were not recognized by statutory authorities
such as the UGC, AICTE etc. and hence cannot be said to be recognized by law for the time being in force.
■ The plea for exemption under Notification No. 9/2003-S.T. was never raised
by the ISB. The benefit cannot be granted at this stage.
■ The assessees (ICFAI institutions and ISB) did not supply relevant
information to the department even for a long period after the
investigations commenced. The details were submitted very late and
show-cause notices were issue immediately thereafter. During the period
of dispute, there was no judgment in favour of assessee that could have
driven the assessees to 'bona fide belief
that they were not liable to pay service tax under the head "commercial
training or coaching service" on the fees collected from students.
Therefore, their plea of bona fide belief
was untenable. There was suppression of facts with intent to evade
payment of tax and, accordingly, extended period of limitation was
invocable and penalties were leviable. Further, the period of 5 years
for raising demand will start from date of acquisition of knowledge of
about suppression.
Issue Involved
■ Whether assessees in question were liable to pay service tax in light of retrospective amendment ?
HELD
Remand order setting aside final order - All issues open for consideration
■ As per the direction of the Supreme Court in remand orders, it was stated
that "all issues that could arise could be urged and the same shall be
decided by the Tribunal afresh." Therefore, Tribunal has to decide
afresh on all the issues on merits. The substantive issue has to be
decided by taking into account the aforesaid explanatio n to section 65(105)(zzc) of the Finance Act, 1994. The scope of remand cannot be restricted in any matter only to application of Explanation to section 65(105)(zzc) . [Para 6]
Jurisdiction - Centralized billing/collection of fees by unregistered entities -
Authorities having jurisdiction over centralized office may adjudicate :
■ Though, in the appeals of the ICFAI institutions, the territorial
jurisdiction of the Department was challenged. Since all the fees were
centrally collected in the name of 'ICFAI University&# 39; and deposited in
the accounts of ICFAI Society, Hyderabad or ICFAIAN Foundation,
Hyderabad, hence, in view of this method of centralized billing and
collection of fees, adopted by the ICFAI institutions which were not
registered for service tax purposes, the jurisdiction of the
Commissioner of Central Excise, Hyderabad was to be upheld. [Para 7]
Effect of retrospective amendment - Profit motive or Constitution of assessee
irrelevant for determining tax-liability - Charging consideration itself renders coaching or training commercial :
■ In view of Explanation added by the Finance Act, 2010 to section 65(105)(zzc) of the Finance Act, 1994 with
retrospective effect from 1-7-2003, certain aspects which, before the
above amendment, were material to consideration of the question whether a given centre or institute would fit in the definition of 'commercial
training or coaching centre' under section 65(27) and whether its
activities would fit in the definition of 'commercial training or
coaching' under section 65(26) have been rendered immaterial by the
amendment.
■ Whether or not the centre or institute is registered as a trust or a society or a similar organization under any law is immaterial now. The name of the centre or institute is immaterial. Whether the activity of the centre
or institute is with or without profit motive is also immaterial.
■ Upon the above amendment, what matters is whether the centre or institute
has imparted training or coaching for a consideration. If it has done
so, it will get covered by the definition of 'commercial training or
coaching centre' and its activity will get covered by the definition of
'commercial training or coaching' .
■ The consideration for training or coaching per se determines the commercial character of the activity. What is reflected in the
amendment seems to be a conceptual change with regard to the term
"commercial&qu ot; used in section 65(26) and (27). The change of law, which
is substantial, has come about with retrospective effect from 1-7-2003.
[Para 13]
Educational Qualification not recognized by law - Such 'education&# 39; also taxable -
No difference between 'education&# 39; and 'training or coaching' :
■ The act of imparting skill or knowledge or lessons on any subject or
field (other than sports) is the stated purpose of "commercial training
or coaching" vide Section 65(27) of the Act.
■ According to law lexicons, "education&quo t; means the act or process of imparting or
acquiring particular knowledge or skills and it is the result produced
by instruction, training or study. As per Swamy Vivekananda, "The end of all education, all training, should be man-making. The end and aim of
all training is to make the man grow. The training by which the current
and expression of will are brought under control and become fruitful is
called education" . Thus, education can be seen as the result of study,
instruction, training, coaching etc. and the websites of at least two
'ICFAI&# 39; varsities have been shown to acknowledge this. Therefore a line
cannot be drawn to separate "education&quo t; from "training or coaching" .
■ Section 65(27) excludes institutes/establis hments which issue any certificate
or diploma or degree or any "educational qualification" recognized by
law for the time being in force. The converse of this would be that
institutes/establis hments which do not issue any certificate or diploma
or degree or any "educational qualification" recognized by law for the
time being in force as well as institutes/establis hments which issue
certificates/ diplomas/ degrees/ educational qualifications not recognized by law stand included in the definition of "commercial training or
coaching centre" under Section 65(27) of the Act.
■ Institutions which -
are established by, or under, or in accordance with, any law to impart education;
offer one or more courses of study with specific curriculum for each course and specific syllabus for each subject;
conduct examinations periodically and evaluate them;
organize extracurricular activities to develop skills in arts, sports etc.;
create various fora to help the students imbibe social and democratic values;
issue certificates or diplomas or degrees recognized by law, to the successful students;
are generally perceived as 'educational institutions&# 39;. Only such
institutions were covered by the exclusion clause of the definition of
"commercial training or coaching centre" under section 65(27) of the
Finance Act, 1994 as this provision stood during the period of dispute.
[Para 14]
Degrees issued were not recognized by Indian law - Taxable :
■ Institutes and establishments issuing educational qualifications can
certainly be called educational institutions. But the ICFAI entities
were imparting lessons or skills or knowledge in various subjects to
students by collecting fees and other charges but they did not issue to
them any certificate, diploma, degree or other educational qualification recognized by law for the time being in force on account of which they
were not covered by the exclusion clause of section 65(27) and remained
within the definition of "commercial training or coaching centre" . [Para 14]
■ Any certificate/ diploma/degree issued in the name of "ICFAI UNIVERSITY" as a consortium or conglomerate of the ICFAI institutions cannot be held to
have been issued by any of these institutions and also cannot be
considered to be a "certificate/ diploma/degree recognized by law"
inasmuch as the so-called "ICFAI UNIVERSITY" has not been shown to be a
legally constituted body authorized by law to issue the same. [Para 15]
■ As regards other assessees, it has not been established that the
degrees/certificate s/diplomas issued by them to their students during
the relevant period were recognized by law. Acceptance of any such
degree/certificate/ diploma by any varsity or other institution abroad
cannot mean recognition thereof by Indian law. Thus, the real character
of the assessees' activity was training or coaching for a consideration. [Para 15]
■ Though ICFAI was, by UGC's notification, included in the list of
private/self- financed universities under section 2(f) of the UGC Act,
there was no evidence of any of them having issued any certificate,
diploma, degree or other educational qualification to the students from
whom they collected fees and other charges during the period of dispute. It was not even shown that these so-called universities were
authorized, by or under the State Acts, to issue
certificates/ diplomas/ degrees/other educational qualifications to the
students. Further, what was called ICFAI UNIVERSITY was a legally
unrecognized consortium or conglomerate of the ICFAI societies and
universities, with no legal sanction to issue such certificates, degrees etc. Therefore, the ICFAI was not covered by the exclusion clause of
the definition of "commercial training or coaching centre" under Section 65(27) of the Act. [Para 16]
■ Therefore, the assessees were providing to their students "training or coaching" for a consideration and ipso facto fell within the ambit of "commercial training or coaching centre" envisaged in the Explanation to section 65(105)(zzc) of the Finance Act, 1994. In other words, the Explanation to Section 65(105)(zzc) of the Act has very wide scope to encompass the
activities of the assessees and render them exigible to service tax
under section 65(105)(zzc) of the Act. [Para 17]
Issue of exemption under Not. No. 9/2003-ST remanded :
■ The plea as to benefit of exemption under Notification No. 9/2003-S.T. dated 20-6-2003 to a "vocational training institute" was, admittedly, not raised at any
stage before, even though the case of the assessees travelled upto the
Apex Court. As it is a virgin plea which has got to be substantiated by
the parties concerned, the same will have to be examined by the
adjudicating authorities concerned in remand proceedings. [Para 19]
Extended period of limitation was invocable - Penalty under Section 78 leviable
but penalties under sections 76 and 77 set aside :
■ The assessees had not disclosed the relevant facts and materials to the
department during the periods of dispute. They had not taken steps to
obtain registration with the department, nor to file ST-3 returns of the fees/charges collected from the students, nor to pay service tax. It
was only during the course of investigations by the department that
these assessees disclosed the relevant facts and, that too, under
compulsion and in a piecemeal manner. The show-cause notices and the
relied-upon documents loudly disclose the suppression of the facts by
these parties whose intent to evade payment of service tax is evident
from the records. The extended period of 5 years prescribed under
section 73(1) of the Finance Act, 1994 can be reckoned from the date of
acquisition of knowledge by the department. [Para 20]
■ No final decision of this Tribunal or any High Court or the Supreme Court
in support of the assessee' s views with regard to "commercial training
or coaching service" defined under section 65(105)(zzc) of the Finance
Act, 1994 was shown to have existed during the period of dispute.
Therefore there was no substance in plea of "bona fide belief based on decisions" . Accordingly, extended period of limitation was invocable. [Para 20]
■ Section 78 of the Finance Act, 1994 was also rightly invoked to impose
penalties on the assessees. However, the penalties imposed under
Sections 76 and 77 are liable to be set aside in the facts and
circumstances of these cases. [Para 21]
EDITOR'S NOTE
A. The landmark points are -
View Held in this judgment Comments
1. After retrospective amendment, presence of consideration makes activity of coaching or training 'commercial&# 39;. Therefore, the use of the word 'commercial&# 39; is redundant. A contrary, prima facie, view has been expressed in N.I.B.S. & Corporate Management v. CCE [Stay Order No. ST/S/1217/2012- Cus. (PB), dated 25-10-2012] . It has been
held therein that word "commercial&qu ot; in definition of 'commercial
Training or Coaching Services' is not superfluous; prima facie, therefore, a professional training cannot be considered as "commercial
training" even after retrospective addition of Explanation to section
65(105)(zzc) by Finance Act, 2010.
2. Where no final judgment in support of assessee' s views exists during period of dispute, there cannot be any "bona fide belief based on decisions" so as to avoid invocation of extended period of limitation. Though this view may be correct, but, assessee may claim bona fides based on views expressed by its counsels. Moreover, when law has to be amended retrospectively for removal of doubts, bona fides of assessee cannot be questioned. The matter was to be looked into from that angle.
3. Extended period of 5 years could be reckoned from date of acquisition of knowledge by department. This view is based on judgment in CCE v. Mehta & Co. 2011 (264) ELT 481 (SC), which appears to be per incuriam for the reason that period of 5 years under Section 11A of Central Excise
Act, 1944 or section 73 of the Finance Act, 1994 is to be reckoned from
"relevant date" as defined in those sections. Hence, reference to 'date
of knowledge of department&# 39; is clearly per incuriam.
B. For the reasons aforesaid, this judgment may require review.
CASE REVIEW
Nokia (I)(P.) Ltd. v. CC [2006] 3 STT 209 (New Delhi-Cestat) (para 7), Administrative Staff College of India v. CC & CE [2009] 18 STT 78 (Bang.-Cestat] (para 18) and Great Lakes Institute of Management Ltd. v. CST [2008] 12 STT 296 (Chennai-Cestat) (para 18) and Institute of Management Ltd. v. CST [2008] 12 STT 296 (Chennai-Cestat) (para 18) - distinguished
CCE v. Mehta & Co. 2011 (264) ELT 481 (SC) (para 20)
CASES REFERRED TO
CST v. Great Lakes Institute of Management Ltd. , [2010] 29 STT 11 (para 2), Commissioner v. ICFAI Institutions [Civil Appeal Nos. 4820-4823 of 2009, dated 14-2-2011] (para 2), Prof. Yashpal v. State of Chhattisgarh [2005] 5 SCC 420 (para 4.1), Nokia (I)(P.) Ltd. v. CC [2006] 3 STT 209 (New Delhi-Cestat) (para 7), Administrative Staff College of India v. CC & CE [2009] 18 STT 78 (Bang.-Cestat] (para 8), Great Lakes Institute of Management Ltd. v. CST [2008] 12 STT 296 (Chennai-Cestat) (para 8), CCE v. Mehta & Co. 2011 (264) ELT 481 (SC) (para 9), Neelam Devi v. Haryana Nurses Registration Council). [CWP No. 4021 of 2009, dated 19-2-2010] and Padmanav Dehury v. State of Orissa AIR 1999 Orissa 97 (para 14).
V. Sridharan and G. Shivadass for the Appellant. P. R.V. Ramanan and R. K. Singla for the Respondent.
ORDER
P.G. Chacko, Judicial Member - The first
four appeals were filed by the respective assessees against a common
order passed by the Commissioner of Central Excise, Hyderabad-Il. These
appeals are directed against demands of service tax and education cess
(with interest) confirmed against the assessees and penalties imposed on them by the adjudicating authority. The demands of service tax are
under the head "commercial training or coaching service" and for the
periods shown below :
Appeal No. Appellant Period Service tax + education cess demanded Penalties
S.T./32/2007 The ICFAI Society, Hyderabad 7/2003 to 3/2005 Rs. 18.92 crores Rs. 18.92 crores u/s 78 Rs. 1000/- u/s 77 Rs. 150 per day u/s 76 .
S.T./39/2007 The ICFAI University, Dehradun 12/2003 to 3/2005 Rs. 8,69,716/- Rs. 8,69,716 u/s 78 Rs. 1000/- u/s 77 Rs. 150 per day u/s 76
S.T./40/2007 The ICFAIAN Foundation, Hyderabad 7/2003 to 3/2005 Rs. 9.44 cr. Rs. 9.44 cr. u/s 78 Rs. 1000/- u/s 77 Rs. 150 per day u/s 76
ST./46/2007 The ICFAI University, Tripura 8/2004 to 3/2005 Rs. 1,62,205/- Rs. 1,62,205/- u/s78 Rs. 1000/- u/s 77 Rs. 150 per day u/s 76
The two appeals of the Department are directed against different orders
passed by the Commissioner (Appeals), Hyderabad setting aside the
demands of service tax confirmed under the same head against the
respondents by the original authorities. The particulars of these
appeals are given below :
Appeal No. Appellant Respondent Period Service tax + education cess Penalties
S.T./365/20 07 CST, Hyderabad-II Badruka Institute of Foreign Trade, Hyderabad 7/2003 to 9/2005 Rs. 22,77,288/- Rs. 22,77,288/-u/ s 78 Rs. 1000/- u/s 77 Rs. 150 per day u/s 76
S.T./392/2007 CST, Hyderabad-II Institute of Insurance & Risk Management, Hyderabad 3/2003 to 3/2006 Rs. 4,76,013/- Rs. 4,76,013/- u/s 78 Rs. 1000/- u/s 77 Rs. 100 per day u/s 76
The remaining appeal of another assessee is against an order of the
Commissioner demanding service tax under the same head, imposing
penalties etc. as shown below :-
Appeal No. Appellant Period Service tax + education cess demanded Penalties
S.T./194/2008 Indian School of Business, Hyderabad 7/2003 to 3/2007 Rs. 21.82 cr. Rs. 12.25 cr. u/s 78 Rs. 1.05 cr. u/s 76
2. The earlier Final Orders passed by this Bench in all these appeals were set aside by the Hon'ble Supreme Court vide Order dated 14-5-2010 in Civil Appeal No. 579 of 2010 (CST v. Great Lakes Institute of Management Ltd., Order dated 25-10-2010 in Civil Appeal No. 9539 of 2010 (Commissioner v. BIFT)[2011 (21) STR J9 (SC)], Order dated 4-2-2011 in Civil Appeal No. 5453 of 2010 (Commissioner v. IIRM)[2011 (22) STR J198 (SC)] and Order dated 14-2-2011 in Civil Appeals Nos. 4820-4823 of 2009 (Commissioner v. ICFA1 Institutions) and all the cases were remanded for fresh decision. As per these remand
orders, the Tribunal has to reconsider the substantive issue in the
light of theexplanation added (with
retrospective effect from 1-7-2003) to clause (zzc) of Section 65(105)
of the Finance Act, 1994 by the Finance Act, 2010. One of the remand
orders (Order dated 14-2-2011 in the cases of the ICFAI institutions( supra) reads as follows :
"Delay condoned.
Counsel appearing for the appellant has drawn our attention to the judgment passed by Three Judges Bench of this Court in Commissioner of S.T. v. Great Lakes Institute of Management Ltd., 2010 (19) STR 481 (SC). The issues that arise for consideration in the present appeals are
similar with that of the aforesaid appeals which was decided by Three
Judges Bench of this Court. While allowing the appeal filed by the
Commissioner of Sales Tax, Chennai, the Three Judges referred to the
newly inserted Explanation in Section 65(105)(zzc) of Finance Act, 1994
by Finance Act, 2010 which was made effective from 1st of July, 2003.
In view of the fact that the aforesaid Explanation has been inserted in
the Act, this Court set aside the order of the Tribunal and remitted the matter back to the Tribunal to consider the case de novo in the light
of the Explanation inserted in the Act.
Since we are also concerned with the same issues in these appeals, we also
pass a similar order allowing the present appeals and directing the
Tribunal to examine the case de novo in the
light of the aforesaid Explanation inserted in the Act. It is made clear that all issues that could arise could be urged and the same shall be
decided by the Tribunal afresh." [Emphasis supplied]
The other remand orders of the Apex Court are also to the same effect. The
scope of remand is clear from the remand orders and accordingly the
Tribunal is required to reconsider the substantive issue in the light of the explanation added, with retrospective
effect, to Section 65(105)(zzc) of the Finance Act, 1994 as also to
decide afresh on all other issues. Accordingly we have examined the
records of all the cases.
3. The Institute of Chartered Financial Analysts of India (ICFAI, for short),
Hyderabad, is a society registered under the Andhra Pradesh (Telengana
Area) Public Societies Registration Act, 1350 Fasli as per the
Registration Certificate No. 1602/1984 issued by the Registrar of
Societies, Hyderabad. The ICFAIAN Foundation is also a society
registered under the same Act as per the Registration Certificate No.
1800/1998 issued by the Registrar of Societies, Hyderabad. The ICFAI
University, Dehradun was established in 2003 under the ICFAI University
Act, 2003 of the State of Uttaranchal and the same was sponsored by the
ICFAI Society, Hyderabad. The ICFAI University, Tripura was established
in 2004 under the ICFAI University Tripura Act of the State of Tripura
and the same was also sponsored by the ICFAI Society, Hyderabad. M/s.
Bad-ruka Institute of Foreign Trade (BIFT, for short), Hyderabad is an
institution belonging to the Seth Ghasiram Gopikishen Badruka
Educational Society registered under the aforesaid Public Societies
Registration Act of 1350 Fasli as per the Registration Certification No. 10 of 1966 issued by the Registrar of Societies, Hyderabad. The
Institute of Insurance and Risk Management (IIRM, for short), Hyderabad
and the Indian School of Business (ISB, for short) are companies
incorporated in 2002 and 1997 respectively under Section 25 of the
Companies Act, 1956 as per the Certificates of Incorporation.
4.1 In a common show-cause notice dated 19-5-2005 issued to the 4 ICFAI
entities and a 5th one called the ICFAI University, Raipur, the
Department demanded various amounts of service tax with education cess
on the fees collected from students in the name of 'ICFAI UNIVERSITY&# 39;
and accounted for in the books of account of the various ICFAI entities
during the period from 7/2003 to 3/2005. This show-cause notice which
invoked the proviso to Section 73(1) of the Finance Act, 1994 on the
alleged ground of suppression and misrepresentation of facts by the
ICFAI entities also proposed penalties on them under Sections 76 to 78
of the Act besides demanding interest on service tax under Section 75 of the Act. The show-cause notice alleged that the ICFAI entities were
undertaking "commercial training or coaching" in a variety of areas such as finance, banking, insurance, accounting, law, management, commerce,
information technology etc. but not issuing to the students any
certificate or diploma or degree recognized by any law for the time
being in force. It alleged that the ICFAI entities were not eligible for exemption from payment of service tax under Notification No. 10/2003-S.T. dated 20-6-2003 and hence liable to pay service tax under Section 65(105)(zzc) of the
Finance Act, 1994 read with Section 65(27) of the Act, According to the
show-cause notice, a total amount of Rs. 35,269.88 lakhs as fees was
collected from the students by the "informal consortium" of ICFAI
entities from 7/2003 to 3/2005 and a total amount of Rs. 30,84,62,460/ -
was payable towards service tax and a total amount of Rs. 26,30,342/-
towards education cess. In the proportion in which the above amount of
fees was apportioned and accounted for in the books of account of the
five ICFAI entities, the above amount of service tax was also
apportioned and demanded from them. The demands were contested by the
noticees but eventually came to be confirmed against them in
Order-in-Original No. 8/2006 dt. 29-9-2006. We have not seen any appeal
from the ICFAI University, Raipur but the other 4 ICFAI entities are in
appeal before us. In this context, it may also be mentioned that the
ICFAI University, Raipur ceased to exist with the judgment of the
Hon'ble Supreme Court, dated 11-2-2005, in the case of Prof. Yashpal v. State of Chhattisgarh [2005] 5 SCC 420 wherein Section 5 (which empowered the State Government to
incorporate and establish, by Notification in the Gazette, self-financed private universities for higher education) and Section 6 (which
permitted such universities to affiliate colleges or other institutions
or to set up more campuses than one with prior approval of the State
Government) of the Chhattisgarh Niji Kshetra Viswavidyalaya (Sthapana
aur Vinyaman) Adhiniyam, 2002 were struck down as unconstitutional and
all Notifications issued by the State Government in the Gazette in the
purported exercise of power under Section 5 ibid notifying private universities including the ICFAI University, Raipur were also quashed.
4.2 A show-cause notice dated 19-1-2006 was issued to BIFT demanding service
tax with education cess on the gross amount of Rs. 2,70,08,524/ -
collected by them as tuition fees from students for allegedly imparting
training/coaching on a commercial basis in the field of management and
international business during the period 7/2003 to 9/2005. It also
proposed penalties etc. The demand and other proposals were contested by the party. In adjudication of the dispute, the original authority
confirmed the demand of service tax and education cess against the
assessee, also demanded interest thereon, and imposed penalties. The
Order-in-Original was set aside by the Commissioner (Appeals) in an
appeal filed by the assessee. Hence the Department&# 39;s appeal No.
S.T./365/2007.
4.3 A show-cause notice dated 20-6-2006 was issued to IIRM for recovery of
service tax with education cess under the head 'commercial training or
coaching service' on a gross amount of Rs. 46,66,900/- collected as fees from PGDI (Postgraduate Diploma in Insurance) students from 7/2004 to
3/2006 and under the head 'convention service' on a gross amount of Rs.
55,05,244/- collected for organizing conferences, lectures, seminars
etc. during the period from 3/2003 to 3/2006, and for imposing
penalties. This show-cause notice was contested by the party. The
adjudicating authority set aside the demand raised under 'convention
service' but confirmed the demand of service tax with education cess
raised under 'commercial training or coaching service' . It also imposed
proportionate penalties on IIRM. Aggrieved by the adverse part of the
Order-in-Original, the assessee preferred an appeal to the Commissioner
(Appeals) and the latter allowed the appeal. Hence the Revenue' s appeal
No. ST/392/2007.
4.4 The appeal of ISB is directed against the order passed by the Commissioner
in adjudication of two show-cause notices dated 27-9-2006 and 17-9-2007
for the periods 7/2003 - 3/2006 and 4/2006 - 3/2007 respectively for
recovery of service tax with education cess on the fees collected by ISB from students of Postgraduate Programme (PGP) in Management and
Executive Education Programme (EEP) during the respective periods, and
for imposing penalties. The Commissioner confirmed the demands and
imposed penalties.
5. Before proceeding to record the submissions of the parties to the dispute, we
would reproduce the relevant provisions of the Finance Act, 1994, which
are focal to the dispute.
'Section 65(26) "commercial training or coaching" means any training or coaching provided by a commercial training or coaching centre.
Section 65(27) "commercial training or coaching centre" means any institute or
establishment providing commercial training or coaching for imparting
skill or knowledge or lessons on any subject or field other than sports, with or without issuance of a certificate and includes coaching or
tutorial classes but does not include pre-school coaching and training
centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law
for the time being in force.
Section 65(105)(zzc) -"taxable service" means any service provided or to be provided, to any person,
by a commercial training or coaching centre in relation to commercial
training or coaching;
Explanation. - For the removal of doubts, it is hereby declared that the expression
"commercial training or coaching centre" occurring in this sub-clause
and in clauses (26), (27) and (90a) shall include any centre or
institute, by whatever name called, where training or coaching is
imparted for consideration, whether or not such centre or institute is
registered as a trust or a society or similar other organization under
any law for the time being in force and carrying on its activity with or without profit motive and the expression "commercial training or
coaching" shall be construed accordingly.
The Finance Act, 2010 added the above explanation with retrospective effect from 1-7-2003. The purpose of this amendment is discernible from the
relevant Budget Instructions on 'commercial training or coaching
service' , which read thus : " The Finance Bill, 2010 seeks to clarify
the legislative intent by rede-fining the scope of commercial training
and coaching service by way of insertion of an explanation. The word
"commercial&qu ot; means any training or coaching that is provided for a
consideration irrespective of the presence or absence of any profit
motive. The amendment also seeks to explain liability of coaching
centres, irrespective of their registration as trust or society. This
amendment will have retrospective effect from July, 2003....."
It was the above retrospective amendment to Section 65(105)(zzc) of the
Finance Act, 1994 that was noted by the Hon'ble Supreme Court in its
remand orders. The Apex Court has required the Tribunal to take fresh
decision on the substantive issue (whether the assessees were liable to
pay service tax under the head "commercial training or coaching service" on the fees collected by them from students during the respective
periods) and allied issues in the light of the above retrospective
amendment of the law.
6. Before us, the learned counsel for the assessees made an attempt, at the bar,
to restrict the scope of the Apex Court's remand orders by submitting
that the explanation added to Section
65(105)(zzc) of the Finance Act, 1994 had a bearing only on the
expression "commercial&qu ot; appearing in clauses 26 and 27 of Section 65 of
the Act and therefore the findings recorded on other issues by the
Tribunal in its earlier Final Orders in these cases should be treated as final. This argument was vehemently opposed by the learned Special
Consultant for the department who pointed out that the remand orders of
the Apex Court had made it clear that "all issues that could arise could be urged and the same shall be decided by the Tribunal afresh." He
further submitted that the final orders passed by this Bench were set
aside by the Apex Court and therefore nothing contained in those orders
survived to be treated as conclusive findings. After considering the
rival arguments, we are in full agreement with the view expressed by the learned Special Consultant for the Revenue. As per the directives of
the Hon'ble Supreme Court, we have to decide afresh on all the issues on merits. The substantive issue has to be decided by taking into account
the aforesaid explanatio n to Section 65(105)(zzc) of the Finance Act, 1994.
7. Heard both sides. Though, in the appeals of the ICFAI institutions, the
territorial jurisdiction of the respondent was challenged, this
objection has not been pressed before us. It is not in dispute that all
the fees were centrally collected in the name of TCFAI University&# 39; and
deposited in the accounts of ICFAI Society, Hyderabad or ICFAIAN
Foundation, Hyderabad. In view of this method of centralized billing and collection of fees, adopted by the ICFAI institutions which were not
registered for service tax purposes, we uphold the jurisdiction of the
Commissioner of Central Excise, Hyderabad who passed the impugned order. This view is also supported by the Tribunal' s decision in the case of Nokia (I)(P.) Ltd. v. CC [2006] 3 STT 209 (New Delhi-Cestat) .
8. Other submissions/ arguments made by the learned counsel for the assessees are summarized below :
(a) The ICFAI institutions, the ISB, the BIFT and the IIRM are all
educational bodies and not commercial training or coaching centres. The
ICFAI University, Raipur, the ICFAI University, Dehradun and the ICFAI
University, Tripura were established under the respective State Acts
solely for the purpose of imparting education. These universities, duly
recognized as private universities under the University Grants
Commission Act, 1956, offered various academic courses with their own
curricula, prescribed syllabi, prepared study materials for the various
courses and also published books and other materials which were required to be used by the students as text or reference books. The various
courses conducted by these universities were recognized by other
universities like the Indira Gandhi National Open University (IGNOU).
The degrees awarded by these universities were recognized by the
University Grants Commission (UGC) under the UGC Act, 1956. The ICFAI
universities also had their own evaluation systems. A student undergoing any course has to secure the minimum percentage of marks in the
examinations conducted by these universities, to get a certificate/ pass
in the examinations. The ICFAI Society, Hyderabad and the ICFAIAN
Foundation, Hyderabad are non-profit societies established under the
Andhra Pradesh (Telengana Area) Public Societies Registration Act for
the purpose of imparting education. The memorandum of association of
each of the societies expressly provides so. The ISB, the BIFR and the
IIRM were established as "not-for- profit" companies under Section 25 of
the Companies Act. They are exempt under Section 10 of the Income-tax
Act, 1961 also. The memorandum and articles of association of each of
these companies include establishment & running of educational
institutions as the main objective. The ISB has affiliation with the
world's leading business schools viz. Kellog School of Management,
Warton School and London Business School. The ISB offered postgraduate
programmes in management (PGPs) and also short term programmes for
working executives (EEPs). Thus all the assessees are educational bodies solely imparting education to students and hence their activities
cannot be brought to levy under the head "commercial training or
coaching service" .
(b) The Legislature treats educational institutions/ bodies as different from
commercial training or coaching centres. This is clear from clause (20)
(definition of 'cab' ), clause (90a) (definition of 'renting of immovable property' ) and clause (115) (definition of 'tour operator' ) of Section
65 of the Finance Act, 1994. These definitions, which contain references to "educational body" and "commercial training or coaching centre" ,
bring out a clear distinction between the two, indicating that the
legislative intent is to treat an educational institution/ body imparting skill or knowledge or lessons on any subject or field, differently from a commercial training or coaching centre. [Wharton' s Law Lexicon,
Oxford/Chambers Dictionaries etc. referred to for distinguishing between education and training]. The assessees being educational institutions
are not liable to pay service tax under Section 65(105)(zzc) .
Educational bodies are exempt from the levy.
(c) What is sought to be taxed under the above provision is only the act of
coaching or training provided to the students for preparing them for
entrance examinations. [Reliance placed on the Tribunal' s decision in
the case of Administrative Staff College of India v.CC & CE [2009] 18 STT 78 (Bang.-Cestat] upheld by the Supreme Court in the case Commissioner v. Administrative Staff College of India [2010 (20) STR J117]. Reliance also placed on paragraphs 2.2.2. and 2.2.3. of C.B.E. & C.'s Circular No. 59/8/2003-S. T., dated 20-6-2003.]
(d) The Finance Act, 2010 only expanded the scope of Section 65(105)(zzc) by
including all activities of coaching and training not recognized by law
(irrespective of whether the institution is providing any other course
recognized by law) within the tax net. Prior to that, any unrecognized
training or coaching given by a commercial training or coaching centre
which also offered other courses recognized by law were not subject to
levy of service tax under Section 65(105)(zzc) . Therefore, the
assessees' activities of the old period did not attract the levy.
[Reliance placed on para 3.3. of C.B.E. & C.'s Circular No. 334/3/2011, dated 28-2-2011.]
(e) The question whether the assessees were liable to pay service tax on the
fees collected by them should be considered with reference to their core activity which was in the nature of imparting education to the students and not in the nature of commercial training or coaching. The explanation to Section 65(105)(zzc) cannot have any bearing on this question.
(f) It is true that the ICFAI University, Raipur ceased to exist on 11-2-2005
with the judgment of the Hon'ble Supreme Court striking down Sections 5
& 6 of the Chhattisgarh Act. But the students of this university
were transferred to the ICFAI University, Dehradun and were considered
as students of that university. This step was taken as enabled by the
Hon'ble Supreme Court through its judgment dated 11-2-2005 and its
clarificatory order dated 7-9-2005. Therefore, the department cannot
claim any benefit on the strength of the fact that the ICFAI University, Raipur ceased to exist on 11-2-2005.
(g) The ISB, the IIRM and the BIFT are, in any case, eligible for the benefit
of Notification No. 9/2003-S.T., dated 20-6-2003 as they would satisfy
the definition of "vocational training institute" . They could not claim
this benefit in the earlier proceedings because the emphasis at that
time was on their plea that they were outside the levy on account of not being "commercial&qu ot; centres.
(h) The demands of service tax and education cess are hit by limitation. The assessees have always maintained the bona fide belief that they were not liable to pay service tax under Section 65(105)(zzc) on their educational activities and therefore they cannot be held to
have suppressed or misrepresented any facts or contravened any provision of law with intent to evade payment of tax. Moreover, whenever the
assessees were required to furnish any information to the department,
they promptly did so. The above bona fidebelief of the assessees was also strengthened by certain decisions rendered by this Tribunal in favour of similar institutions, for instance, Great Lakes Institute of Management Ltd. v. CST [2008] 12 STT 296 (Chennai-Cestat) ]. The decisions rendered on the issue by the Tribunal prior to the insertion of the explanation ibid were in favour of the assessees. In these circumstances, the extended
period of limitation under the proviso to Section 73(1) of the Finance
Act, 1994 was not invocable in these cases. For the same reason, Section 78 of the Act was not to be invoked to impose penalties on the
assessees.
9. The submissions/ arguments made by the learned Special Consultant for the Revenue are summarized below:
(a) The so-called "ICFAI University" , in the name of which fees were
collected, courses conducted and certificates issued, was an informal
consortium of the ICFAI Society, the ICFAIAN Foundation and the three
ICFAI Universities, Raipur, Dehradun and Tripura. This consortium was
not a legally recognized entity. The off-campus courses were conducted
by the ICFAI Society, Hyderabad and the ICFAIAN Foundation, Hyderabad.
The numbers of students who took the off-campus courses was 24,308 in
2003-04 and 33,512 in 2004-05 whereas the numbers of students who took
'in-campus&# 39; and 'distance learning' courses at the three universities
were as small as 25 (2003-04) and 17 (2004-05) at Raipur; 15 (2003-04)
and 175 (2004-05) at Dehradun; 10 at Tripura. The courses were not in
the nature of general or basic education but specialized courses where
the focus was on practical application of the knowledge and skills
acquired. No degrees or certificates were conferred by any of these
universities. Though the ICFAI University, Raipur was authorized to
confer degrees/certificate s, no degree or certificate was ever conferred by it before it ceased to exist in February, 2005. All the degrees and
certificates were conferred by the above consortium called "ICFAI
University" which was not a body recognized by law. When the three year
courses for which the certificates were issued by the consortium
commenced, none of the constituent universities existed. Indeed, even if any degree or certificate had been issued by the ICFAI University,
Raipur at any time prior to 11-2-2005 (the date of the Apex Court's
judgment in Prof. Yashpal' s case (supra), the same would have been rendered ab initio null and void by the judgment of the Apex Court. The degrees/certificate s
issued in the name of "ICFAI University" which was not a legally
recognized university cannot be considered to be degrees/certificate s
recognized by law. But the fact remains that the ICFAI institutions
(appellants) were "imparting skill or knowledge or lessons on any
subject or field other than sports" and collecting fees from the
students. Their websites also clearly indicate this factual position.
For instance, the website of the ICFAI University, Tripura says that it
was established in 2004 "to impart training in management, science & technology, law and education to students, working executives and
professionals in India". The website of the ICFAI University, Dehradun
says that it was formed on 8-7-2003 "to impart training in management,
science & technology, law and education to students, working
executives and professionals in India". Therefore, the appellants
squarely fall within the meaning of 'commercial training or coaching
centre' appearing in Section 65(26) and (27) and retrospectively
explained in explanation to Section 65(105)(zzc) .
(b) The ISB was also working in the same manner and they are also covered by
the definition of "commercial training or coaching centre" . The PG
courses in management, the Executive Educational programmes and the
short term courses conducted by ISB were nothing but courses that
imparted skills, knowledge or lessons in the field of management and
other specialized areas. Fees were collected from the students as
consideration for these services. Therefore, these activities would also qualify to be 'commercial training or coaching service' for the levy of service tax in terms of the explanation to Section 65(105)(zzc) ibid. That the diplomas or certificates issued by the ISB were accepted by
institutions abroad does not alter ISB's tax liability. As the
diplomas/certificat es issued by the ISB were not recognized by law, this assessee cannot claim exclusion from Section 65(27) even as it stood
prior to the addition of explanation to Section 65(105)(zzc) .
(c) The assessees cannot escape tax liability on the premise that they are
educational institutions conducting purely educational courses or
programmes. The exclusion part of the definition of 'commercial training or coaching centre' under Section 65(27) contains a reference to
"educational qualification" . Any institute or establishment which issues any certificate or diploma or degree or any "educational qualification" recognized by law for the time being in force could claim to be outside the ambit of the said definition. This would imply that any institute
or establishment which issues any certificate or diploma or degree or
any educational qualification not recognized by law for the time being
in force would get covered by the definition of 'commercial training or
coaching centre'. It would follow that certain educational institutions
can fall under the definition.
(d) The degrees/certificate s/diplomas issued by the ISB or by the consortium of the ICFAI institutions were not recognized by statutory authorities
such as the UGC, AICTE etc. and hence cannot be said to be recognized by law for the time being in force. [Reliance placed on C. B. E. &
C.'s Circular No. 107/1/2009-S. T. dated 28-1-2009].
(e) The ISB cannot claim support from the Tribunal' s decision in Great Lakes Institute of Managementcase (supra) as the cited decision was set aside by the Apex Court.
(f) The plea for exemption under Notification No. 9/2003-S.T. was never raised
by the ISB. The benefit cannot be granted at this stage.
(g) The ICFAI institutions never came forward to supply relevant information to the department even for a long period after the investigations
commenced in November, 2003. It was only in April-May, 2005 that they
submitted full details of the amounts collected by them as fees and
other charges from students from 7/2003 to 3/2005. The show-cause notice was issued without delay in 5/2005 itself. In their correspondence with the department, they misrepresented facts by submitting that 'ICFAI
University&# 39; was conducting various courses while it was not an entity
established under, or recognized by, law. During the period of dispute,
there was no decision of the CESTAT that could have driven the ICFAI
institutions to 'bona fide belief that they were not liable to pay service tax under the head "commercial training
or coaching service" on the fees collected from students. Therefore,
their plea ofbona fide belief is untenable
and they should be held to have suppressed/misrepre sented material facts with intent to evade payment of service tax. The extended period of
limitation was rightly invoked in the ICFAI cases inasmuch as they did
not get registered, did not file ST-3 returns and did not pay service
tax and suppressed/misrepre sented material facts for evading this tax
liability.
(h) The ISB also behaved more or less in the same manner. A major part of the
demand raised on them is within the normal period of limitation. The
rest of the demand is also enforceable as the extended period of
limitation has been rightly invoked on the basis of suppression of facts found against them.
(i) In the case of CCE v. Mehta & Co. 2011 (264) ELT 481 (SC)] the Hon'ble Supreme Court held that, where the
assessee suppressed material facts with intent to evade payment of duty, the department was entitled to issue show-cause notice to them within
five years from the date of acquisition of knowledge of such facts by
the department. In terms of this ruling of the Apex Court, the
show-cause notices issued in the ICFAI and ISB cases are not hit by
limitation. In respect of the ISB, in any case, the demand for the
period from 28-9-2005 to 31-3-2006 covered by the first show-cause
notice and the demand for the period from 18-9-2006 to 31-3-2007 covered by the second show-cause notice are within the normal period of
limitation.
10. The Commissioner (AR) appearing for the appellant in ST/365 & 392/2007
reiterated the grounds of the appeals and also adopted (mutatis mutandis)the above arguments of the learned Special Consultant.
11. The learned counsel for the assessees, in his rejoinder, made the following submissions :
(a) The practical application of knowledge and skills is part of the
curriculum and does not take away the basic character of the activity of providing education. In any case, the conduct of specialized courses
cannot be considered as 'training or coaching' .
(b) 'ICFAI University&# 39; represents the multi-State network of universities
established in different States. The degrees/certificate s clearly
indicated this fact through a footnote. Each University is a separate
and independent legal entity. The ICFAI University, Dehradun and the
ICFAI University, Tripura jointly named themselves as 'ICFAI University&# 39; and never took up any activity on their own.
(c) The submission of the learned Special Consultant that no
degrees/certificate s were conferred by any of the universities is
factually incorrect. Degrees/certificate s were conferred in the name of
'ICFAI University&# 39;. Had such conferment of degrees/certificate s been in
violation of any notification issued by the Chhattisgarh Government, the UGC would have taken action against 'ICFAI University&# 39;. There was no
such action by the UGC. In any case, the validity of the
degrees/certificate s issued by 'ICFAI University&# 39; is protected on the
principle of de facto recognition.
[Reliance placed on the judgment dated 19-2-2010 passed by the Punjab
& Haryana High Court in CWP No. 4021 of 2009 [Ms Neelam Devi v. Haryana Nurses Registration Council).]
(d) As the students of the ICFAI University, Raipur were absorbed as students
of the ICFAI University, Dehradun, in terms of the Apex Court's judgment dated 11-2-2005 as clarified by Order dated 7-9-2005, in any case, the
core activity of imparting education remained unaffected.
(e) There is nothing exceptional about the centralized collection of fees and
transfer of the same to the accounts of the different universities or
about maintenance of common facilities for the benefit of all the
universities.
12. We have given careful consideration to the submissions. The substantive issue which has arisen before us in these de novo proceedings is whether the assessees can claim exemption from service tax liability under Section 65(105)(zzc) read with the definition of 'commercial
training or coaching' under Section 65(26) and the definition of
'commercial training or coaching centre' under Section 65(27) of the
Finance Act, 1994 (as this provision stood during the period of dispute) in respect of the fees/charges collected by them from the students who
underwent various courses offered by the assessees during the period of
dispute.
13. The above issue has got to be examined on the facts of these cases in the light of the explanation added by the Finance Act, 2010 to Section 65(105)(zzc) of the Finance Act,
1994 with retrospective effect from 1-7-2003. As per this explanation,
the expression 'commercial training or coaching centre' appearing in Section 65(26) and (27) of the Finance Act, 1994 shall include —
♦ any centre or institute, by whatever name called,
♦ where training or coaching is imparted for consideration, with or without profit motive,
♦ whether or not such centre or institute is registered as a trust or a
society or similar other organization under any law for the time being
in force.
Certain aspects which, before the above amendment, were material to
consideration of the question whether a given centre or institute would
fit in the definition of 'commercial training or coaching centre' under
Section 65(27) and whether its activities would fit in the definition of 'commercial training or coaching' under Section 65(26) have been
rendered immaterial by the amendment. Whether or not the centre or
institute is registered as a trust or a society or a similar
organization under any law is immaterial now. The name of the centre or
institute is immaterial. Whether the activity of the centre or institute is with or without profit motive is also immaterial. Upon the above
amendment, what matters is whether the centre or institute has imparted
training or coaching for a consideration. If it has done so, it will get covered by the definition of 'commercial training or coaching centre'
and its activity will get covered by the definition of 'commercial
training or coaching' . The consideration for training or coaching per se determines the commercial character of the activity. To the same effect is the
Budget instruction noted in para (5) of this order. What is reflected in the amendment seems to be a conceptual change with regard to the term
"commercial&qu ot; used in Section 65(26) and (27). The change of law, which
is substantial, has come about with retrospective effect from 1-7-2003.
We must now proceed to determine whether the ICFAI entities, the ISB,
the BIFT and the IIRM had been imparting training or coaching to their
students for a consideration during the respective periods of dispute.
14. It has been argued on behalf of the assessees that they are educational
institutions and were imparting education, and not training or coaching, to the students. Per contra, it has been
argued on behalf of the Revenue that "education&quo t; necessarily includes
the process of imparting knowledge or lessons on any subject and hence
the same would get covered within the ambit of the expression "training
or coaching" appearing under clauses (26), (27) and (105)(zzc) of
Section 65 of the Finance Act, 1994. In this connection, the learned
Special Consultant has relied on P. Ramanatha Aiyer's "THE MAJOR LAW
LEXICON" wherein some connotations of the word "education&quo t; have been
provided. The learned counsel has referred to "WHARTON&# 39;S LAW LEXICON" .
It cannot be disputed that the act of imparting skill or knowledge or
lessons on any subject or field (other than sports) is the stated
purpose of "commercial training or coaching" vide Section 65(27) of the
Act. Both the law lexicons cited before us present various shades of
meaning of "education&quo t;. According to one meaning appearing in MAJOR LAW
LEXICON, "education&quo t; means the act or process of imparting or acquiring
particular knowledge or skills and it is the result produced by
instruction, training or study. (This meaning is seen culled out from Padmanav Dehury v. State of Orissa AIR 1999 Orissa 97.) WHARTON' S LAW LEXICON quotes Swamy Vivekananda : "The
end of all education, all training, should be man-making. The end and
aim of all training is to make the man grow. The training by which the
current and expression of will are brought under control and become
fruitful is called education" . As rightly submitted by the learned
Special Consultant, education can be seen as the result of study,
instruction, training, coaching etc. and the websites of at least two
TCFAI' varsities have been shown to acknowledge this. Therefore a line
cannot be drawn to separate "education&quo t; from "training or coaching" . It
is also pertinent to note that Section 65(27) as it stood during the
period of dispute excludes institutes/establis hments which issue any
certificate or diploma or degree or any "educational qualification"
recognized by law for the time being in force. The converse of this
would be that institutes/establis hments which do not issue any
certificate or diploma or degree or any "educational qualification"
recognized by law for the time being in force as well as
institutes/establis hments which issue certificates/ diplomas/ degrees/
educational qualifications not recognized by law stand included in the
definition of "commercial training or coaching centre" under Section
65(27) of the Act. Institutes and establishments issuing educational
qualifications can certainly be called educational institutions. But the ICFAI entities before us were imparting lessons or skills or knowledge
in various subjects to students by collecting fees and other charges but they did not issue to them any certificate, diploma, degree or other
educational qualification recognized by law for the time being in force
on account of which they were not covered by the exclusion clause of
Section 65(27) and remained within the definition of "commercial
training or coaching centre" . Institutions which -
♦ are established by, or under, or in accordance with, any law to impart education;
♦ offer one or more courses of study with specific curriculum for each course and specific syllabus for each subject;
♦ conduct examinations periodically and evaluate them;
♦ organize extracurricular activities to develop skills in arts, sports etc.;
♦ create various fora to help the students imbibe social and democratic values;
♦ issue certificates or diplomas or degrees recognized by law, to the successful students;
are generally perceived as 'educational institutions&# 39;. In our view, only such institutions were covered by the exclusion clause of the
definition of "commercial training or coaching centre" under Section
65(27) of the Finance Act, 1994 as this provision stood during the
period of dispute.
15. Any certificate/ diploma/degree issued in the name of "ICFAI UNIVERSITY" as a consortium or conglomerate of the ICFAI institutions cannot be
held to have been issued by any of these institutions and also cannot be considered to be a "certificate/ diploma/degree recognized by law"
inasmuch as the so-called "ICFAI UNIVERSITY" has not been shown to be a
legally constituted body authorized by law to issue the same. We have,
thus, found great force in the submissions made by the learned Special
Consultant. As regards other assessees, it has not been established that the degrees/certificate s/diplomas issued by them to their students
during the relevant period were recognized by law. Acceptance of any
such degree/certificate/ diploma by any varsity or other institution
abroad cannot mean recognition thereof by Indian law. Thus a conspectus
of facts presented to us would clearly disclose the real character of
the assessees' activity-training or coaching for a consideration.
16. It was argued by the learned counsel that the ICFAI Universities, Dehradun and Tripura, were established under the respective State Acts and
recognized by the UGC and should ipso facto be considered to be establishments authorized to issue certificates,
degrees etc. Though it is true that these universities were, by UGC's
notification, included in the list of private/self- financed universities under Section 2(f) of the UGC Act, there is no evidence of any of them
having issued any certificate, diploma, degree or other educational
qualification to the students from whom they collected fees and other
charges during the period of dispute. It was not even shown that these
so-called universities were authorized, by or under the State Acts, to
issue certificates/ diplomas/ degrees/other educational qualifications to
the students. It was claimed that the certificates, degrees, etc. were
issued to the students by these universities in the name of 'ICFAI
UNIVERSITY&# 39;. We have already rejected this claim as untenable, given the fact that what was called ICFAI UNIVERSITY was a legally unrecognized
consortium or conglomerate of the ICFAI societies and universities, with no legal sanction to issue such certificates, degrees etc. Therefore,
none of the so-called universities can claim immunity to levy of service tax under Section 65(105)(zzc) of the Finance Act, 1994 on the ground
of being covered by the exclusion clause of the definition of
"commercial training or coaching centre" under Section 65(27) of the
Act.
17. For the reasons already stated, we hold that the assessees were providing
to their students "training or coaching" for a consideration and would ipso facto fall within the ambit of "commercial training or coaching centre" envisaged in the explanation to Section 65(105)(zzc) of the Finance Act, 1994. As this explanation has retrospective effect from 1-7-2003, the activities undertaken by all
the assessees during the periods of dispute would get covered within the meaning of the phrase "training or coaching imparted for consideration" occurring in the text of the explanation. In other words, the
explanation to Section 65(105)(zzc) of the Act has very wide scope to
encompass the activities of the assessees and render them exigible to
service tax under Section 65(105)(zzc) of the Act. In the result, the
assessees have no case on merits.
18. We have also considered the decisions cited by the learned counsel, such as Administrative Staff College of India (supra) . All those decisions were rendered before the crucial retrospective
amendment of Section 65(105)(zzc) of the Finance Act, 1994 and, hence,
are of no precedential value. The same is the situation with regard to
the various circulars relied on by the counsel.
19. The learned counsel representing ISB, BIFT and IIRM has (without prejudice
to his submissions on the substantive issue) raised an alternative plea
by claiming the benefit of exemption under Notification No. 9/2003-S.T. dated 20-6-2003 which benefit is available to a "vocational training institute" as defined in the Notification. This plea was, admittedly, not raised at any stage
before, even though the case of the assessees travelled upto the Apex
Court. It is interesting to note that the learned counsel who sought to
narrow down the scope of the Apex Court's remand orders, nevertheless,
wanted us to consider the above plea also. Tine dichotomy of arguments
notwithstanding, we are of the view that the alternative plea can be
considered in these proceedings in terms of the remand orders. As it is a virgin plea which has got to be substantiated by the parties concerned, the same will have to be examined by the adjudicating authorities
concerned.
20. We have also examined the plea of limitation raised by the
assessees/appellant s. These appellants had not disclosed the relevant
facts and materials to the department during the periods of dispute.
They had not taken steps to obtain registration with the department, nor to file ST-3 returns of the fees/charges collected from the students,
nor to pay service tax. It was only during the course of investigations
by the department that these appellants disclosed the relevant facts
and, that too, under compulsion and in a piecemeal manner. This state of affairs has been clearly brought out through the learned Special
Consultant&# 39;s submissions recorded in para 9(f) of this order in respect
of the ICFAI cases. We have seen more or less the same state of affairs
in respect of other assessees also. The show-cause notices and the
relied-upon documents loudly disclose the suppression of the facts by
these parties whose intent to evade payment of service tax is evident
from the records. In the case of Mehta & Co. (supra), the Hon'ble Supreme Court held that the extended period of 5 years
prescribed under the proviso to Section 11A(1) of the Central Excise Act (which provision is pari materia with the
proviso to Section 73(1) of the Finance Act, 1994) could be reckoned
from the date of acquisition of knowledge by the department. The ratio
of the decision is squarely applicable to the present cases.
No final decision of this Tribunal or any High Court or the Supreme Court
in support of the assessee' s views with regard to "commercial training
or coaching service" defined under Section 65(105)(zzc) of the Finance
Act, 1994 has been shown to have existed during the period of dispute.
Therefore there is no substance in their plea of "bona fide belief based on decisions" .
Therefore, we hold that the proviso to Section 73(1) of the Finance Act, 1994 was
rightly invoked in these cases. In any case, a major part of the demand
on ISB is within the normal period and, in the case of other assessees
also, a considerable part of the demand is within the normal period.
21. On the very grounds sustained in support of invocation of the extended
period of limitation in these cases, it has to be held that Section 78
of the Finance Act, 1994 was also rightly invoked to impose penalties on the assessees. However, in our view, the penalties imposed under
Sections 76 and 77 are liable to be set aside in the facts and
circumstances of these cases.
22. To summarize our findings-
(i) The liability of the assessees to pay service tax under Section 65(105)(zzc) (read with its explanation) of the Finance Act, 1994 on the fees/charges collected from their students during the respective periods of dispute is affirmed;
(ii) The extended period of limitation was rightly invoked in these cases and,
therefore, no part of the demand of service tax on any of the assessees
can be held to be time-barred;
(iii) Section 78 of the Finance Act, 1994 was rightly invoked in these cases, but the penalties imposed on the assessees under Sections 76 and 77 of the Act are liable to be set aside;
(iv) The alternative claim of the ISB, the BIFT and the IIRM for exemption under Notification No. 9/2003-S.T. dated 20-6-2003 is liable to be considered on merits by the adjudicating authorities
concerned. Each of these assessees should be given a reasonable
opportunity of being heard on this issue. Needless to say that, in the
event of the issue being held against the assessees, they would be
liable to pay the service tax (with education cess) as already
quantified by the adjudicating authorities as also to pay interest
thereon under Section 75 of the Act besides the penalties under Section
78 of the Act. No penalty shall be imposed on these assessees under
Sections 76 and 77 of the Act.
23. In the result, it is ordered as follows :-
(a) Appeals, S.T./32, 39, 40 & 46/2007 are disposed of by sustaining the demand of service tax with education cess raised under Section 73(1),
sustaining the demand of interest raised under Section 75, sustaining
the penalties imposed under Section 78 and setting aside the penalties
imposed under Sections 76 & 77 of the Finance Act, 1994.
(b) Appeals, S.T./365 & 392/2007 and ST/194/2008 are disposed of by way of remand in terms of para 22(iv) of this order. VINEET
____________ _________ _________ __
*Partly in favour of assessee.
The Madras High cpout has decided the issue in favpur of the department. However , mumbai tribunal deicded the issue in favour of the
assessee.As per submission of the learned AR of the assessee before
Madras High court , department has not even filed appeal before the high court against the order of tribunal. This pratically means that
department has accepted the judgement of the Hon,ble Mumbai tribunal.
This acceptance has led to a very serious situation very huge amount of
revnue may have been lost due to not filing of appeal.
One must scrutinise the files and see what can be done to protect the interest of revenue.
IT: Exemption under section 10B could not be allowed on training fees
received from professionals, who were neither employees nor associated
with business of manufacture or production of any article or thing of
assessee
■■■
[2013] 35 taxmann.com 442 (Madras)
HIGH COURT OF MADRAS
Penta Media Graphica Ltd.
v.
Assistant Commissioner of Income-tax, Co. Ward V (2)*
MRS. CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NOS. 34 OF 2010 AND
332 & 333 OF 2011
M.P. NO. 1 OF 2011
JUNE 5, 2013
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking
[Computation of deduction] - Assessment year 1996-97 - Assessee claimed
exemption under section 10B on income received by it by way of training
fees - Assessing Officer disallowed claim on ground that training was
given to outsiders - Whether exemption under section 10B is available in respect of profit and gains derived by an undertaking which is engaged
in manufacture or production of an article or thing - Held, yes -
Whether, since training was given to professionals who were not
employees and were not associated with business of assessee in any way
in production or manufacture of any article or thing, exemption under
section 10B could not be allowed on training fees not being profits or
gains derived by assessee from manufacture or production of any article
or thing - Held, yes [Para 18] [In favour of revenue]
She also placed before us the order of the Income Tax Appellate Tribunal, Mumbai 'D' Bench in Sovika Infotek Ltd. v. ITO [2008] 19 SOT 412, wherein, a similar claim was allowed and the Department had also accepted the order of the Tribunal.
[2008] 19 SOT 412 (MUM.)
IN THE ITAT MUMBAI BENCH 'B'
Sovika Infotek Ltd.*
v.
Income-tax Officer, 8(3)(2), Mumbai
R.K. GUPTA, JUDICIAL MEMBER AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
IT APPEAL NOS. 3007 AND 3008 (MUM.) OF 2004 [ASSESSMENT YEARS 1998-99 AND 2000-01]
JULY 26, 2007
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking -
Assessment year 2000-01 - Assessee, a public limited company, was
engaged in business of computer software development and sale of
software - Assessee claimed exemption under section 10B in respect of
profits and gains derived from business, which included interest income
received from bank deposits and advances made, income from professional
fees, and income from training - Whether since interest income was not
derived from export oriented undertaking, assessee would not be entitled to exemption under section 10B on same - Held, yes - Whether since
income from professional fees was a business receipt and had arisen from export undertaking, assessee would be entitled to exemption under
section 10B on same - Held, yes - Whether since training activity of
assessee was intrinsically connected with software development, sale,
maintenance, etc., assessee would be entitled to exemption under section 10B on income from training - Held, yes
IT: Since Explanation to section 132B is applicable from 1-6-2013, cash
seized would be adjusted against advance tax for assessment year 2007-08
■■■
[2013] 34 taxmann.com 307 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'C'
Kanishka Prints (P.) Ltd.
v.
Assistant Commissioner of Income-tax, Central Circle - 2, Surat*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT APPEAL NO. 2698 (AHD.) OF 2011
[ASSESSMENT YEAR 2007-08]
JUNE 21, 2013
Section 132B of the Income-tax Act, 1961 - Search and Seizure - Retained assets, application of [Prospective amendment] - Assessment year
2007-08 - Whether amendment to section 132B as per which existing
liability does not include advance tax payable, is applicable
prospectively from 1-6-2013 - Held, yes - Whether, where Assessing
Officer applied explanation retrospectively in case of assessee and
adjusted cash seized towards self assessment tax instead of towards
advance tax payable as claimed by assessee, it was not sustainable -
Held, yes - Whether, therefore, cash seized was to be adjusted against
advance tax payable for assessment year 2007-08 - Held, yes [Paras 12,14 &15] [In favour of assessee]
FACTS
■ During the course of search conducted at the residential premises of the
assessee, aggregate cash of Rs. 43 lacs was seized. The assessee
submitted that out of Rs. 43 lacs seized, Rs. 10 lacs be treated as
towards payment of advance tax in its case.
■ However, the Assessing Officer applied Explanation to section 132B according to which the existing liability did not include
advance tax payable. He, thus adjusted the cash seized towards self
assessment tax and levied interest under sections 234B and 234C.
■ On first appeal, the Commissioner (Appeals) confirmed the action of Assessing Officer.
■ On second appeal:
HELD
■ The revenue has relied on the amendment made to section 132B vide finance bill of 2013, it is found that as per the amendment the existing
liability will not include advance tax payable and the Explanation has
been made applicable with effect from 1-6-2013. [Para 12]
■ In Taxmann' s publication 'Interpretation of Statutes' it has been stated
that the effect to be given to an explanatory amendment depends upon
several factors, including its language. When the legislature has made
the explanation operative prospectively by words expressed therein, its
operation shall have to be confined to the future date. The same
reasoning governs the case when parliament limits the restrospectivity
of the Explanation with effect from a particular date. In such a
situation, giving future retrospectivity to the Explanation would be
hijacking the intention of the Legislature into an impermissible area-CIT v. Rajasthan Mercantile Co. Ltd.[1995] 211 ITR 400 (Delhi). Thus, there is no doubt that ordinarily, a statute, and particularly
when the same has been made applicable with effect from a particular
date, should be construed prospectively and not retrospectively. [Para
13]
■ Thus considering the totality of the aforesaid, interpretation of
applicability of explanation, and amendment made by finance bill 2013,
and the facts it is viewed that the amended Explanation cannot be
applied in present case. Therefore the appeal of the assessee is allowed and the Assessing Officer is directed to give credit of Rs. 10 lacs as
advance tax. Thus the appeal of the assessee is allowed. [Para 14]
CASES REFERRED TO
Sudhakar Shetty v. Asstt. CIT [2008] 10 DTR 173 (Mum. - Trib.) (para 9), CIT v. K.K. Marketing[2005] 278 ITR 596 (Delhi) (para 9) and Shreeji Prints (P.) Ltd. v. Asstt. CIT [IT Appeal No. 359 (AHD) of 2012, dated 20-4-2012] (para 11).
Mehul Shah for the Appellant. D. K. Singh for the Respondent.
ORDER
Anil Chaturvedi, Accountant Member - This appeal is filed by the Assessee against the order of CIT(A)-II, Ahmedabad dated 19.08.2011 for assessment year 2007-08.
2. The facts as culled out from the order of lower authorities are as under.
3. In this case a search and seizure action was conducted on 8.2.2007 wherein documents and loose papers were found and seized and the statement was
also recorded u/s 132(4) and the Assessee disclosed unaccounted income
of Rs 1,50,00,000/ . Thereafter Assessee filed return of income on
24.9.2007 declaring total income of Rs Nil after the adjustment of carry forward depreciation. Assessment was framed u/s 143(3) vide order dated 30.6.2008 and the total income was determined at Rs Nil and Book profit u/s 115JB was determined at Rs. 1,52,12,920/ -.
4. During the course of search proceedings, cash of Rs 43 lacs was seized.
Assessee vide his letter dated 13.3.2007 submitted that out of the total cash seized, Rs 10 lacs be treated towards payment of advance tax in
the case of assessee and similarly balance of Rs.33 lacs be treated
towards payment of advance tax in case of family members/group
companies.
5. AO passed rectification order u/s 154 on 12.2.2009 for the reason that
while working out the tax liability pursuant to order passed u/s 143(3), Assessee was granted credit of Rs 10 lacs (being the seized cash).
According to the AO "this was not permissible unless and until it is
adjusted" . He accordingly disallowed the credit for Rs. 10 lacs. Against the aforesaid order passed by Assessing Officer, Assessee filed
application dated 26.3.2010 u/s 154 wherein inter alia it was
submitted that the amount of Rs 10 lacs be treated as tax paid from the
date on which the application has been made for adjustment against the
advance tax liability and no interest u/s 234B and 234C be levied. The
contention of the Assessee was not found acceptable to the AO. He vide
order dated 19.10.2010 rejected the application of Assessee by holding
as under:-
"5. From the plain reading of the provisions of section 132B of the Act
quoted above it can be construed that the seized amounts not being
voluntary payment cannot be adjusted against the advance tax payable and are to adjusted against the existing demands and the demands raised
after the completion of the assessments and the under section 153A and
the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability
determined on completion of the assessment under Chapter XIV-B for the
block period. In the instant case the demand is in respect of the
assessment of the year relevant to the previous year in which search is
initiated. Therefore, there is no ambiguity as regards to
application/ adjustment of seized cash against the demand raised on
completion of assessment and charging of interest under section 234B
& 234C is concerned.
6. In view of the above, the adjustment of seized cash made against the
demand raised after assessment is perfectly in order and the demand
raised comprising of the interest under section 234B & 234C of the
Act as per provisions of section are legally correct and does not
required any modification as there is no mistake apparent from records.
7. The assessee has also relied upon the decisions in the case of M/s Kesar Kimam Karyalaya[2005] 278 ITR 596 (Del) stating that the ratio of the decision is squarely applicable in the case of
the assessee. Also, reliance is placed on the decision in the case of
the Sudhakar M Shetty v. ACIT [2008] 10 DTR (Mumbai)(Trib) 173 stating that in this case the facts are similar and the court has
held that the department has to adjust the seized amount towards advance tax, etc. from the date when it was seized. However, this respect, here it is relevant to mention that the Hon'ble MP High Court, in the case
of Shri Ramjilal Jaoannath v. ACIT[ 2000] 241 ITR 758 (MP), has held that the amount seized under section 132 cannot be dealt with
unless an order is made by the ITO either under section 132(5) or the
money is applied or appropriated in accordance with section 132B.
Therefore, the petitioner&# 39;s submission that the amount could be adjusted towards the existing liability of the advance tax that the petitioners
submission that the assessee were not liable to pay interest under
section 234B or 234C also could not be accepted and the amount/assets
seized could not be appropriated towards the advance tax and the
assessee could not escape his liability either under 234B or 234C.
Irrespective of the seizure of the amount, the assessee was obliged to
pay the advance tax in accordance with law and if he had not paid the
advance tax in accordance with the provisions of the Act, he could not
avoid the liability either under section 234B or section 234C.
8. Considering the above facts of the case and the conflicting decisions
given by the Hon'ble courts in favour and against the assessee as
enumerated above, the request made by the assessee for rectification
cannot be entertained as the mistake cannot be termed as mistake
apparent from records and therefore, stands rejected" .
6. Aggrieved by the aforesaid order of Assessing Officer, Assessee carried the
matter before CIT(A). CIT(A) vide-order dated 19.8.2011 dismissed the
appeal of the Assessee by holding as under:-
"3. During the appellate proceedings the director of the company Shri
Balesh Mehta attended and filed the written submissions. I have
considered the submissions made by the appellant and considered the
reasons for rejection of application under section 154. I have gone
through the rectification- order under section 154 passed on 12-02-2009
and found that speaking order was passed by' the: assessing officer. The rectification order was passed with the application of mind and quoting the relevant provisions of the Act. There is no mistake apparent from
the record in the order passed under section 154 on 12-02-2009. The
appellant was requested to clarify whether any appeal was filed against
the earlier order passed under section 154 or not. The appellant has not furnished any detail in this regard. Since there was no apparent
mistake in the order passed under section 154 on 12.02.2009, the
rectification- application dated 18-10-2010 was therefore, rightly
rejected by passing speaking order on 19-10-2010."
7. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us and has raised the following effective grounds.
"(1) On the facts and in circumstances of the case as well as law on the
subject, the learned Commissioner of Income-tax (Appeals) has erred in
confirming the action of the Assessing Officer in rejecting the
rectification application u/s 154 and charging interest u/s 234B and
234C by treating amount of Rs. 10 lacs which has been adjusted against
the cash seized as self assessment tax instead of advance tax.
(2) It is therefore prayed that the above interest charged by Assessing
Officer u/s 234B and 234C and confirmed by Commissioner of Income Tax
(Appeals) may please be deleted."
8. Before us, the Ld. A.R. submitted that during the course of search at the
residence of the director of the company on 8.2.2007 and from locker on
7.3.2007 total cash of Rs 43 lacs was found and seized and in this
regard Assessee vide letter dated 12.3.2007 requested that out of the
total cash seized, cash of Rs 10 lacs be adjusted as an advance tax
against the tax liability of the assessee and the balance Rs.33 lacs be
treated towards payment of advance tax in case of family members/group
companies. He placed on record the copy of the aforesaid letter. He
further submitted that in case of one of the group company, (Shreeji
Prints) the amount was directed to be treated as payment of advance by
the Hon. Tribunal and thus the issue is also covered in its favour by
the decision of Ahmedabad tribunal in the case of its sister concern, Shreeji Prints (P.) Ltd. v.Asstt. CIT (ITA No. 359 (Ahd.) of 2012, dated 20-4-2012). He also placed reliance on the decision of Mumbai Tribunal in the case of Sudhakar Shetty v. Asstt. CIT [2008] 10 DTR (Mum)(Trib) 173 and in the case of CIT v. K.K. Marketing [2005] 278 ITR 596 (Delhi).
9. The Ld D.R. on the other hand submitted that Finance Act 2013 has inserted
an Explanation to s. 132B according to which the existing liability does not include advance tax payable. He thus supported the order of AO and
CIT(A).
10. We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the course of search at the residence of directors on 8.2.2007 and locker on 7.3.2007 aggregate cash of Rs 43 lacs was seized. It is also an undisputed fact that Assessee vide his
letter dated 13.3.2007 submitted that out of the cash seized, Rs 10 lacs be treated towards payment of advance tax in the case of assessee and
similarly balance of Rs. 33 lacs be treated towards payment of advance
tax in case of family members/group companies. It is also a fact that
vide aforesaid letter, the Assessee had requested that cash of Rs 8 lacs be considered as advance tax in the case of Shreeji Prints P. Ltd. (supra). The co-ordinate Bench of Tribunal in the case ofShreeji Prints (P.) Ltd. (supra) decided in favour of Assessee by holding as under:
"It is evident from a bare reading of the aforesaid provisions that the
existing liability under the Income-tax can be discharged from the
assets or money seized. In the present case, the search operation was
conducted on 22-9-2005 and the assessee filed return on 31-5-2006
declaring the seized money as income. In our opinion, if the assessee
has declared income, during the year under consideration in that
eventuality he is liable to pay advance tax as per law therefore the
A.O. is required to find out whether such liability was existing on the
date of seizure. If such liability is existing then he is empowered to
apply/adjust the money seized in discharge of the existing liability
even without any written representation from the assessee. Now coming to the fact of the present case, it is not disputed that the money seized
from the premises of Shri Lalit Patel and same was subsequently declared in the return of income filed on 31-5-2006. Hence, it can very well be
inferred from the return so filed that the respondent/assessee was
required to pay advance tax on such income as mandated u/s.208 of the I. T. Act. Therefore, in view of the fact that there is no ambiguity in
the provision so far application/ adjustment of the seized money is
concerned. Further, the judgments as relied upon by the Ld. D.R would
not apply on the facts and circumstances of the present case since this
is not a case where application u/s. 132(5) is made. Moreover, Section
132(5) is no more on statute book, even otherwise there is divergence in opinion between the Hon'ble High Court of Madhya Pradesh and Hon'ble
Delhi High Court as fairly pointed by the Ld. D.R. The order of the ITAT Delhi Bench in ITA No.ll51/Del/ 2008 as relied by the Ld. D.R. is on
different set of facts therefore, is not applicable on the facts of the
present case. The issue whether the seized money should be applied
towards advance tax liability of assessee and credit should be given
credit there-from the date of seizure of money has been decided in
favour of the assessee by the decision of ITAT Rajkot Bench in ITA No.
1172/RJT/2010 in the case of Shri Ram S. Sarda v. DCITand the decision of ITAT Mumbai Bench in the case of Sudhakar M. Shetty v. ACIT in ITA No.4238 & 423 9/MUM/2007. Respectfully following the ratio laid therein we do not find any infirmity into the impugned order."
11. Before us, Ld. D.R. has relied on the amendment made to s. 132A vide Finance
Bill of 2013, We find that the amendment has been made by insertion of
Explanation and the Explanation has been made applicable with effect
from 1st June, 2013,. For ready reference, the amendment made by Finance Bill 2013 and the memorandum is reproduced hereunder:-
12. The amendment made by Finance Bill 2013 reads as under:- Amendment of section 132B.
"34. In section 132B of the Income–tax Act, the Explanation shall be
numbered as Explanation 1 thereof and after Explanation 1 as so numbered the following explanation shall be inserted with effect from the 1st day of June, 2013, (emphasis supplied) namely:-
Explanation 2.—For the removal of doubts it is hereby declared that the "existing
liability" does not include advance tax payable in accordance with the
provisions of Part C of Chapter XVII.'
The explanatory memorandum to the Finance Bill reads as under :-
The existing provisions contained in section 132B of the Income-tax Act, inter alia, provide that seized assets may be adjusted against any existing
liability under the Income Tax Act. Wealth tax Act, the Expenditure- tax
Act, the Gift-tax Act and the Interest tax Act and the amount of
liability determined on completion of assessments pursuant to search,
including penalty levied or interest payable and in respect of which
such person is in default or deemed to be in default.
Various courts have taken a view that the term "existing liability" includes
advance tax liability of the assessee, which is not in consonance with
the intention of the legislature. The legislative intent behind this
provision is to ensure the recovery of outstanding tax/interest/ penalty
and also to provide for recovery of taxes/ interest /penalty, which may
arise subsequent to the assessment pursuant to search.
Accordingly, it is proposed to amend the aforesaid section so as to clarify that the existing liability does not include advance tax payable in accordance
with the provisions of Part C of Chapter XVII of the Act.
This amendment will take effect from 1st June, 2013." ( Emphasis supplied)
13. In Taxmann' s publication "Interpretatio n of Statutes" 2nd Edition by Shri D.P. Mittal at page 807 it has been stated as under:-
"The effect to be given to an explanatory amendment depends upon several
factors, including its language. When the legislature has made the
explanation operative prospectively by words expressed therein, its
operation shall have to be confined to the future date. The same
reasoning governs the case when Parliament limits the retrospectivity of the Explanation with effect from a particular date. In such a
situation, giving future retrospectivity to the Explanation would be
hijacking the intention of the Legislature into an impermissible area-CIT v. Rajasthan Mercantile Co. Ltd. [1995] 211 ITR 400 (Delhi). Thus, there is no doubt that ordinarily, a statute, and particularly
when the same has been made applicable with effect from a particular
date, should be construed prospectively and not retrospectively&quo t;.
14. Thus considering the totality of the aforesaid, interpretation of
applicability of explanation, and amendment made by Finance Bill 2013,
facts and respectfully following the decision of the co-ordinate Bench,
we are of the view that the amended Explanation cannot be applied in
present case. We therefore allow the appeal of the Assessee and direct
the AO to give credit of Rs 10 lacs as advance tax. Thus the appeal of
the Assessee is allowed.
IT: For disallowance under section 40A(2) guiding factor as per scheme
of Act is that whether such expenditure is excessive or unreasonable
having regard to fair market value of goods, services or facility for
which payment has been made
■■■
[2013] 35 taxmann.com 195 (Rajkot - Trib.) (TM)
IN THE ITAT RAJKOT BENCH (THIRD MEMBER)
Assistant Commissioner of Income-tax, Cir. 3, Jamnagar
v.
Shirish Maganlal Ravani*
G.C. GUPTA, VICE-PRESIDENT (AZ) (AS A THIRD MEMBER)
T. K. SHARMA, JUDICIAL MEMBER
AND D. K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NO. 342 ( RJT.) OF 2012
[ASSESSMENT YEAR 2008-09]
MAY 13, 2013
Section 40A(2) of the Income-tax Act, 1961 - Business disallowance -
Excessive or unreasonable payments [Interest Payments] - Assessment year 2008-09 - Whether for disallowance under section 40A(2) guiding factor
as per scheme of Act is that whether such expenditure is excessive or
unreasonable having regard to fair market value of goods, services or
facility for which payment has been made - Held, yes - Assessee had
taken loans from his wife, sons and his own HUF and paid interest at
rate of 18 per cent on same - Assessing Officer considered rate of
interest at 12 per cent as reasonable and disallowed 6 per cent of
remaining interest by invoking provisions contained in section 40A(2) -
Assessing Officer could not cite any instance, wherein assessee on
unsecured loan account, other than his relatives account, had paid
interest at less than 18 per cent per annum - Whether interest paid by
assessee at rate of 18 per cent per annum on unsecured loans during
relevant period could not said to be excessive or unreasonable - Held,
yes - Whether in facts of case Commissioner (Appeals) was justified in
deleting impugned disallowance made by Assessing Officer under section
40A(2) - Held, yes [Para 6] [In favour of assessee]
FACTS
■ The assessee had taken loans from his wife, sons and his own HUF in the
earlier years. He was paying interest at the rate of 18 per cent on the
same. In the return of income for the assessment year 2008-09, he
claimed deduction of the interest paid on such loans at the rate of 18
per cent.
■ The Assessing Officer held that the assessee was making excessive payment
of interest in respect of the loans taken by him and was diverting his
income to his family members, who were liable to tax at lower rate. He
relying on the decision of the Rajkot Bench of the Tribunal rendered in
the case of ACIT v. Girdharsing h Rathore [IT Appeal No.
1139 (RJT) of 2009, dated 19-3-2010], wherein the interest paid at the
rate of 12 per cent was held as reasonable as per the prevailing market
rate, considered the rate of interest at 12 per cent as reasonable and
disallowed 6 per cent of the remaining interest by invoking the
provisions contained in section 40A(2).
■ On appeal, the Commissioner (Appeals) relying upon an earlier order passed by the Rajkot Bench of Tribunal in the case of Haren T. Davda v. ACIT [ IT Appeal Nos. 33 & 34 (Rjt) of 2007, dated 30-11-2009] deleted the impugned disallowance made by the Assessing Officer.
■ On second appeal, there was difference of opinion between the members of
the Tribunal with regard to the disallowance of interest under section
40A(2).
■ On reference to Third Member:
HELD (THIRD MEMBER ORDER)
■ In the instant case, the only issue in dispute is regarding the
disallowance of interest paid on loans to family members of the assessee under section 40A(2). The assessee has taken the loans from his wife,
sons and from his own HUF and is paying interest at the rate of 18 per
cent on the same. The loans were taken in the earlier years and no
similar disallowance was made by the Assessing Officer. The observation
of the Assessing Officer that the prevailing deposit rates with the bank during the relevant period were in the range of 7 per cent to 8 per
cent is not a relevant factor to decide the allowability of rate of
interest on the amount of loans to the relatives of the assessee under
the provisions of section 40A(2). The submission of the revenue that on
bank loans the average rate of interest paid by the assessee comes to
10.73 per cent is unsustainable. This average rate of interest has been
calculated on the amount of loan as on the last date of accounting
period and not on day-to-day basis. The argument of the revenue that the interest paid to unsecured creditors is more than the return on capital of the assessee and, therefore, excessive is devoid of any merit. The
return on capital of the assessee depends on variety of factors and in
business there may even be 'loss' to the assessee, but still the
assessee is obliged to pay the interest at agreed rate of interest to
its depositors. The other argument of the revenue that the assessee is
paying lesser amount of tax by giving interest to its family members at
higher rate of interest and family members of the assessee being
assessed to tax at the rate of 0 per cent to 10 per cent, whereas the
assessee is liable to pay tax at an average rate of nearly 20 per cent
and, therefore, there is a diversion of taxable income by the assessee
in the hands of the family members, is also without any merit.
■ For the disallowance under section 40A(2) the guiding factor as per the
scheme of the Act is that whether such expenditure is excessive or
unreasonable having regard to the fair market value of the goods,
services or facility for which the payment has been made. Merely because the assessee by incurring legitimate and reasonable expense is liable
to pay a lesser amount of income tax, it cannot be said that the
provision of the section 40A(2) can be invoked in order to maximum the
coffer of the revenue. The assessee has filed copy of the bank statement from ICICI Bank to establish that it has paid interest at the effective rate of 18.44 per cent per annum during the period for the secured
loan. The bank rate suggested by the revenue at the rate of 10.73 per
cent is patently wrong, since the same has been worked out on the basis
of the balance in the account as on the last date of accounting period.
It is a matter of common knowledge that the interests on unsecured loans are normally higher than the interest payable on the secured loans.
■ The decisive factor for the applicability of section 40A(2) is whether the
payment made by the assessee is excessive or unreasonable considering
the prevailing market conditions during the relevant period. The
interest paid at the rate of 18 per cent per annum on unsecured loans
during the relevant period cannot be said to be excessive or
unreasonable. The Rajkot Bench of Tribunal in the case of Haren T. Davda (supra) has held that the interest rate paid at 18 per cent was reasonable. The decision of the Rajkot Bench of the Tribunal in the case ofGirdharisingh Rathore (supra) is distinguishable on facts. The assessee has made the payment of
interest in that case ranging between 9 per cent to 13.50 per cent and,
therefore, in facts and circumstances of the case the Tribunal has held
that the interest rate of 12 per cent is fair and reasonable. In the
instant case, the revenue could not cite any instance, wherein the
assessee on unsecured loan account, other than his relatives account,
has paid interest at less than 18 per cent per annum.
■ In these facts of the case, the Commissioner (Appeals) was justified in
deleting the impugned disallowance made by the Assessing Officer under
section 40A(2). [Para 6]
CASE REVIEW
ACIT v. Girdharsingh Rathore [IT Appeal No. 1139 (RJT) of 2009, dated 19-3-2010] (para 6)distinguished.
CASES REFERRED TO
Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105/5 Taxman 253 (Guj.), Haren T. Davdav. ACIT [ IT Appeal Nos. 33 & 34 (Raj.) of 2007, dated 30-11-2009], CIT v. Surya Herbal Ltd.[2011] 202 Taxman 462/14 taxmann.com 142 (SC), ACIT v. Girdhars ingh Rathore [IT Appeal No. 1139 (RJT) of 2009, dated 19-3-2010] and S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 (SC).
Ankur Garg for the Appellant. G. B. Parikh for the Respondent.
ORDER
T. K. Sharma, Judicial Member - This appeal by the revenue is against the order dated 26-03-2012 of CIT (A), Jamnagar for the assessment year 2008-09.
2. Briefly stated, the facts are that the assessee is an
individual derives income as a manufacturer and trading in engine valves and engineering automobiles items as a proprietor in the firm name of
M/s. Suzuki Engineers. For the assessment year under appeal, he filed
the return of income declaring total income of Rs.7,07,743/ - on
27-10-2008. The accounts of the assessee are audited as required
u/s.44AB of the Act. Complete quantitative details are maintained. The
AO observed that during the year under consideration the assessee has
credited interest @ 18% on the loans taken from family members. The AO
issued notice to the assessee calling upon him to show cause as to why
the interest credited at the rate of 18% on the borrowings from the
family be not restricted to 12%. In reply, the assessee contended that
these are unsecured loans without any guarantee and taken for long
period and earlier this type of interest have been allowed by the
department and hence the rate of 18% is allowable expenditure. In
support of his claim, he placed reliance on the decision of the Hon'ble
Gujarat High Court in the case of Voltamp Transformers (P.) Ltd. v. CIT[1981] 129 ITR 105/5 Taxman 253 and submitted that interest rate @18% has already been allowed even on the
bank loans. In addition to this the assessee also relied upon the order
of the Rajkot Bench of the Tribunal in the case of Haren T. Davda v. ACIT [ IT Appeal Nos. 33 & 34 (Raj.) of 2007, dated 30-11-2009]. The
contentions of the assessee did not find favour of the AO and he framed
the assessment u/s.143 (3) of the I. T. Act, wherein he disallowed
interest of Rs.3,22,091/ - @ 6% u/s.40A(2) (b) of the I.T. Act as
excessive as under:-
No. Name Relation Interest paid at 18% in Rs. Interest disallowed at 6% in Rs.
1. Bhavik Shirish Ravani Son 3,95,413 1,31,804/-
2. Mitaben Shirish Ravani Wife 3,64,131 1,21,377/-
3. Shirish Maganlal Ravani (HUF) HUF status of Appellant 2,06,608 68,869/-
Total
9,66,152 3,22,091/-
3. On appeal before the ld. CIT (A), assessee explained that
interest paid @ 18% is not excessive. These loans are unsecured and
obtained without any securities. It was also submitted that in the
assessment year under appeal, on secured loan, bank charged interest
17.04% on monthly rests i.e. effective rate of interest comes to 18.44%
on yearly basis. Apart from this, assessee has taken a bank loan on car
from ICICI Bank on 05-07-2006. On this loan, ICICI Bank charged interest at a rate of 17.04% which assessee is paying on monthly basis. Further, on purchases, if there is a late payment then suppliers are charging
interest @ 24% on late payment of purchase price. In support of this,
photo-copies of purchase bill were produced before the ld. CIT (A).
After considering the various submissions, in the impugned order, the
ld. CIT(A) deleted the disallowance of interest of Rs.3,22,091/ -
u/s.40A(2)(b) of the Act for the detailed reason given in para-4.2 which reads as under:-
"4.2. I have duly considered the submission of the appellant and the
discussion made by the AO in the assessment order. It was explained by
the appellant that the interest paid @ 18% is not excessive and these
loans are unsecured and obtained without any securities. Also various
evidences have been submitted during the course of assessment
proceedings. Appellant further submitted that in the case of Shri Haren
T. Davda the hon'ble ITAT, Rankot bench in ITA No.33 and 34/Rjt/2007
vide order dtd. 30-10-2009 held that interest paid to relatives at the
rate of 18% is reasonable and has filed a copy of the said order
alongwith the written submission. I have also gone through the said
order of the hon'ble ITAT, Rajkot bench. I find that there is no case of disallowance u/s.40A(2)(b) of the Act. Payment of interest @ 18% is not high comparing to the market rate which is around 18%. AO has
mechanically made this disallowance without bringing any adverse thing
on record or any comparable case to indicate excessiveness. In view of
the above and also following the above order of hon'ble ITAT, Rajkot
bench in the case of Shri Haren T. Dave for A.Ys. 2002-03 & 2003-04, the disallowance of Rs.3,22,091 made by the AO out of interest payment
is deleted."
4. In respect of fall in GP, the AO observed that in the previous two
assessment years i.e. AY 2006-07 and 2007-08, the assessee has declared
GP at the rate of 25.20% and 40.23% respectively. But for the year under consideration the assessee declared GP at the rate of 20.81%. The AO
issued show cause notice to the assessee for such decline in the GP
rate. In reply, the assessee contended that fall in GP is due to
increase in direct export expenses and trade commission in addition to
this the assessee also contended that cost for local sales and export
sales have been increased comparable to the last two years sales and
turnover. The AO rejected the explanation of the assessee and made
addition of Rs.12,07,079/ - being 5% of total turnover monthly on the
ground that G.P. declared in the assessment year under appeal is lower
by 7.93% of average profit of last three years.
5. In respect of G.P. addition before ld. CIT(A), assessee contended that
details of turnover for the year under consideration and earlier three
years are as under:-
A. Y. Total Turnover Gross Profit In Percentage
2005-06 13753921 2911937 21.17%
2006-07 13307207 3353657 25.20%
2007-08 14130445 5685229 40.23%
2008-09 24141592 5022984 20.81%
6. It was also submitted that books of account were audited, full quantitative details are maintained. No defect in the books of accounts has been pointed out by the AO. Books of account are audited. After
considering these submissions, in the impugned order, the ld. CIT(A)
deleted the addition of Rs.12,07,079/ -which was made by AO on account of low G.P. for the detailed reason given in para-5.2 which reads as
under:-
"5.2 I have duly considered the submission of the appellant and the
discussion made by the AO in the assessment order. I find that the AO
has not rejected the books of the appellant and has not pointed out any
defects in the books of account. AO has made addition merely on the
ground of low gross profit, without rejecting books. AO has not brought
on record anything to show that the GP rate of the appellant was low.
Appellant has given elaborate charts to show that sales realization is
less this year whereas the cost has increased to a great extent. Thus in my opinion the appellant has been able to satisfactorily explain the
reasons for fall in GP during the year. There are no contrary evidences
to show any sales outside books or suppression of profit etc. Therefore, I hold that the AO was not justified in making addition by taking the
GP rate at 5% of total turnover and the same is hereby ordered to be
deleted."
Aggrieved with the order of ld. CIT(A) deleting both additions, the revenue is in appeal before this Tribunal on the following grounds:-
"1. The CIT(A) erred in law and in facts in holding that disallowance of
interest of Rs.3,22,091/ - paid on loans taken from family members
u/s.40A(2) of the IT Act is wrong.
2. The CIT(A) erred in law and in facts in deleting the addition of Rs.12,07,079/ - by taking the GP rate at 5% of total turnover."
7. At the time of hearing before us, on behalf of revenue, Shri
Avinash Kumar, D. R. appeared and with regard to disallowance of
interest u/s.40A(2)(b) of the Act contended that as per the provisions
of sec.40A(2) of the Act, "ïf the AO is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of
goods, services or facilities for which the payment is made or the
legitimate needs of the business or profession of the assessee or the
benefit derived by or accruing to him there from, so much of the
expenditure as is so considered by him to be excessive or unreasonable
shall not be allowed as a deduction." He submitted that cost of loan
from the bank is from the higher side whereas, loans from the private
parties is available at lower rate of interest. The assessee took the
loan at higher rate of interest from family members therefore, AO
rightly invoked the provision contained in section 40A(2) of the I.T.
Act, 1961 and disallowed excessive interest @6%.
8. With regard to G.P. addition, the ld. D.R. pointed out that there is a sharp fall in G.P. ratio from the previous year. AO asked the assessee to
justify the fall in G.P. ratio. Initially, assessee submitted that fall
in G.P. ratio was due to increase in direct export where packing
expenses and trade commission had increased. When the assessee was
confronted that expenditure on these two factors is very comparable to
last year figures, then the assessee changed his line of argument and
presented a break-up of total sales between exports and local sales and
contended that there has been increase in the cost price while sales
price with respect to exports has been declined. Before the AO, assessee has also stated that there was global slowdown and during the period,
the assessee focused on increasing exports through competitive pricing
and submitted several charts to prove his point. However, the increase
in cost price and decrease in sales price were not substantial. For
these reasons, the AO was of the view that there was minor increase and
decrease in cost price and sales prices as per normal business cycle,
the average method has to be taken. Accordingly, the contention of the
assessee was rightly rejected and addition @ 5% of total sales was
rightly made which comes to Rs.12,07,079/ -.
9. On the other hand, Shri G. B. Parikh, Advocate appeared on behalf of the
assessee vehemently supported the order of ld. CIT (A). The counsel of
the assessee filed a paper-book which was submitted before the ld. CIT
(A) and contended that interest paid @ 18% was fair and reasonable
therefore, the ld. CIT (A) rightly deleted the addition of Rs.3,22,091/ - made by AO u/s.40A(2) of the I. T. Act, 1961. He also contended that to get funds for the business purpose from the Banks and Financial
Institutions at lower rates are very difficult and even if it gets it
takes long time which defeat the purpose. On the contrary, funds from
the local persons, family members is easily available for which rate of
interest is to be paid little bit more and hence rate of interest at the rate of 18% is reasonable in favour of business which is normal
practice in the commercial premises and hence the ld. CIT(A) is correct
in allowing the same.
10. With regard to G.P. addition, the counsel of the assessee pointed out that
full quantitative details are maintained, books of account are audited,
nowhere in the assessment order AO rejected the books of account, no
single defect for maintaining books of account was found, therefore, ld. CIT (A) is legally and factually correct in deleting the G.P. addition
of Rs.12,07,079/ - made by AO in the assessment order.
11. Having heard both sides, we have carefully gone through the orders of
authorities below. It is well settled law that section 40A(2)(a) cannot
have any application unless it is first held that expenditure was
excessive and unreasonable looking to the interest paid by the assessee
to bank and to supplier, interest @18% paid by the assessee on unsecured loan is neither excessive nor unreasonable. We also find force in the
contention of the ld. Counsel for the assessee that it is easy to get
funds from the market than from the Banks or Financial Institutions for
which if some rate of interest is paid is nothing wrong to satisfy the
expediency of funds. In view of the above discussion, we are therefore
of the view that ld. CIT (A) is legally and factually correct in
deleting the disallowance of interest which was made by AO by invoking
the provisions contained in sec.40A(2)(a) of the I.T. Act. We therefore, declined to interfere in the well-reasoned order of the ld. CIT(A). The ground No.1 is rejected.
12. With regard to G.P. addition, from the perusal of para-4 of the assessment
order, it can be seen that AO made comparison to figures of last three
assessment years and made addition by taking the G.P. rate at 5% of
total turnover. The books of account are audited. No defect in the books of account is pointed out by the AO in the assessment order. It is well settled law that no addition can be made merely on the ground of low
G.P. unless the books of account are rejected. Further, there is no
evidence to show that the assessee has made any sale outside the books
or suppressed the profit etc. The AO has made the addition on the basis
of surmises and conjecture which cannot be upheld under the garb of law. Keeping in view all these factors into consideration, we are of the
considered opinion, that the ld. CIT (A) is legally and factually
correct in deleting G.P. addition of Rs.12,07,079/ - which was made by AO without rejecting the books of account. We therefore, declined to
interfere in the order of the ld.CIT(A) on this count. The ground No.2
is also rejected.
13. In the result, the appeal of the revenue is dismissed.
NOTE OF DISSENT
D K Srivastava, Accountant Member - The issue under
consideration, in brief, is whether the AO is justified in restricting
the rate of interest to 12% as against 18% claimed to have been paid by
the assessee on the amounts deposited by the assessee' s own HUF, son and wife or, to put it alternatively, on the amounts claimed by the
assessee to have been lent by them. Total amount of disallowance made by the AO and deleted by the CIT(A), which is proposed to be upheld by my
learned Brother is Rs.3,22,091/ -. Though the amount of tax involved in
the matter is not substantial yet the view taken in this order is bound
to be cited as precedent in other cases and therefore would have
cascading effect in several other cases. As held by the Hon'ble Supreme
Court in its judgment in CIT v. Surya Herbal Ltd. [2011] 202 Taxman 462/14 taxmann.com 142, tax implication in one case should not be considered in isolation when
the principle involved therein would have cascading effect on a large
number of cases. It is therefore necessary that the issue involved in
the matter under consideration receives careful consideration before it
is cited in other cases as precedent. Keeping this aspect in view, the
matter was discussed with my learned Brother. We have however not been
able to reach a consensus. I therefore proceed to record my Note of
Dissent.
2. I have carefully gone through the order proposed by my Learned Brother
confirming the order of CIT(A) deleting the addition of Rs.12,07,079/ -
made by the AO on account of low rate of gross profit and also deleting
the disallowance made by the AO on account of excessive rate of interest paid by the assessee on deposits/loans accepted by the assessee from
his own HUF, son and wife. While I concur with the order proposed by my
Learned Brother confirming the order of the CIT(A) deleting the addition of Rs.12.07,079/ -, I am unable to agree with his order endorsing the
decision of the CIT(A) deleting the disallowance of part of interest
made by the AO.
3. Perusal of the assessment order shows that the assessee claimed to have taken
deposits/loans from his own HUF, wife and son for which he claims to
have paid interest to them @18%. It is further seen from the assessment
order that the said amounts have been appearing in the books of the
assessee for last several years. Keeping in view the prevalent rate of
interest in the market, the Assessing Officer held that payment of
interest @ 18% was excessive, unreasonable and not guided by business
considerations. According to him, the assessee' s own HUF, wife and son
would not have been able to get interest @ 18% from any source if they
had deposited/lent the impugned sums elsewhere. Relying upon the order
dated 19-03-2010 passed by this Tribunal in ACIT v.Girdharisin gh Rathore ITA No.1139/Rjt/ 2009, the Assessing Officer considered the rate of interest at 12% as reasonable and accordingly disallowed 6% of the remaining
interest.
4. On appeal, the ld. CIT (A) deleted the disallowance made by the AO.
5. On careful consideration of the facts placed on record, I am
unable to agree with the view taken by the ld. CIT(A). Interest on
capital borrowed for the purposes of business is admissible deduction
u/s 36(1)(iii). As held by the Hon'ble Supreme Court in S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74, the expression "for the purpose of business" in section 36(1)(iii)
means expenditure incurred voluntarily for commercial expediency. Any
interest paid on account of personal relationship of the assessee with
the depositors/lenders cannot be said to be guided by commercial
consideration. This view is further supported from the provisions of
section 40A(2) which enables the AO to disallow expenditure to the
extent it is unreasonable or excessive having regard to the fair market
value of the goods, services or facilities for which the payment is made to a relative defined u/s 40A(2)(b). The assessee has received the
impugned sums from his own HUF, son and wife. They would not have
received interest @ 18% if they had given this sum to any other person.
Even the rate of interest being paid by the Banks on long term deposits
was not more than 10%. These amounts are being carried by the assessee' s HUF, his wife and son from year to year as the rate of interest being
received by them from the assessee is significantly higher than what is
prevailing in the market. The entire transaction is basically in the
nature of an arrangement by which the funds of the family remain in the
family fetching a significantly higher rate of interest than what these
funds would fetch if deposited in banks or elsewhere. Apart from the
aforesaid factual aspects of the case, the AO also took note of the
order dated 19th March 2010 passed by this Bench in Girdharisingh Rathore (supra) in which it has been held that the AO was justified in disallowing
interest paid by the assessee over and 12% u/s 40A(2). Following the
aforesaid order of this Tribunal, the AO disallowed interest paid over
and above 12%. In my considered view, the AO has committed no error on
the facts of the case in following the aforesaid order of this Tribunal.
6. The ld. CIT(A), however, relied upon an earlier order passed by this
Tribunal on 30.10.2009 relating to an earlier assessment year in Haren T Davda (supra) for AY 2002-03 in which this Tribunal has held as under:
"37. We have considered the rival submissions. We hold that the assessing
officer has not brought out how rate of interest at 18% is excessive or
unreasonable. Section 40A(2)(b) cannot be invoked to make disallowance
without establishing that the rate at which interest is paid is
excessive or unreasonable. The assessee has brought out factors which
influence the rate of interest in unsecured loans arranged from
relatives. Further considering the fact that no disallowance was made in earlier year, we do not find any justification for the disallowance…"
7. In a later order involving later assessment year, the same Bench with same quorum has held in its order dated 19.3.2010 in Girdharisingh Rathore (supra) for AY 2006-07 as under:
"5. We have carefully considered the finding given by the Assessing Officer and the submission of the AR of the appellant. We find that the
assessee has made payment of interest ranging between 9% to 13.50%. As
per the provisions of section 40A(2)(b) the excessive or unreasonable
interst rate as per the market prevailing value of the goods and
services for which the payment is made. In this case, the Assessing
Officer has considered 13.50% rate of interest as being excessive. The
bank interest rate is varying up to 12%. Therefore, in the interest of
justice and fair play, we reverse the findings of the CIT(A) and direct
the Assessing Officer to charge paid at the rate of 12%, which is fair
and reasonable as per the prevailing market rate. Therefore, we reverse
the findings of the CIT(A) and direct the Assessing Officer to consider
the interest rate at 12% and it is to be disallowed the balance amount
of interest being excessive."
8. Decision of this Tribunal in Girdharisingh Rathore is later in point of time and also relates to a later assessment year. Both the orders have been
passed by the same Bench and the same quorum. It is obviously the later
judgment that will prevail and the earlier one will stand impliedly
modified to that extent. In its later decision relating to a later
assessment year, this Tribunal has held that rate of interest of 12% was reasonable and any interest paid over and above 12% was unreasonable
and excessive having regard to the prevailing market rate and therefore
liable to be disallowed u/s 40A(2)(b). The AO has rightly followed the
later order of this Tribunal in making the impugned disallowance. The
ld. CIT (A) ought to have followed the later order of this Tribunal
relating to a later assessment year. Keeping in view the materials
brought on record by the AO and the latest order of this Tribunal dated
19-03-2010 in Girdharisingh Rathore (supra) , I would
consider appropriate to confirm the order of the AO restricting the
reasonableness of payment of interest to 12%. In this view of the
matter, the order passed by the CIT (A) in this behalf deserves to be
reversed. I hold accordingly.
THIRD MEMBER ORDER
G.C. Gupta, Vice-President (As a Third Member)
On account of difference in opinion between the learned Judicial Member
and learned Accountant Member of ITAT, Rajkot Bench, this matter has
been referred to me by the Hon'ble President, ITAT for consideration and disposal under Section 255(4) of the Income Tax Act, 1961. The Hon'ble
President, ITAT has referred the following question:
"Whether on the facts and circumstances of the case, the ld. CIT(A) is justified in deleting the disallowance of interest of Rs.3,22,091/ - which was
paid on loans taken from family members under Section 40A(2) of the
Income Tax Act, 1961 ?"
2. I have carefully considered the above question drawn by the learned
Members of the Rajkot Bench and have perused the proposed orders of the
learned JM and the learned AM. I have heard the learned CIT-DR and the
learned counsel of the assessee.
3. The contentions of learned CIT-DR and the assessee were mainly similar, as
advanced by them before the regular Bench and recorded in the proposed
orders of the learned JM and the learned AM.
4. The learned CIT-DR submitted that the only issue in dispute in this case is regarding disallowance of interest paid on loans to relatives of the
assessee-proprietor under Section 40A(2) of the IT Act. He submitted
that the assessee has taken loan of Rs.57.92 lakhs from his wife, son
and his own HUF, and the assessee is paying interest at the rate of 18%
on the same. He submitted that the AO has observed that prevailing
deposit rate with the bank were in the range of 7% to 8%. The AO
concluded that the assessee was making excessive payment in respect of
the loans taken by him, and was diverting his income to his family
members, who were liable to tax at lower rate. He relied on the decision of the ITAT, Rajkot Bench in the case of Girdharisingh Rathore, (supra) for the assessment year 2006-2007 wherein the interest paid at the rate of 12% was held as reasonable, as per the prevailing market rate, and
the balance amount of interest was disallowed by holding the same as
excessive. He submitted that the average rate of interest paid on the
bank loans comes to around 10.73% in this case, whereas the average rate of interest on unsecured loans is around 16.68%, and therefore the
interest paid on loan was indeed excessive. He submitted that the return on assessee' s capital was merely 15.80% whereas the assessee was paying interest on unsecured loans at 16.68%. The learned CIT-DR submitted
that the assessee is paying lesser amount of tax by giving interest at
higher rate to its family members and relatives, as only income of the
family members is the interest paid by the assessee, and they are
assessed to tax at the rate of 0% to 10%. He submitted that on the other hand, the assessee was liable to tax at an average rate of nearly 20%,
and therefore the assessee has diverted its taxable income in the hands
of its family members. He submitted that the decision of the Rajkot
Bench of the ITAT in Haren T Davda (supra) cited by the
learned JM was distinguishable on facts, since pertains to the
assessment year 2001-2002, whereas the decision of the Rajkot Bench in Girdharisingh Rathore(supra) pertains to the assessment year 2006-2007, which is much closure to the period to which the present case of the assessee relates.
5. The learned counsel for the assessee has opposed the submissions of the
learned CIT-DR. He submitted that yield of 15.80% on the capital of the
assessee is not relevant to the issue since, it has been calculated on
the balance capital as on the last date of the accounting period. He
submitted that the assessee was paying more than 18% on secured loans
and submissions of the learned CIT-DR that the average rate of interest
paid to the bank loans was around 10.73% was not correct, since has been calculated on the balance as on the last date of accounting period. He
submitted that the bank was charging 17.04% interest on the monthly
basis, and therefore the effective rate of interest comes to more than
18% per annum. He referred to the statement of accounts of the ICICI
bank at page no.20 and 21 of the compilation filed before the Tribunal
in support of the submission that the effective rate of bank interest
was 18.44%per annum. He submitted that no similar addition was made in
the earlier years, and the loans from the relatives of the assessee were unsecured loans and therefore carries higher rate of interest. He
submitted that under the provisions of the Income Tax Act, the
government itself is charging 18% interest per annum under Section
201(1A) of the Act.
6. The learned CIT-DR in his rejoinder submitted that charging of interest at
18% under the provisions of the I.T. Act, being penal in nature, is not
comparable with the prevailing market rate of interest. He submitted
that the ICICI Bank is financing the vehicle loans, which always carries higher rate of interest due to higher risk factor of the bank.
7. I have considered rival submissions and have perused the proposed orders
of the learned JM and the learned AM on this issue, and also written
note filed by the Revenue. I find that basic facts of the case are not
in dispute. The only issue in dispute before me in this case is
regarding the disallowance of interest paid on loans to family members
of the assessee-proprietor under section 40A(2) of the IT. Act, 1961.
The assessee has taken the loans amounting to Rs.57.92 lakhs from his
wife, sons and from his own HUF and is paying interest at the rate of
18% on the same. The loans were taken in the earlier years and no
similar disallowance was made by the department. The observation of the
AO that the prevailing deposit rates with the bank during the relevant
period were in the range of 7% to 8%, in my view, is not a relevant
factor to decide the allowability of rate of interest on the amount of
loans to the relatives of the assessee under the provisions of Section
40A(2) of the Act. I find that the submission of the Revenue that on
bank loans, the average rate of interest paid by the assessee comes to
10.73% is unsustainable, since this average rate of interest has been
calculated on the amount of loan as on the last date of accounting
period, and not on day-to-day basis. The argument of the learned CIT-DR
that the return on capital of the assessee comes to 15.80%, and the
interest paid to unsecured creditors being more than the return on
capital of the assessee, and therefore excessive, is devoid of any
merit. The return on capital of the assessee-proprietor depends on
variety of factors and in business there may even be "loss" to the
assessee, but still the assessee is obliged to pay the interest at
agreed rate of interest to its depositors. The other argument of the
learned CIT-DR that the assessee is paying lesser amount of tax by
giving interest to its family members at higher rate of interest, and
family members of the assessee being assessed to tax at the rate of 0%
to 10%, whereas the assessee is liable to pay tax at an average rate of
nearly 20%, and therefore there is a diversion of taxable income by the
assessee in the hands of the family members, is also, in my view,
without any merit. For the disallowance under section 40A(2) of the Act, the guiding factor as per the scheme of the Act is that whether such
expenditure is excessive or unreasonable, having regard to the fair
market value of the goods, services or facility for which the payment
has been made etc. I find that merely because the assessee by incurring
legitimate and reasonable expense, is liable to pay a lesser amount of
income-tax, it cannot be said that the provision of the Section 40A(2)
of the Act can be invoked in order to maximum the coffers of the
Revenue. I find that the assessee has filed copy of the bank statement
from ICICI Bank to establish that it has paid interest at the effective
rate of 18.44% per annum during the period for the secured loan. The
bank rate suggested by the learned CIT-DR at the rate of 10.73% is
patently wrong since has been worked out on the basis of the balance in
the account as on the last date of accounting period. It is a matter of
common knowledge that the interests on unsecured loans are normally
higher than the interest payable on the secured loans. In order to get a secured loan from the bank, assessee has to undergo a number of
formalities and to give security and collateral securities to the
satisfaction of the bank, whereas this impediment do not normally exists in the case of unsecured loans obtained by the assessee. The learned
CIT-DR's submission that the interest charged under Section 201(A) of
the Act at 18% by the Government is not relevant, since is of penal in
nature, is also not relevant to the issue before the Tribunal. The
decisive factor for the applicability of section 40A(2) of the Act is
whether the payment made by the assessee is excessive or unreasonable
considering the prevailing market conditions during the relevant period. In my considered view, interest paid at the rate of 18% per annum on
unsecured loans during the relevant period cannot be said to be
excessive or unreasonable. The ITAT, Rajkot Bench in Haren T. Davda (supra) has held that the interest rate paid at 18% was reasonable. The decision of the Rajkot Bench of the ITAT in Girdharisingh Rathore (supra) dated 19.3.2010 cited by the learned CIT-DR is distinguishable on
facts, since the assessee has made the payment of interest in that case
ranging between 9% to 13.50%, and therefore in facts and circumstances
of the case, the Tribunal has held that the interest rate of 12% is fair and reasonable. In the case before me, the Revenue could not cite any
instance wherein the assessee on unsecured loan account, other than his
relatives account, has paid interest at less than 18% per annum. In
these facts of the case, I have no hesitation in agreeing with the view
of the learned JM that the learned CIT(A) is justified in deleting the
disallowance of interest of Rs.3,22,091/ - which was paid on loans taken
from family members under section 40A(2) of the Act, 1961, and the point of difference is decided in favour of the assessee and against the
Revenue.
8. The matter will now go back to the Division Bench for passing order in accordance with majority view.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
T. K. Sharma, Judicial Member - On account of difference of
opinion between the member constituting the regular bench, following
question was referred for consideration of Third Member :-
"Whether on the facts and circumstances of the case, the ld. CIT (A) is
justified in deleting the disallowance of interest of Rs.3,22,091/ -
which was paid on loans take from family members u/s.40A(2) of the I.T.
Act, 1961 ?
2. The Hon'ble Zonal Vice President sitting as Third Member vide his order
dated 2nd May, 2013 expressed his opinion that the ld. CIT(A) is
justified in deleting the disallowance of Rs.3,22,091/ - which was paid
on loans taken from family members u/s.40A(2) of the Income Tax Act,
1961. Therefore, as per majority view, the ground No.1 of Revenue is
dismissed.
3. In respect of other ground of appeal, both the members agreed that ld. CIT (A) has rightly deleted the G. P. addition of Rs. 12,07,079/-. This
ground of appeal is also dismissed.
4. In the result, the appeal of the Revenue is dismissed.
5. This Order pronounced in Open Court on the date mentioned hereinabove.
--
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
Sun Sep 15, 2013 9:57 am (PDT) . Posted by:
"Dipak Shah" cadjshah
Dear All,
Without amending the object clause , and also no object clause mentioned in Memorandum , merger is granted. So Object clause to carry out the business do not require!!!!! !!!!!!! There is no meaning of obejct clause in Memoranduma dn Articles of Associaition of Company at all.
See Hon. Rajasthan High Court Decision in the case of Merger Petition , objection was there but ignored by Hon. High Court !!!!!!!!!!!! !!!!!
Please find the attached Memorandum and Articles of Association of Chambal Fertilizers and Chemicals Limited . See the Page number 77 and 78. Worth to be noted.
C A Shah D J
USA
Without amending the object clause , and also no object clause mentioned in Memorandum , merger is granted. So Object clause to carry out the business do not require!!!!! !!!!!!! There is no meaning of obejct clause in Memoranduma dn Articles of Associaition of Company at all.
See Hon. Rajasthan High Court Decision in the case of Merger Petition , objection was there but ignored by Hon. High Court !!!!!!!!!!!! !!!!!
Please find the attached Memorandum and Articles of Association of Chambal Fertilizers and Chemicals Limited . See the Page number 77 and 78. Worth to be noted.
C A Shah D J
USA
Sun Sep 15, 2013 5:10 pm (PDT) . Posted by:
"CS A Rengarajan" csarengarajan
*Safe- harbournorms to be eased*
VRISHTI BENIWAL
New Delhi, 15 September
The finance ministry is likely to ease safe harbour norms to bring more
taxpayers under its ambit as transfer pricing disputes between the tax
department and multinational companies surge.
Safe harbour prescribes the limit and conditions within which the price of
cross- border transactions with a related company declared by an assessee
is not questioned by tax authorities.
The draft norms, released last month, had said companies earning aturnover
of more than ₹ 100 crore would not be covered by the rules. This ceiling
might now be raised in the final rules to be released this month.
"The limit would be changed because we are trying to include maximum number
of taxpayers under the safe harbour rules," said afinance ministry official
who did not wish to be identified.
Besides, multinational companies in India, transfer pricing disputes have
also been there with Indian companies having subsidiaries abroad. The
income- tax department had sent transfer pricing notices to these companies
for undervaluing transactions with their associates in 2012- 13. These
included Shell, Vodafone, Essar, Bharti Airtel, HSBC Securities & Capital
Markets, Microsoft, Standard Chartered Securities and IBM, among others.
The industry had argued the limit was so low that only a few small players
would benefit from it and many large taxpayers would not be covered. It had
also made a case for lowering the minimum operating margins prescribed for
safe harbour in the draft rules.
The tax department, however, might not provide much relaxation on this
count, as it believes the numbers were derived after looking at some recent
cases where taxpayers themselves had agreed to profit margins of 15 to 17
per cent in relation to their operating expenses and revenues. The industry
feels if these margins are retained, safe harbour rules might not find many
takers.
"The economic situation does not support these kinds of margins. No one is
making that kind of profits in the current environment," said Rahul Garg,
leader- direct tax, PricewaterhouseCoop er.
For instance, for the information technology ( IT) sector, the draft rules
had only said companies having operating margins of 20 per cent or more
would be covered under the safe harbour norms. Those not adopting safe
harbour norms can go for an advance pricing agreement or mutual agreement
procedure.
The margins are in line with the recommendations of the Rangachary
committee on safe harbour rules. For the IT sector, it had recommended a
margin of 20 per cent for the first two years, which is a 33 per cent
increase over the average margin of 15 per cent disclosed in assessment
year 200809. The committee had not prescribed any turnover cap for safe
harbour rules.
The safe harbour rules would apply to information technology, IT- enabled
services, contract research & development in IT and pharmaceutical,
financial transactionsoutboun d loans, financial transactions- corporate
guarantees, and automobile ancillaries- original equipment manufacturers.
"We are finalising the rules and these would be sent to the law ministry
for vetting after getting an approval from the finance minister. It might
be notified this month," said another official.
I- T NOTICES IN 2012- 13
₹ 1, 090 cr
tax to be paid by IBM
₹ 118 cr
tax to be paid by Gillette
₹ 1, 300 cr
to be paid by Vodafone ( adjustment)
₹ 1, 063 cr
tax to be paid by Hindalco ( adjustment)
₹ 5, 135 cr
to be paid by Microsoft (adjustment)
₹ 15, 000 cr
to be paid by Shell (adjustment)
BENCH PRESSN [1] M J ANTONY
A weekly selection of key court orders
Omissions not fatal to bid: SC
The Supreme Court last week set aside the judgment of the Calcutta High
Court in a tender dispute and ruled that disqualification of Rashmi
Metaliks Ltd by the Kolkata Metropolitan Development Authority on the
ground of the company having failed to submit sufficient reason for
disregarding its offer. The authority was, therefore, directed to " proceed
further in the matter on this predication." In this case, one of the
conditions for the bid was that the latest tax return should be filed along
with the application. This was not done by the company. The high court held
that it was an essential condition and hence, the bidder was rightly
disqualified. The appeal of the firm was allowed by the Supreme Court
stating that the condition was not an essential term of the ' notice
inviting tender' and the financial bid of the company was substantially
lower than others'. The Supreme Court examined the income tax returns filed
later and found that for the Assessment Year 2011- 2012, the gross income
of the company was ₹ 15,34,05,627, although, for the succeeding Assessment
Year 2012- 2013, the income tax was nilL, but substantial tax had been
deposited. "We think that the income tax return would have assumed the
character of an essential term if one of the qualifications was either the
gross income or the net income on which tax was attracted. In many cases,
this is a salutary stipulation, since it is indicative of the commercial
standing and reliability of the tendering entity," the judgment said, and
added: " This feature being absent, we think that the filing of the latest
tax return was a collateral term. Accordingly, the tendering authority
ought to have brought this discrepancy to the notice of the company and if
even thereafter no rectification had been carried out, the position may
have been appreciably different.
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Company
cant stop flat mortgage
The right to occupy a flat is a species of right to property and the flat
can be mortgaged to avail of a loan for the flat owner's benefit, the
Supreme Court stated last week while dismissing the appeal of Hill
Properties Ltd against the attachment of a Malabar Hill flat at the
instance of a petition by Union Bank of India before the Debt Recovery
Tribunal. A shareholder of the building company mortgaged the flat, which
was attached under the Securitisation Act. The company challenged it.
Dismissing its appeal, the court stated: " We find that neither the
Companies Act nor any other statute make any provision prohibiting the
transfer of species of interest to third parties or to avail of loan for
the flat owners' benefit. A legal bar on the saleability or transferability
of such a species of interest, in our view, will create chaos and
confusion. The right or interest to occupy any such flat is a species of
property and hence has a stamp of transferability," the court said while
upholding the view of the Bombay High Court. The company had argued that
the occupier had permission only to use the flat owned by it and the rest
of the substantial rights belonged to the company. A shareholder could not
mortgage the flat without the permission of the company which was in
violation of the articles of association of the company, it was argued by
the company. The Supreme Court rejected this line of argument. It said: "
It is too late in the day to contend that flat owners cannot sell, let,
hypothecate or mortgage their flat for availing of loan without permission
of the builder, society or the company. So far as a builder is concerned,
the flat owner should pay the price of the flat. So far as the society or
company in which the flat owner is a member, he is bound by the laws or
articles of association of the company, but the species of his right over
the flat is exclusively that of his. That right is always transferable and
heritable."
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Sugar
mill land take- over proper
The Supreme Court last week set aside the judgment of the Allahabad High
Court, which had ordered the Uttar Pradesh government to return land
earlier owned by Lakshmi Sugar and Oil Mills Ltd to the company. Since
several sugar mills were running losses, the state government had acquired
them after passing the UP Sugar Undertakings ( Acquisition) Act. The State
Sugar Corporation was set up to revive the sick units to protect cane
growers. Lakshmi Mill challenged the take- over of its land stating that
its land in Hardoi was agricultural, and therefore exempted from
acquisition. The high court accepted the argument and asked the government
to return the land to the mill. The government appealed to the Supreme
Court. It held that the land was used for industrial purposes, not
agricultural. This was evident as the land had been treated as industrial
for purposes of the Land Ceiling Act. " It is difficult to see how the same
land could be treated to be held or occupied for cultivation, for the Sugar
Undertakings (Acquisition) Act," the judgment said.
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Blacklisting
of bidder upheld
The Delhi High Court last week upheld the decision of the central
government to blacklist a company in all business dealings with it as its
executives had tried to influence the decision makers in a bid for bullet-
proof jackets." The representative of the firm had no business to engage in
conversation with Sanjay Baniwal, who was an officer involved in the
evaluation process," the high court stated while dismissing the writ
petition of the firm, Anjani Technoplast Ltd vs Union of India. The
judgment noted from the narration of facts that the company representatives
tried " outright flattery" by describing him as an upright and bold officer
who could bring reforms. Then messages were also sent indicating that the
officer was about to be transferred from his post. The judgment stated that
all these certainly amounted to " a malpractice which a tenderer was not
expected to adopt, more so when a decision had been taken that no bidder
would contact any officer concerned with technical evaluation of the
product and the said decision was accepted by all the tenderers without any
reservation."
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Tax
liability on share acquisition
The Bombay High Court held last week that investment made in the shares of
a private limited company for purposes of acquiring control over the
business conducted by it, cannot be said to be stock- in- trade and is
capital asset. In this case, Accra Investment ( P) Ltd, an investment
company, sold shares of Millennium Alcobev Ltd, an unlisted company, to two
of its shareholders, namely, M/ s. Scottish & Newcastle and United
Breviaries Ltd. Accra then claimed benefit of deduction of the entire
capital gains as they were invested in specified bonds. The assessing
officer determined that the amounts earned on sale of shares by the
assessee company would be taxable under the head profit and gains of
business and not under the head capital gains. The income tax tribunal
decided against the company and ruled that the company had purchased the
shares of Millennium Alcobev with the object of trading in them and not to
hold as capital asset. The high court reversed that view and accepted that
of the assessee company.
*'Auditors will have moral challenges'*
Your first reactions to the new Companies Act.
After 50 years, we have a comprehensive legislation governing corporates.
To my mind, there are three aspects of the new Companies Act to draw
attention to. First, the whole idea is to modernise the structure of
corporate governance.
The second is the attempt to simply procedures. The third issue is the
mandatory two per cent CSR (corporate social responsibility) spend.
The first two were long overdue.
The responsibility is now shifting to companies to meet procedural
requirements, and for auditors to vet them. However, I have a big problem
with the third aspect.
Making CSR spend mandatory is a bad idea. The rest of the world is moving
forward towards the concept of a corporate's broad responsibility to the
society. Corporates just can't get away by spending three- five per cent on
the side if the processes by which they do business are damaging the
society or the ecology. There could also be a tendency of politicians
directing that spend.
Will the new Act make it easy to do business in India?
India ranks very poorly when it comes to business regulation. The ministry
(of corporate affairs) now needs to get into a consultation process with
industry while the rules get framed. All the stakeholders need to
participate in framing of the rules.
What, in your view, could the government do to further facilitate the ease
of doing business in the country?
The country — at the Centre and the states — must adopt the practice of
Business Regulatory Impact Analysis (BRIA), which many developed and some
developing countries have adopted. In this process, the requirements of all
stakeholders that could be affected by a regulation are understood.
A systematic evaluation could be done of the impact of any proposed
regulation, or of the existing regulations, too, on the stakeholders to
devise the best regulations that will serve the purposes of society.
In this process, the numbers of regulations are also reduced so that only
the most necessary and effective regulations are retained. In the Act, a
lot of stress has been put on the role of directors in a Board to meet
corporate governance- related concerns. How well placed is this move?
It is inevitable that the roles and responsibilities of directors,
especially independent directors, will get emphasised when companies want
less regulation by the government, and more self- management of their own
conduct.
Someone has to take responsibility that the company is doing the right
things not only towards the shareholders but also the society.
How do you see the role of auditors changing under the new regime?
In the new era, in which companies want more self- regulation, the auditors
will have increasing moral challenges.
They cannot be just endorsers of the numbers the companies provide them.
They will have to comment on whether the numbers provide sufficient
information to confirm that the board and the company are doing the right
things, too.
In a way, the dilemma faced by the CAG ( thr Comptroller and Auditor
General) —about mere audit of numbers or also comments on intent — will
have to be increasinkgly faced by independent corporate auditors too.
In the new Companies Act regime — with more stress on selfregulation by
companies — corporate auditors may face CAG- like dilemma, says ARUN MAIRA,
member, Planning Commission of India. In an interaction with Sudipto Dey,
the former India chairman of The Boston Consulting Group builds a case for
reducing the number of regulations governing businesses — keeping only the
necessary and effective ones. Edited excerpts:
India must adopt the practice of Business Regulatory Impact Analysis which
many other countries have adopted
*Newland acquisition regime: Govt has to balance changes*
Investor protection laws are imperative for the economic growth of a nation
and most investment activity requires access and ownership to land. As the
availability of land is scarce, an equitable and fair regulatory framework
is essential to ensure that land owners are not adversely affected. It is
equally important that the process of acquisition is prompt, fair and free
from road blocks and delays so that the acquirer does not face situations,
such as the Tatas did in West Bengal.
Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing
interests, but on including certain changes demanded by the Opposition was
passed by both the Houses recently. Having achieved the passage, however,
there are some glitches.
Historically, land acquisition laws in India have been in effect since 1824
and till date the 1894 Land Acquisition Act, the existing law which was a
Colonial law by purpose and nature and focused on acquisition of rural
segments has been applicable. Given the changing nature in the demand of
land, acquisitions for urban infrastructure such as construction of metro
rail projects, have not been addressed in this Act, the orientation is
essentially rural. The treatment for disparate segments is a lacuna which
can create problems in going ahead.
Ideally, there should have been two separate laws or the two aspects should
have been addressed in separate chapters.
The " public purpose" definition seeks to be inclusive but reads in a
somewhat inchoate manner nonetheless. The availability of rural land in
India is one of the lowest in the world. Therefore, both acquisition and
displacement have to be treated as being two sides of the same coin. The
rehabilitation of displaced persons is not provided for in the existing law
and the legislature in the new Act, in any event, in seeking to address
this issue has taken a right step.
On the other hand, by raising the compensation to twice the market price in
urban and four times in rural areas, and requiring that 25 per cent
infrastructural facilities are to be provided in the areas that require
resettlement, while it is a factor necessitated by the past agitations and
Court orders, but has increased the cost to the acquirer excessively.
Further, stakeholders other than the owners have to be compensated. This
again leads to increase in compensation amount and provides opportunities
to people without proper title to lay claims on the acquirer. And in spite
of paying these high costs, the acquirer has no security in the land
acquired.
One of the reasons why the old Act was criticised is that the land or part
thereof remained unutilised for long periods. To counter this, a provision
for return of the land has been envisaged, as well as acquirer refunding
one fourth of the compensation amount to the erstwhile owners if the land
is sold. Again this is unfair as the earlier owner should not have any
surviving interest in the land being duly compensated. The processes
envisaged of the governmental actions and approvals are neither fast- track
nor single window, there being five stages that every proposal has to
undergo, and no timelines are provided. Given this and the inherent delays
in government action, the date of utilisation should be calculated from the
date on which all approvals for the purpose are obtained rather than from
the date of acquisition.
What is critical, therefore, is the role of the government, which has to be
fair and objective, particularly as the Act takes into account
rehabilitation and resettlement, an area fraught with palpable tension.
Having said all the above, the new Act is certainly an improvement on the
existing one and will hopefully create more transparency in the acquisition
process for the acquirer in going forward and once the preliminary
formalities are closed.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be
reached at kumkum. sen@ bharucha. in
The processes envisaged of the governmental actions and approvals are
neither fast- track nor single window
The government's role has to be fair and objective as the Act takes into
account rehabilitation and resettlement, an area fraught with palpable
tension
LEGAL EYE
KUMKUM SEN
*Newland acquisition regime: Govt has to balance changes*
Investor protection laws are imperative for the economic growth of a nation
and most investment activity requires access and ownership to land. As the
availability of land is scarce, an equitable and fair regulatory framework
is essential to ensure that land owners are not adversely affected. It is
equally important that the process of acquisition is prompt, fair and free
from road blocks and delays so that the acquirer does not face situations,
such as the Tatas did in West Bengal.
Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing
interests, but on including certain changes demanded by the Opposition was
passed by both the Houses recently. Having achieved the passage, however,
there are some glitches.
Historically, land acquisition laws in India have been in effect since 1824
and till date the 1894 Land Acquisition Act, the existing law which was a
Colonial law by purpose and nature and focused on acquisition of rural
segments has been applicable. Given the changing nature in the demand of
land, acquisitions for urban infrastructure such as construction of metro
rail projects, have not been addressed in this Act, the orientation is
essentially rural. The treatment for disparate segments is a lacuna which
can create problems in going ahead.
Ideally, there should have been two separate laws or the two aspects should
have been addressed in separate chapters.
The " public purpose" definition seeks to be inclusive but reads in a
somewhat inchoate manner nonetheless. The availability of rural land in
India is one of the lowest in the world. Therefore, both acquisition and
displacement have to be treated as being two sides of the same coin. The
rehabilitation of displaced persons is not provided for in the existing law
and the legislature in the new Act, in any event, in seeking to address
this issue has taken a right step.
On the other hand, by raising the compensation to twice the market price in
urban and four times in rural areas, and requiring that 25 per cent
infrastructural facilities are to be provided in the areas that require
resettlement, while it is a factor necessitated by the past agitations and
Court orders, but has increased the cost to the acquirer excessively.
Further, stakeholders other than the owners have to be compensated. This
again leads to increase in compensation amount and provides opportunities
to people without proper title to lay claims on the acquirer. And in spite
of paying these high costs, the acquirer has no security in the land
acquired.
One of the reasons why the old Act was criticised is that the land or part
thereof remained unutilised for long periods. To counter this, a provision
for return of the land has been envisaged, as well as acquirer refunding
one fourth of the compensation amount to the erstwhile owners if the land
is sold. Again this is unfair as the earlier owner should not have any
surviving interest in the land being duly compensated. The processes
envisaged of the governmental actions and approvals are neither fast- track
nor single window, there being five stages that every proposal has to
undergo, and no timelines are provided. Given this and the inherent delays
in government action, the date of utilisation should be calculated from the
date on which all approvals for the purpose are obtained rather than from
the date of acquisition.
What is critical, therefore, is the role of the government, which has to be
fair and objective, particularly as the Act takes into account
rehabilitation and resettlement, an area fraught with palpable tension.
Having said all the above, the new Act is certainly an improvement on the
existing one and will hopefully create more transparency in the acquisition
process for the acquirer in going forward and once the preliminary
formalities are closed.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be
reached at kumkum. sen@ bharucha. in
The processes envisaged of the governmental actions and approvals are
neither fast- track nor single window
The government's role has to be fair and objective as the Act takes into
account rehabilitation and resettlement, an area fraught with palpable
tension
--
**
CS A Rengarajan
9381011200
CS Benevolent Fund is a collective effort towards extending the much needed
financial support to the community of Company Secretaries in times of
distress Let us lend support and join for noble cause.
SHARING KNOWLEDGE SKY IS THE LIMIT
This mail and its attachments (if any) are confidential information
intended for persons to whom the email is planned for delivery by the
sender. If you have received this mail in error please notify the sender of
the error by forwarding the email and its attachments (if any) and then
deleting the mail received in error and the relevant email trail in this
connection without making any copies or taking any prints.
VRISHTI BENIWAL
New Delhi, 15 September
The finance ministry is likely to ease safe harbour norms to bring more
taxpayers under its ambit as transfer pricing disputes between the tax
department and multinational companies surge.
Safe harbour prescribes the limit and conditions within which the price of
cross- border transactions with a related company declared by an assessee
is not questioned by tax authorities.
The draft norms, released last month, had said companies earning aturnover
of more than ₹ 100 crore would not be covered by the rules. This ceiling
might now be raised in the final rules to be released this month.
"The limit would be changed because we are trying to include maximum number
of taxpayers under the safe harbour rules," said afinance ministry official
who did not wish to be identified.
Besides, multinational companies in India, transfer pricing disputes have
also been there with Indian companies having subsidiaries abroad. The
income- tax department had sent transfer pricing notices to these companies
for undervaluing transactions with their associates in 2012- 13. These
included Shell, Vodafone, Essar, Bharti Airtel, HSBC Securities & Capital
Markets, Microsoft, Standard Chartered Securities and IBM, among others.
The industry had argued the limit was so low that only a few small players
would benefit from it and many large taxpayers would not be covered. It had
also made a case for lowering the minimum operating margins prescribed for
safe harbour in the draft rules.
The tax department, however, might not provide much relaxation on this
count, as it believes the numbers were derived after looking at some recent
cases where taxpayers themselves had agreed to profit margins of 15 to 17
per cent in relation to their operating expenses and revenues. The industry
feels if these margins are retained, safe harbour rules might not find many
takers.
"The economic situation does not support these kinds of margins. No one is
making that kind of profits in the current environment," said Rahul Garg,
leader- direct tax, PricewaterhouseCoop er.
For instance, for the information technology ( IT) sector, the draft rules
had only said companies having operating margins of 20 per cent or more
would be covered under the safe harbour norms. Those not adopting safe
harbour norms can go for an advance pricing agreement or mutual agreement
procedure.
The margins are in line with the recommendations of the Rangachary
committee on safe harbour rules. For the IT sector, it had recommended a
margin of 20 per cent for the first two years, which is a 33 per cent
increase over the average margin of 15 per cent disclosed in assessment
year 200809. The committee had not prescribed any turnover cap for safe
harbour rules.
The safe harbour rules would apply to information technology, IT- enabled
services, contract research & development in IT and pharmaceutical,
financial transactionsoutboun d loans, financial transactions- corporate
guarantees, and automobile ancillaries- original equipment manufacturers.
"We are finalising the rules and these would be sent to the law ministry
for vetting after getting an approval from the finance minister. It might
be notified this month," said another official.
I- T NOTICES IN 2012- 13
₹ 1, 090 cr
tax to be paid by IBM
₹ 118 cr
tax to be paid by Gillette
₹ 1, 300 cr
to be paid by Vodafone ( adjustment)
₹ 1, 063 cr
tax to be paid by Hindalco ( adjustment)
₹ 5, 135 cr
to be paid by Microsoft (adjustment)
₹ 15, 000 cr
to be paid by Shell (adjustment)
BENCH PRESSN [1] M J ANTONY
A weekly selection of key court orders
Omissions not fatal to bid: SC
The Supreme Court last week set aside the judgment of the Calcutta High
Court in a tender dispute and ruled that disqualification of Rashmi
Metaliks Ltd by the Kolkata Metropolitan Development Authority on the
ground of the company having failed to submit sufficient reason for
disregarding its offer. The authority was, therefore, directed to " proceed
further in the matter on this predication." In this case, one of the
conditions for the bid was that the latest tax return should be filed along
with the application. This was not done by the company. The high court held
that it was an essential condition and hence, the bidder was rightly
disqualified. The appeal of the firm was allowed by the Supreme Court
stating that the condition was not an essential term of the ' notice
inviting tender' and the financial bid of the company was substantially
lower than others'. The Supreme Court examined the income tax returns filed
later and found that for the Assessment Year 2011- 2012, the gross income
of the company was ₹ 15,34,05,627, although, for the succeeding Assessment
Year 2012- 2013, the income tax was nilL, but substantial tax had been
deposited. "We think that the income tax return would have assumed the
character of an essential term if one of the qualifications was either the
gross income or the net income on which tax was attracted. In many cases,
this is a salutary stipulation, since it is indicative of the commercial
standing and reliability of the tendering entity," the judgment said, and
added: " This feature being absent, we think that the filing of the latest
tax return was a collateral term. Accordingly, the tendering authority
ought to have brought this discrepancy to the notice of the company and if
even thereafter no rectification had been carried out, the position may
have been appreciably different.
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Company
cant stop flat mortgage
The right to occupy a flat is a species of right to property and the flat
can be mortgaged to avail of a loan for the flat owner's benefit, the
Supreme Court stated last week while dismissing the appeal of Hill
Properties Ltd against the attachment of a Malabar Hill flat at the
instance of a petition by Union Bank of India before the Debt Recovery
Tribunal. A shareholder of the building company mortgaged the flat, which
was attached under the Securitisation Act. The company challenged it.
Dismissing its appeal, the court stated: " We find that neither the
Companies Act nor any other statute make any provision prohibiting the
transfer of species of interest to third parties or to avail of loan for
the flat owners' benefit. A legal bar on the saleability or transferability
of such a species of interest, in our view, will create chaos and
confusion. The right or interest to occupy any such flat is a species of
property and hence has a stamp of transferability," the court said while
upholding the view of the Bombay High Court. The company had argued that
the occupier had permission only to use the flat owned by it and the rest
of the substantial rights belonged to the company. A shareholder could not
mortgage the flat without the permission of the company which was in
violation of the articles of association of the company, it was argued by
the company. The Supreme Court rejected this line of argument. It said: "
It is too late in the day to contend that flat owners cannot sell, let,
hypothecate or mortgage their flat for availing of loan without permission
of the builder, society or the company. So far as a builder is concerned,
the flat owner should pay the price of the flat. So far as the society or
company in which the flat owner is a member, he is bound by the laws or
articles of association of the company, but the species of his right over
the flat is exclusively that of his. That right is always transferable and
heritable."
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Sugar
mill land take- over proper
The Supreme Court last week set aside the judgment of the Allahabad High
Court, which had ordered the Uttar Pradesh government to return land
earlier owned by Lakshmi Sugar and Oil Mills Ltd to the company. Since
several sugar mills were running losses, the state government had acquired
them after passing the UP Sugar Undertakings ( Acquisition) Act. The State
Sugar Corporation was set up to revive the sick units to protect cane
growers. Lakshmi Mill challenged the take- over of its land stating that
its land in Hardoi was agricultural, and therefore exempted from
acquisition. The high court accepted the argument and asked the government
to return the land to the mill. The government appealed to the Supreme
Court. It held that the land was used for industrial purposes, not
agricultural. This was evident as the land had been treated as industrial
for purposes of the Land Ceiling Act. " It is difficult to see how the same
land could be treated to be held or occupied for cultivation, for the Sugar
Undertakings (Acquisition) Act," the judgment said.
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Blacklisting
of bidder upheld
The Delhi High Court last week upheld the decision of the central
government to blacklist a company in all business dealings with it as its
executives had tried to influence the decision makers in a bid for bullet-
proof jackets." The representative of the firm had no business to engage in
conversation with Sanjay Baniwal, who was an officer involved in the
evaluation process," the high court stated while dismissing the writ
petition of the firm, Anjani Technoplast Ltd vs Union of India. The
judgment noted from the narration of facts that the company representatives
tried " outright flattery" by describing him as an upright and bold officer
who could bring reforms. Then messages were also sent indicating that the
officer was about to be transferred from his post. The judgment stated that
all these certainly amounted to " a malpractice which a tenderer was not
expected to adopt, more so when a decision had been taken that no bidder
would contact any officer concerned with technical evaluation of the
product and the said decision was accepted by all the tenderers without any
reservation."
>>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Tax
liability on share acquisition
The Bombay High Court held last week that investment made in the shares of
a private limited company for purposes of acquiring control over the
business conducted by it, cannot be said to be stock- in- trade and is
capital asset. In this case, Accra Investment ( P) Ltd, an investment
company, sold shares of Millennium Alcobev Ltd, an unlisted company, to two
of its shareholders, namely, M/ s. Scottish & Newcastle and United
Breviaries Ltd. Accra then claimed benefit of deduction of the entire
capital gains as they were invested in specified bonds. The assessing
officer determined that the amounts earned on sale of shares by the
assessee company would be taxable under the head profit and gains of
business and not under the head capital gains. The income tax tribunal
decided against the company and ruled that the company had purchased the
shares of Millennium Alcobev with the object of trading in them and not to
hold as capital asset. The high court reversed that view and accepted that
of the assessee company.
*'Auditors will have moral challenges'*
Your first reactions to the new Companies Act.
After 50 years, we have a comprehensive legislation governing corporates.
To my mind, there are three aspects of the new Companies Act to draw
attention to. First, the whole idea is to modernise the structure of
corporate governance.
The second is the attempt to simply procedures. The third issue is the
mandatory two per cent CSR (corporate social responsibility) spend.
The first two were long overdue.
The responsibility is now shifting to companies to meet procedural
requirements, and for auditors to vet them. However, I have a big problem
with the third aspect.
Making CSR spend mandatory is a bad idea. The rest of the world is moving
forward towards the concept of a corporate's broad responsibility to the
society. Corporates just can't get away by spending three- five per cent on
the side if the processes by which they do business are damaging the
society or the ecology. There could also be a tendency of politicians
directing that spend.
Will the new Act make it easy to do business in India?
India ranks very poorly when it comes to business regulation. The ministry
(of corporate affairs) now needs to get into a consultation process with
industry while the rules get framed. All the stakeholders need to
participate in framing of the rules.
What, in your view, could the government do to further facilitate the ease
of doing business in the country?
The country — at the Centre and the states — must adopt the practice of
Business Regulatory Impact Analysis (BRIA), which many developed and some
developing countries have adopted. In this process, the requirements of all
stakeholders that could be affected by a regulation are understood.
A systematic evaluation could be done of the impact of any proposed
regulation, or of the existing regulations, too, on the stakeholders to
devise the best regulations that will serve the purposes of society.
In this process, the numbers of regulations are also reduced so that only
the most necessary and effective regulations are retained. In the Act, a
lot of stress has been put on the role of directors in a Board to meet
corporate governance- related concerns. How well placed is this move?
It is inevitable that the roles and responsibilities of directors,
especially independent directors, will get emphasised when companies want
less regulation by the government, and more self- management of their own
conduct.
Someone has to take responsibility that the company is doing the right
things not only towards the shareholders but also the society.
How do you see the role of auditors changing under the new regime?
In the new era, in which companies want more self- regulation, the auditors
will have increasing moral challenges.
They cannot be just endorsers of the numbers the companies provide them.
They will have to comment on whether the numbers provide sufficient
information to confirm that the board and the company are doing the right
things, too.
In a way, the dilemma faced by the CAG ( thr Comptroller and Auditor
General) —about mere audit of numbers or also comments on intent — will
have to be increasinkgly faced by independent corporate auditors too.
In the new Companies Act regime — with more stress on selfregulation by
companies — corporate auditors may face CAG- like dilemma, says ARUN MAIRA,
member, Planning Commission of India. In an interaction with Sudipto Dey,
the former India chairman of The Boston Consulting Group builds a case for
reducing the number of regulations governing businesses — keeping only the
necessary and effective ones. Edited excerpts:
India must adopt the practice of Business Regulatory Impact Analysis which
many other countries have adopted
*Newland acquisition regime: Govt has to balance changes*
Investor protection laws are imperative for the economic growth of a nation
and most investment activity requires access and ownership to land. As the
availability of land is scarce, an equitable and fair regulatory framework
is essential to ensure that land owners are not adversely affected. It is
equally important that the process of acquisition is prompt, fair and free
from road blocks and delays so that the acquirer does not face situations,
such as the Tatas did in West Bengal.
Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing
interests, but on including certain changes demanded by the Opposition was
passed by both the Houses recently. Having achieved the passage, however,
there are some glitches.
Historically, land acquisition laws in India have been in effect since 1824
and till date the 1894 Land Acquisition Act, the existing law which was a
Colonial law by purpose and nature and focused on acquisition of rural
segments has been applicable. Given the changing nature in the demand of
land, acquisitions for urban infrastructure such as construction of metro
rail projects, have not been addressed in this Act, the orientation is
essentially rural. The treatment for disparate segments is a lacuna which
can create problems in going ahead.
Ideally, there should have been two separate laws or the two aspects should
have been addressed in separate chapters.
The " public purpose" definition seeks to be inclusive but reads in a
somewhat inchoate manner nonetheless. The availability of rural land in
India is one of the lowest in the world. Therefore, both acquisition and
displacement have to be treated as being two sides of the same coin. The
rehabilitation of displaced persons is not provided for in the existing law
and the legislature in the new Act, in any event, in seeking to address
this issue has taken a right step.
On the other hand, by raising the compensation to twice the market price in
urban and four times in rural areas, and requiring that 25 per cent
infrastructural facilities are to be provided in the areas that require
resettlement, while it is a factor necessitated by the past agitations and
Court orders, but has increased the cost to the acquirer excessively.
Further, stakeholders other than the owners have to be compensated. This
again leads to increase in compensation amount and provides opportunities
to people without proper title to lay claims on the acquirer. And in spite
of paying these high costs, the acquirer has no security in the land
acquired.
One of the reasons why the old Act was criticised is that the land or part
thereof remained unutilised for long periods. To counter this, a provision
for return of the land has been envisaged, as well as acquirer refunding
one fourth of the compensation amount to the erstwhile owners if the land
is sold. Again this is unfair as the earlier owner should not have any
surviving interest in the land being duly compensated. The processes
envisaged of the governmental actions and approvals are neither fast- track
nor single window, there being five stages that every proposal has to
undergo, and no timelines are provided. Given this and the inherent delays
in government action, the date of utilisation should be calculated from the
date on which all approvals for the purpose are obtained rather than from
the date of acquisition.
What is critical, therefore, is the role of the government, which has to be
fair and objective, particularly as the Act takes into account
rehabilitation and resettlement, an area fraught with palpable tension.
Having said all the above, the new Act is certainly an improvement on the
existing one and will hopefully create more transparency in the acquisition
process for the acquirer in going forward and once the preliminary
formalities are closed.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be
reached at kumkum. sen@ bharucha. in
The processes envisaged of the governmental actions and approvals are
neither fast- track nor single window
The government's role has to be fair and objective as the Act takes into
account rehabilitation and resettlement, an area fraught with palpable
tension
LEGAL EYE
KUMKUM SEN
*Newland acquisition regime: Govt has to balance changes*
Investor protection laws are imperative for the economic growth of a nation
and most investment activity requires access and ownership to land. As the
availability of land is scarce, an equitable and fair regulatory framework
is essential to ensure that land owners are not adversely affected. It is
equally important that the process of acquisition is prompt, fair and free
from road blocks and delays so that the acquirer does not face situations,
such as the Tatas did in West Bengal.
Expectedly, the Bill had a stormy passage in the Lok Sabha, in balancing
interests, but on including certain changes demanded by the Opposition was
passed by both the Houses recently. Having achieved the passage, however,
there are some glitches.
Historically, land acquisition laws in India have been in effect since 1824
and till date the 1894 Land Acquisition Act, the existing law which was a
Colonial law by purpose and nature and focused on acquisition of rural
segments has been applicable. Given the changing nature in the demand of
land, acquisitions for urban infrastructure such as construction of metro
rail projects, have not been addressed in this Act, the orientation is
essentially rural. The treatment for disparate segments is a lacuna which
can create problems in going ahead.
Ideally, there should have been two separate laws or the two aspects should
have been addressed in separate chapters.
The " public purpose" definition seeks to be inclusive but reads in a
somewhat inchoate manner nonetheless. The availability of rural land in
India is one of the lowest in the world. Therefore, both acquisition and
displacement have to be treated as being two sides of the same coin. The
rehabilitation of displaced persons is not provided for in the existing law
and the legislature in the new Act, in any event, in seeking to address
this issue has taken a right step.
On the other hand, by raising the compensation to twice the market price in
urban and four times in rural areas, and requiring that 25 per cent
infrastructural facilities are to be provided in the areas that require
resettlement, while it is a factor necessitated by the past agitations and
Court orders, but has increased the cost to the acquirer excessively.
Further, stakeholders other than the owners have to be compensated. This
again leads to increase in compensation amount and provides opportunities
to people without proper title to lay claims on the acquirer. And in spite
of paying these high costs, the acquirer has no security in the land
acquired.
One of the reasons why the old Act was criticised is that the land or part
thereof remained unutilised for long periods. To counter this, a provision
for return of the land has been envisaged, as well as acquirer refunding
one fourth of the compensation amount to the erstwhile owners if the land
is sold. Again this is unfair as the earlier owner should not have any
surviving interest in the land being duly compensated. The processes
envisaged of the governmental actions and approvals are neither fast- track
nor single window, there being five stages that every proposal has to
undergo, and no timelines are provided. Given this and the inherent delays
in government action, the date of utilisation should be calculated from the
date on which all approvals for the purpose are obtained rather than from
the date of acquisition.
What is critical, therefore, is the role of the government, which has to be
fair and objective, particularly as the Act takes into account
rehabilitation and resettlement, an area fraught with palpable tension.
Having said all the above, the new Act is certainly an improvement on the
existing one and will hopefully create more transparency in the acquisition
process for the acquirer in going forward and once the preliminary
formalities are closed.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be
reached at kumkum. sen@ bharucha. in
The processes envisaged of the governmental actions and approvals are
neither fast- track nor single window
The government's role has to be fair and objective as the Act takes into
account rehabilitation and resettlement, an area fraught with palpable
tension
--
**
CS A Rengarajan
9381011200
CS Benevolent Fund is a collective effort towards extending the much needed
financial support to the community of Company Secretaries in times of
distress Let us lend support and join for noble cause.
SHARING KNOWLEDGE SKY IS THE LIMIT
This mail and its attachments (if any) are confidential information
intended for persons to whom the email is planned for delivery by the
sender. If you have received this mail in error please notify the sender of
the error by forwarding the email and its attachments (if any) and then
deleting the mail received in error and the relevant email trail in this
connection without making any copies or taking any prints.
Sun Sep 15, 2013 7:51 pm (PDT) . Posted by:
"atul mehta" atulmehta2005
One of our clients have approached us to carry out Audit of their books u/s. 44AB of the Act which was earlier audited by some other chartered accountant. The said chartered accountant expired last week of August 2013. The CA was practising as Proprietary concern and there is no one else looking after his practice after his death.
Now the query is in order to carry out the audit, whether we are require to obtain NOC and if yes, from whom? Or we can go ahead and do the audit without NOC as the Previous auditor is not alive.
With warm regards
CA Atul Mehta
99878 33660
Sun Sep 15, 2013 7:55 pm (PDT) . Posted by:
"Dipak Shah" cadjshah
As far as code of ethics is concerned , one has to give intimation to previous Auditor first.
To confirm by Postal Return intimation of Registered Letter sent to C A would give you a proof in death or no reciprocal no objection letter from him. This will end the process correctly.
C A Shah D J
USA
____________ _________ _________ __
From: atul mehta <atulmehta9@hotmail. com>
To: aaykarbhavan@ yahoogroups. com
Sent: Sunday, 15 September 2013 9:38 PM
Subject: [aaykarbhavan] NOC from Previous Auditor
One of our clients have approached us to carry out Audit of their books u/s. 44AB of the Act which was earlier audited by some other chartered accountant. The said chartered accountant expired last week of August 2013. The CA was practising as Proprietary concern and there is no one else looking after his practice after his death.
Now the query is in order to carry out the audit, whether we are require to obtain NOC and if yes, from whom? Or we can go ahead and do the audit without NOC as the Previous auditor is not alive.
With warm regards
CA Atul Mehta
99878 33660
To confirm by Postal Return intimation of Registered Letter sent to C A would give you a proof in death or no reciprocal no objection letter from him. This will end the process correctly.
C A Shah D J
USA
____________ _________ _________ __
From: atul mehta <atulmehta9@hotmail. com>
To: aaykarbhavan@ yahoogroups. com
Sent: Sunday, 15 September 2013 9:38 PM
Subject: [aaykarbhavan] NOC from Previous Auditor
One of our clients have approached us to carry out Audit of their books u/s. 44AB of the Act which was earlier audited by some other chartered accountant. The said chartered accountant expired last week of August 2013. The CA was practising as Proprietary concern and there is no one else looking after his practice after his death.
Now the query is in order to carry out the audit, whether we are require to obtain NOC and if yes, from whom? Or we can go ahead and do the audit without NOC as the Previous auditor is not alive.
With warm regards
CA Atul Mehta
99878 33660
Sun Sep 15, 2013 8:19 pm (PDT) . Posted by:
"Dipak Shah" cadjshah
Service Tax - GTA - How to prove CENVAT Credit was not taken?
THE following is an extract fromDDT 1893 - 04 07 2012
ONE of the most litigated services was the service of goods transport
agency in relation to transport of goods. The tax was and is required to be paid in most cases by the service recipient. There is and was an
abatement of 75%. But things are not that simple.
There was a condition that the abatement is subject to the condition that no
CENVAT Credit was taken. There was a lot of litigation on who should not take the credit - the GTA or the service recipient who pays the tax?
Finally, by Notification No. 13/2008, Government had granted an
unconditional abatement for GTA.
Now under the negative regime, it is back with the condition that CENVAT credit on inputs, capital goods and input services, used for providing
the taxable service, has not been taken under the provisions of the
CENVAT Credit Rules, 2004. (See Notification No. 26/2012-ST dated 20.06.2012)
Now, what are the inputs, capital goods and input services on which a
transporter can take credit, especially when he pays no Service Tax at
all? Trucks, Diesel, Tyres, phones?
But how does a recipient prove that the provider had not availed CENVAT
credit? In the earlier regime, it was instructed that the recipient
should take a declaration from the GTA that he has not availed CENVAT
Credit. Maybe we should get back to that system again.
Whenever you pay Service Tax on goods transport, be sure to take a certificate
from the truck operator that he has not availed CENVAT Credit -
otherwise you will be asked to pay Service Tax on the total freight
instead of on 25% of the value.
Is this intentional or a copy and paste mistake? If it is the latter,
Board should not stand on false prestige and delete this unwanted
condition which is bound to produce litigation in abundance. The past
litigation on this issue should be an education guide to the Board.
Further to add a little confusion, as per Notification No. 30/2012- S.T dated
20.06.2012, (Sl. No.2 of the Table), Percentage of Service Tax payable
by the person receiving the service, in case of services by a GTA in
respect of transportation of goods by road, is 100% . Already a few
Departmental officers asked DDT whether abatement was not available and 100% tax had to be paid by the recipient. This is exactly the confusion that the DGST created in 2005 by issuing a circular that 25% tax is only
applicable if the GTA pays the tax and not when the consignee or
consignor pays it. That issue snowballed into a major crisis with
hundreds of Show Cause Notices and Audit objections flying around and
consultants made tons of money! (Please see DDT 571 - 13 03 2007)
Now, we are informed that litigation has started exactly as we predicted. An Audit Objection was raised in a Commissionerate - "Short payment of service tax under noti.26/2012- ST". Audit says that in the absence of proof of non-availment of credit, the recipient has to pay 100 percent tax and not 25 percent and in any
case, by virtue of Notification No. 30/2012, the recipient is required
to pay 100 percent. Board should step in before this spreads like a wild fire across the country
and consultants are showered with hundreds of cases. Maybe they should
issue another notification identical to 13/2008-ST.
Notional Interest & Deemed Dividend Addition for Debit Balance of Partners in Partnership Firm
Posted In Income Tax Case Laws | Judiciary | No Comments »
Issue 1- Whether mere debit balance in partner's capital A/c leads to addition on notional basis?
Facts - The facts of the case are that the assessee is a partnership firm and
the Assessing Officer noticed that the debit balance in the partners'
account was more than the credit balance. He, therefore, charged the
interest on the net debit balance of partners at the rate of 12% and
accordingly made the addition of 20,61,845/-
Held - It is clear from the assessment order and record that the AO has
charged notional interest and has added the same as income in assessee's hand. I am afraid; this view oftaxing income on notional basis can not
be sustained in the eyes of law.
It
would have been different matter altogether, had the firm been obtaining interest bearing loan and paying interest on the same chargeable to
profit & loss a/c. In the present case, the appellant has not taken
any loan and consequently, has not paid any interest either. Therefore,
there is no question of any disallowances, fully or partly, out of
interest debited to P & L A/c either!
Even
in respect of partnership arrangement, there is no clause in the
Partnership Deed which requires the firm to charge interest on debit
balances in the partner's account, nor there is any provision for
payment of any interest to the partners on their capital. Thus, the
entire basis of addition, as made by the AO, is merely hypothetical and
notional, which can not be upheld. Addition of Rs. 20,61,845/- is
therefore deleted.
Issue 2 :- Applicability of Section 2(22)(e) to Overdrawn amount from Partnership firm
Held :- Revenue has claimed that the overdrawn amount should be treated as
deemed dividend under Section 2(22)(e). That the question of deemed
dividend can arise in the case of a company and not in the case of the
partnership firm. The assessee is a partnership firm. In view of the
above, we do not find any merit in the Revenue's a The same is
dismissed.
INCOME TAX APPELLATE TRIBUNAL, DELHI
BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND
SHRI A.D.JAIN, JUDICIAL MEMBER
Deputy Commissioner of Income Tax
Vs.
M//s Ashok Kumar Amit Kumar & Shipra Estates (P) Ltd.
ITA No.3247/Del/ 2012 – Assessment 2007 -08
Date of Pronouncement – 27th August, 2013
ORDER
PER G.D.AGRAWAL, VP:
This appeal by the Revenue is directed against the order of learned CIT(A), Ghaziabad dated 30th April, 2012 for the AY 2007-08.
2. The Revenue has raised the following grounds:-
"1. That the ld.CIT(A) has erredin law and on facts ofthe case, by not
appreciating the application of section 28 of the I.T.Act 1961 as per
which the value of any benefit or perquisite, whether convertible into
money or not arising from the business or exercise of a profession is
chargeable under the head profit and gain from business or profession.
In the present case the firm has given interest free loan to the
respective partners leaving their capital balance in negative, thereby
diverting the funds of the firms or utilizing the same in their hands.
2. That ld.CIT(A) erred in law and on the facts of the case by failing to appreciate that the partners have
over-drawn funds from the firm which is equivalent to the deemed
dividend under section 2(22)(e) ofthe ITAct, 1961 as these payments are
also paid to partners by way of advance or loans by the firm on behalf
or for the individual benefit of the partners of the firm or the
individual. As such, like deemed, notional interest is also chargeable
in the given case.
3. Therefore, the order of the ld.CIT(A) be cancelled or set aside and the order ofthe AO may be restored.
4. The appellant craves leave to modify/amend or add any one or more grounds of appeal."
3. The facts of the case are that the
assessee is a partnership firm and the Assessing Officer noticed that
the debit balance in the partners' account was more than the credit
balance. He, therefore, charged the interest on the net debit balance of partners at the rate of 12% and accordingly made the addition of
20,61,845/-. On appeal, learned CIT(A) deleted the same with the
following finding:-
"4.1 It is clear from the assessment
order and record that the AO has charged notional interest and has added the same as income in assessee's hand. I am afraid; this view oftaxing
income on notional basis can not be sustained in the eyes of law.
It would have been different matter
altogether, had the firm been obtaining interest bearing loan and paying interest on the same chargeable to profit & loss a/c. In the
present case, the appellant has not taken any loan and consequently, has not paid any interest either. Therefore, there is no question of any
disallowances, fully or partly, out of interest debited to P & L A/c either!
4.2 Even in respect of partnership
arrangement, there is no clause in the Partnership Deed which requires
the firm to charge interest on debit balances in the partner's account,
nor there is any provision for payment of any interest to the partners
on their capital.
4.3 Thus, the entire basis of
addition, as made by the AO, is merely hypothetical and notional, which
can not be upheld. Addition of Rs. 20,61,845/- is therefore deleted."
4.
After considering the arguments of learned DR and perusing the material
placed before us, we do not find any infirmity in the above finding of
learned CIT(A). That in the Income-tax Act, 1961, there is no provision
of taxing any income on notional basis. Admittedly, no interest is
charged on the debit balance of the partners and in the partnership deed also, there is no provision for charging of such interest. Therefore,
charging of interest by the Assessing Officer on the debit balance of
the partners was only taxing of notional income. Learned CIT(A) also
recorded the finding that in this case, there is no claim of interest
payment by the assessee and, therefore, it can also not be said that
there was diversion of interest bearing funds. This finding recorded by
the learned CIT(A) has not been controverted before us. In the grounds
of appeal, the Revenue has referred to Section 28 and claimed that the
benefit or perquisite whether convertible into money or not arising from business or profession is chargeable as business income. However, in
our opinion, on the facts of the assessee's case, there is no benefit or perquisite. It is simply a debit balance in the accounts of the
partners. Similarly, vide ground No.2, the Revenue has claimed that the
overdrawn amount should be treated as deemed dividend under Section
2(22)(e). That the question of deemed dividend can arise in the case of a company and not in the case of the partnership firm. The assessee is a
partnership firm. In view of the above, we do not find any merit in the
Revenue's a The same is dismissed.
5. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 27th August, 2013.
Service Tax - Valuation - value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction
service, would be outside the taxable value or the gross amount charged
2013-TIOL-1331- CESTAT-DEL- LB
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST BLOCK NO.2, R K PURAM, NEW DELHI
COURT-I
Sl. No Service Tax Appeal No. Appellant Respondent Arising out of Order in original / Order in appeal No. & date passed by
1 247/2008 M/s BHAYANA BUILDERS (P) LTD CST, DELHI O-I-O No.09/VKG/CST/ 2008 dt. 17.01.2008 passed by the Commissioner of Service Tax, New Delhi.
2. 52/2008 M/s Krishna Construction Co. Pvt. Ltd. CST, Delhi O-I-O No.43/VKG/CST/ 2007 dt. 25.10.2007 passed by the Commissioner of Service Tax, New Delhi.
3 53/2008 M/s Unibild Engg. & Construction Co. Pvt. Ltd. CST, Delhi O-I-O. No.47/VKG/ CST/ 2007 dt.30.10.2007 passed by the Commissioner of Service Tax, New Delhi.
4 65/2008 CST, Delhi M/s Unibild Engg. & Construction Co. Pvt. Ltd. O-I-O. No.47/VKG/ CST/ 2007 dt.02.11.2007 passed by the Commissioner of Service Tax, New Delhi.
5 97/2008 M/s M.L. Gupta & Co. CCE, Jaipur-I O-I-O No.202(RKS)ST/ JPR-I/2007 dt. 22.11.2007 passed by the Commissioner (Appeals-I) Customs & Central Excise, Jaipur.
6 119/2008 M/s Millennium Constructions Pvt. Ltd. CST, Delhi O-I-O No.51/VKG/CST/ 2007 dt. 28.11.2007 passed by the Commissioner of Service Tax, New Delhi.
7 158/2008 M/s Wig Brothers Construction Pvt. Ltd. CST, Delhi O-I-O No.62/VKG/CST/ 2007 dt. 17.12.2007 passed by the Commissioner of Service Tax, New Delhi.
8 236/2008 M/s B.L. Gupta Construction Pvt. Ltd. CST, Delhi O-I-O No.01/VKG/CST/ 2008 dt. 08.01.2008 passed by the Commissioner of Service Tax, New Delhi.
9 503/ 2008 R.K. Agrawal CCE, Jaipur-I O-I-A No.50(RKS) /ST /JPR-I/ 2008 dt. 17.04.2008 passed by the Commissioner (Appeals-I) Customs & Central Excise, Jaipur.
10 601/2008 M/s Gurmehar Construction CCE, Raipur O-I-O No. Commissioner /RPR/50/2008 dt. 11.06.2008 passed by the Commissioner of CCE & Service Tax, Raipur.
11 621/2008 M/s BSBK Pvt. Ltd. CCE, Raipur O-I-O No. Commissioner /58/2008 dt. 25.07.2008 passed by the Commissioner of CCE & Service Tax, Raipur.
12 629/2008 M/s Vascon Engineers Pvt. Ltd. CCE, Chandigarh
13 746/2008 M/s Ahluwalia Contracts (I) Ltd. CST, Delhi O-I-O No.64/VKG/2008 dt. 31.07.2008 passed by the Commissioner of Service Tax, New Delhi.
14 334/2009 M/s Vadehra Builders Pvt. Ltd. CST, Delhi O-I-O No.05/VKG/2009 dt. 09.02.2009 passed by the Commissioner of Service Tax, New Delhi.
15 422/2009 M/s Kalpik Interiors CST, Delhi O-I-O No.13/VKG/2009 dt. 04.03.2009 passed by the Commissioner of Service Tax, New Delhi.
16 436/2009 M/s AGV Alfab Ltd. CST, Delhi O-I-O No.14/VKG/2009 dt. 05.03.2009 passed by the Commissioner of Service Tax, New Delhi.
17 469/2009 M/s Tirath Ram Ahuja Pvt. Ltd. CCE, Delhi O-I-O No.CCE/ADJ/PKJ/ 07/09 dt. 23.03.2009 passed by the Commissioner of Central Excise (Adjn), New Delhi.
18 482/2009 M/s Artech Interiors CST, Delhi O-I-O No.20/VKG/2009 dt. 18.03.2009 passed by the Commissioner of Service Tax, New Delhi.
19 490/2009 Nitin Ahuja, Director of M/s Ahuja Furnishers Pvt. Ltd. CST, Delhi O-I-O No.30/VKG/2009 dt. 01.04.2009 passed by the Commissioner of Service Tax, New Delhi.
20 510/2009 M/s Venkatesh Mercantiles Pvt. Ltd., CE&ST, Bhopal O-I-A No.166/BPL/2009 dt. 25.03.2009 passed by the Commissioner (Appeals) Central Excise & Service Tax, New Bhopal.
21 935- 936 /2010 with ST/stay No. 1846- 1847/ 2010 M/s ANS Construction Ltd. CST, Delhi O-I-O No.46-47 /RDN/ 2009 dt. 23.10.2009 passed by the Commissioner of Service Tax, New Delhi.
22 1075/2010 M/s Skyline Contractors Pvt. Ltd. CST, Delhi O-I-O No.12-ST /PKJ/ CCE/ ADJ/10 dt. 29.04.2010 passed by the Commissioner (Adj.) Service Tax, New Delhi.
23 55615/2013 M/s Capital Builders CCE, Delhi-II O-I-A No.205/ST/DII/ 2012 dt. 25.10.2012 passed by the Commissioner, Customs & Central Excise, New Delhi.
Date of Decision: 6.9.2013
Appellants Rep by: Shri V Laxmikumaran, Ms Swati Gupta, P K Sahu, Prashant Shukla, J K Mittal,
Jeetu Gupta, Advs., Nitesh Garg, CA Prakash Shah, Dr G K Sarkar,
Prashant Srivastava, Advs., A K Batra, C A. S K Gupta, S K Sarwal, Mukul Chandra, Ayush Mehrotra, Advs., A K Mishra, Consultant Mayank Garg,
Harpreet Singh & Sanjay Grover, Advs.
Respondents Rep by: Shri S K Sinha, CDR with Shri Govind Dixit & Shri Amresh Jain, DRs
CORAM: G Raghuram, President
Sahab Singh, Member (T)
Manmohan Singh, Member (T)
Service Tax - Valuation - value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction
service, would be outside the taxable value or the gross amount charged
Section 67; Rule 3 of the Service Tax (Determination of Value) Rules, 2006;
Notification No. 15/2004-ST as amended; Notification No. 1/2006-Service
Tax; Notification No. 12/2003-Service Tax; Notification No. 18/2005-ST:
Interpretation of Explanation inserted in Notification No 15/2004 ST vide Notification No 4/2005 ST – Interpretation of the word "used" – Noscitur principle - The noscitur principle posits that a statutory term is recognised by its associated words i.e. in an
associational context, whereby the word or phrase is not construed as if stood alone but in the light of its surroundings - The word used is
structurally associated in the Explanation with the earlier two words
(supplied or provided) and the three words are employed to define the
meaning of the expression gross amount charged, an expression that
occurs in the preamble to Notification No. 15/2004-ST - The noscitur
principle could be gainfully employed to identify the legal meaning of
the word used from several grammatical/ literal meanings of the said
word, by employing the associational context.
Exemption under Notification No 12/2003 ST - The benefits under this Notification are only in respect of the value of
goods and materials sold by a service provider to the recipient of a
taxable service - In the case of free supplies by the recipient there is no sale or transfer of title in the goods and materials in favour of
the service provider, at any point of time. Therefore when free supplied goods and materials are incorporated into the construction would be no
sale by the provider to the recipient either. Notification No.
12/2003-ST would therefore be inapplicable – Contention of the revenue
that the assessee have an alternative recourse proceeds on a fallacious
comprehension of Notification No. 12/2003-ST.
Question before the Larger Bench:
Whether the value of the material supplied by the recipient of the taxable service free
of cost (hereinafter, for convenience referred to as "free supplies" )
should also be included, for availing the benefits under Notification
No. 15/2004-ST, dated 10.09.2004 as amended by Notification No.
4/2005-ST dated 01.03.2005. The later Notification added an
"Explanation&q uot; to Notification No. 15/2004-ST.
Held :
(a) The
value of goods and materials supplied free of cost by a service
recipient to the provider of the taxable construction service, being
neither monetary or non-monetary consideration paid by or flowing from
the service recipient, accruing to the benefit of service provider,
would be outside the taxable value or the gross amount charged, within
the meaning of the later expression in Section 67 of the Finance Act,
1994; and
>(b) Value
of free supplies by service recipient do not comprise the gross amount
charged under Notification No. 15/2004-ST, including the Explanation
thereto as introduced by Notification No. 4/2005-ST.
Reference answered in favour of Assessee
Case laws referred:
1. Cemex Engineers vs. CST, Cochin - (2009-TIOL- 2208-CESTAT- BANG) (para 1, 6(i))
2. Jaihind Projects Ltd. vs. CST, Ahmedabad - (2010-TIOL- 124-CESTAT- AHM) (para 1, 6 (ii), 8(ix))
3. Larsen & Toubro Ltd., Chennai vs. Union of India - (2007-TIOL- 176-HC-MAD- ST) (para 6(i))
4. Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India - (2012-TIOL- 966-HC-DEL- ST) (para 8 (vi) & (vii))
5. M/s Gannon Dunkerley and Co. and Others vs. State of Rajasthan and Others - (2002-TIOL- 103-SC-CT- CB) (para 8 (vii))
6. State of Andhra Pradesh and Others vs. Larsen & Toubro Limited and Others - (2008-TIOL- 158-SC-VAT) (para 8 (vii))
7. Union of India and others vs. Bombay Tyre International Ltd. & others - (2002-TIOL- 374-SC-CX- LB) (para 8 (ix))
8. Union of India vs. Nitdip Textile Processors Pvt. Ltd. - (2011-TIOL- 109-SC-CUS) (para 8 (ix))
9. Moriroku UT India (P) Ltd. Vs. State of U.P. , - (2008-TIOL- 45-SC-CT) (para 8(x))
10. Ujagar Prints & Ors. v. Union of India & Ors. - (2002-TIOL- 03-SC-CX- CB) (para 8(x) (19))
11. Bharat Sanchar Nigam Limited vs. Union of India - (2006-TIOL- 15-SC-CT- LB) (para 9 (C))
12. Naresh Kumar & Co. Pvt. Ltd. vs. Commr. of Service Tax, Kolkata - (2008-TIOL- 1016-CESTAT- KOL) (para 9 (C))
13. Rohit Pulp and Paper Mills Ltd. V. Collector of Central Excise - (2002-TIOL- 577-SC-CX) (para 11 (ix & x))
14. Godfrey Phillips vs. State of U.P. - (2005-TIOL- 10-SC-LT- CB) (para 11 (ix))
15. Collector of Central Excise v . Parle Exports (P) Ltd. - (2002-TIOL- 401-SC-CX) (para 11 (x))
16. Tata Oil Mills Co. Ltd. v . C.C.E. - (2002-TIOL- 255-SC-CX) (para 11 (x))
17. Hariprasad Shivshankar Shukla and another vs. A.D. Divelkar and Others - (2002-TIOL- 447-SC-MISC- CB) (para 11 (xii))
18. M/s Oblum Electrical Industries Pvt. Ltd. Hyderabad vs. Collector of Customs, Bombay - (2002-TIOL- 218-SC-CUS) (para 11 (xv))
19. Govind Saran Ganga Saran vs. Commissioner of Sales Tax - (2002-TIOL- 589-SC-CT) (para 11 (xvii))
20. Peekay Re-Rolling Mills (P) Ltd ., vs. Assistant Commissioner - (2007-TIOL- 43-SC-CT) (para 11 (xix))
I. O. No.
Per: G Raghuram:
By the order dated 05.04.2013 in ST/629/2008, a Division Bench of this
Tribunal, noticing a conflict between decisions of two Division
Benches; (a) in Cemex Engineers vs. CST, Cochin (Tri. Bang.) 2010 (17) STR 0534 = (2009-TIOL- 2208-CESTAT- BANG) and (b) in Jaihind Projects Ltd. vs. CST, Ahmedabad (Tri. Ahmd.) 2010 (18) STR- 650 = (2010-TIOL- 124-CESTAT- AHM) referred, for the consideration of a Larger Bench the issue:
(i) Whether the value of goods/ material supplied or provided free by a
service recipient and used for providing the taxable service of
construction of commercial or industrial complex, must be included in
computation of the gross amount (charged by the service provider), for
valuation of the taxable service, under Section 67 of the Finance Act,
1994 (the Act). We notice at the hearing of these appeals however, that
the issue specifically is: whether the value of the material supplied by the recipient of the taxable service free of cost (hereinafter, for
convenience referred to as "free supplies" ) should also be included, for availing the benefits under Notification No. 15/2004-ST, dated
10.09.2004 as amended by Notification No. 4/2005-ST dated 01.03.2005.
The later Notification added an "Ëxplanation" to Notification No.
15/2004-ST.
2. For the purposes of the issues referred to the Larger Bench, the
several assessees/ appellants; had provided commercial or industrial
construction service, a taxable service enumerated in Section
65(105)(zzq) . Commercial or Industrial Construction service means any
service provided or to be provided to any person, by any other person,
in relation to commercial or industrial construction service.
3. Relevant Provisions
(a) Section 65(25b) defines construction or industrial construction service to mean:
>"(a) construction of a new building or a civil structure or a part thereof; or
>>(b) construction of pipeline or conduit; or
>>(c) completion and finishing services such as glazing, plastering,
painting, floor and wall tiling, wall covering and wall papering, wood
and meal joinery and carpentry, fencing and railing, construction of
swimming pools, acoustic applications or fittings and other similar
services, in relation to building or civil structure; or
>>(d) repair,
alteration, renovation or restoration of, or similar services in
relation to, building or civil structure, pipeline or conduit,
>>which is-
>>(i) used, or to be used, primarily for; or
>>> (ii) occupied, or to be occupied, primarily with; or
>>> (iii) engaged, or to be engaged, primarily in,
>>commerce or industry, or work intended for commerce or industry, but does not
include such services provided in respect of roads, airports, railways,
transport terminals, bridges, tunnels and dams; "
>(b). Valuation of taxable services :
>Since the amendment w.e.f. 18.04.2006, Section 67 reads:
>"SECTION 67. Valuation of taxable services for charging service tax. - (1) Subject to the provisions of this Chapter, where service tax is
chargeable on any taxable service with reference to its value, then such value shall, -
>(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for such
service provided or to be provided by him;
>>(ii) in a case where the provision of service is for a consideration not wholly or
partly consisting of money, be such amount in money as, with the
addition of service tax charged, is equivalent to the consideration;
>>(iii) in a
case where the provision of service is for a consideration which is not
ascertainable, be the amount as may be determined in the prescribed
manner.
>(2) Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the
value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
>(3) The gross
amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such
service.
>(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be
determined in such manner as may be prescribed.
>Explanation. - For the purposes of this section, -
>(a) "consideration " includes any amount that is payable for the taxable services provided or to be provided;
>>[(b) * * * ]
>>(c) "gross amount charged" includes payment by cheque, credit card,
deduction from account and any form of payment by issue of credit notes
or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account"
or by any other name, in the books of account of a person liable to pay
service tax, where the transaction of taxable service is with any
associated enterprise]. ]"
>(c). Prior to substitution w.e.f. 18.04.2006 by the Finance Act, 2006, Section 67 read as follows:
>"67. Valuation of taxable services for charging service tax.- For the
purposes of this Chapter, the value of any taxable service shall be the
gross amount charged by the service provider for such service provided
or to be provided by him.
>Explanation
1.- For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes,-
>(a) the aggregate of commission or brokerage charged by a broker on the
sale or purchase of securities including the commission or brokerage
paid by the stock-broker to any sub-broker;
>>(b) the
adjustments made by the telegraph authority from any deposits made by
the subscriber at the time of application for telephone connection or
pager or facsimile or telegraph or telex or for leased circuits;
>>(c) the amount of premium charged by the insurer from the policy holder;
>>(d) the commission received by the air travel agent from the airline;
>>(e) the
commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;
>>(f) the
reimbursement received by the authorised service station from
manufacturer for carrying out any service of any motor car, light motor
vehicle or two wheeled motor vehicle manufactured by such manufacturer;
and
>>(g) the commission or any amount received by the rail travel agent from the Railways or the customer,
>>but does not include-
>>(i) initial deposit made by the subscriber at the time of application for
telephone connection or pager or facsimile (FAX) or telegraph or telex
or for leased circuit;
>>> (ii) the cost
of unexposed photography film, unrecorded magnetic tape or such other
storage devices, if any, sold to the client during the course of
providing the service;
>>> (iii) the cost of parts or accessories, or consumable such as lubricants and coolants, if any, sold to the customer during the course of service or repair of
motor cars, light motor vehicle or two wheeled motor vehicles;
>>> (iv) the airfare collected by air travel agent in respect of service provided by him;
>>> (v) the rail fare collected by rail travel agent in respect of service provided by him;
>>> (vi) the cost
of parts or other material, if any, sold to the customer during the
course of providing maintenance or repair service;
>>> (vii) the cost of parts or other material, if any, sold to the customer during the
course of providing erection, commissioning or installation service; and
>>> (viii) interest on loans.
>Explanation 2.- Where the gross amount charged by a service provider is inclusive
of service tax payable, the value of taxable service shall be such
amount as with the addition of tax payable, is equal to the gross amount charged.
>Explanation
3.- For the removal of doubts, it is hereby declared that the gross
amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such
service."
>(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for such
service provided or to be provided by him;
>>(ii) in a case where the provision of service is for a consideration not wholly or
partly consisting of money, be such amount in money as, with the
addition of service tax charged, is equivalent to the consideration;
>>(iii) in a
case where the provision of service is for a consideration which is not
ascertainable, be the amount as may be determined in the prescribed
manner.
>(2) Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the
value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
>(3) The gross
amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such
service.
>(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be
determined in such manner as may be prescribed.
>Explanation. - For the purposes of this section.-
>(a) "consideration " includes any amount that is payable for the taxable services provided or to be provided;
>>(b) "money"
includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other
similar instruments but does not include currency that is held for its
numismatic value;
>>(c) "gross
amount charged" includes payment by cheque, credit card, deduction from
account and any form of payment by issue of credit notes or debit notes
and [book adjustment, and any amount credited or debited, as the case
may be, to any account, whether called "Suspense account" or by any
other name, in the books of account of a person liable to pay service
tax, where the transaction of taxable service is with any associated
enterprise.] .]"
4. Exemption Notifications :
A. Notification No. 12/2003-ST dated 26.06.2003, issued by the Central
Government, exercising powers under Section 93(1) of the Act exempted
the value of goods and materials sold by a service provider to a
recipient of service from the tax leviable thereon, subject to
documentary proof specifically indicating the value of such goods and
material. This notification was specified to come into force w.e.f.
01.07.2013.
>B. By Notification No. 15/2004-ST dated 10.09.2004, a further exemption was granted in
respect of taxable service provided by a commercial concern to any
person in relation to construction service. This Notification reads:
>"In exercise of the powers conferred by sub-section (1) of section 93 of
the Finance Act, 1994 (32 of 1994), the Central Government, being
satisfied that it is necessary in the public interest so to do, hereby
exempts the taxable service provided by a commercial concern to any
person, in relation to construction service, from so much of the service tax leviable thereon under section 66 of the said Act, as is in excess
of the service tax calculated on a value which is equivalent to
thirty-three per cent. of the gross amount charged from any person by
such commercial concern for providing the said taxable service :
>>Provided that this exemption shall not apply in such cases where -
>>(i) the credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or
>>> (ii) the
commercial concern has availed the benefit under the notification of the Government of India, in the Ministry of Finance, (Department of
Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R.
503(E), dated the 20th June, 2003]."
>C. Notification No. 4/2005-ST was issued on 01.03.2005, introducing an
Explanation at the end of Notification No. 15/2004-ST. This Explanation
reads:
>"Explanati on. - For the purposes of this notification, the "gross amount charged"
shall include the value of goods and materials supplied or provided or
used by the provider of the construction service for providing such
service." .
>At
this stage it may be noticed that the expression "gross amount charged"
occurs in the preamble to Notification No. 15/2004-ST and the percentage of abatement specified in the Notification is clearly in relation to
the taxable value computable under Section 67.
>D. Notification
No. 19/2005-ST dated 07.06.2005 introduced amendments, inter alia to
Notification No. 15/2004-ST. According to this amendment, in
Notification No. 15/2004-ST:
>(i) for the words "construction service" , occurring at two places, the
words "commercial or industrial construction service" shall be
substituted;
>>in the proviso, for clause (ii), the following shall be substituted, namely :-
>>(ii) "(ii) the commercial concern has availed the benefit under the
notification of the Government of India, in the Ministry of Finance,
(Department of Revenue) No. 12/2003-Service Tax, dated the 20th June,
2003 [G.S.R. 503 (E), dated the 20th June, 2003]; or
>>(iii) the
taxable services provided are only completion and finishing services in
relation to building or civil structure, referred to in sub-clause (c)
of clause (25b) of section 65 of the Finance Act, 1994.".
>E.
Further amendments were made by Notification No. 1/2006-ST dated
01.03.2006, including in respect of commercial or industrial
construction service. Accordingly, in respect of commercial or
industrial construction service, abatement of 67% of the tax was
reiterated subject to the conditions specified in column (4) of the
table to this Notification. The stipulated conditions provided that the
exemption (abatement) would not apply where the taxable services
provided are only completion and finishing services in relation to
building or civil structure, referred to in Section 65(25b)(c) of the
Act. The explanation to this condition stated that the gross amount
charged shall include the value of goods and materials supplied or
provided or used by the provider of the construction service for
providing such service. The Notification also incorporated a proviso
(applicable to all taxable services covered by the Notification) which
specified that the exemption notification would not apply where:
>(a)
cenvat credit of duty on inputs and capital goods or cenvat credit of
service tax on input services, used for providing such taxable service,
has been taken under the provisions of the Cenvat Credit Rules, 2004; or
>>(b) the service provider had availed benefits of Notification No. 12/2003-ST dated 20.06.2003.
>F. By Notification No. 18/2005-ST dated 07.06.2005, exemption of 67% of
the service tax leviable in respect of construction of complex service
was granted subject to the conditions specified. Under the proviso to
this Notification apart from excluding benefits of exemption where
cenvat credit is availed or where the service provider has availed
benefits under Notification No. 12/2003-ST, benefit of the exemption was also excluded where the taxable services provided is only completion
and finishing services in relation to residential complex, specified in
Section 65(30a) (b) of the Act. An explanation to the Notification
clarified that the gross amount charged shall include the value of goods and material supplied or provided or used for providing the taxable
service by the service provider.
6. Board Circulars:
(i) Consequent on
introduction of new taxable services by the Finance Act 2004, including
construction services, the Board issued a circular dated 17.09.2004
clarifying the scope of these services. Paragraph 13 of this circular
deals with construction services. Paragraph 13.1 clarifies:
>"13. 1 Services provided by a commercial concern in relation to `construction, repairs, alteration or restoration of such buildings, civil structures
or parts thereof which are used, occupied or engaged for the purposes of commerce and industry are covered under this new levy. In this case the service is essentially provided to a person who gets such constructions etc. done, by a building or civil contractor. Estate builders who
construct buildings/civil structures for themselves (for their own use,
renting it out or for selling it subsequently) are not taxable service
providers. However, if such real estate owners hire
contractor/contract ors, the payment made to such contractor would be
subjected to service tax under this head. The tax is limited only in
case the service is provided by a commercial concern. Thus service
provided by a labourer engaged directly by the property owner or a
contractor who does not have a business establishment would not be
subject to service tax".
>Paragraph 13.5 of this circular explains the reasons for issue of exemption Notification No. 15/2004-ST dated 10.09.2004.
>"13. 5 The
gross value charged by the building contractors include the material
cost, namely, the cost of cement, steel, fittings and fixtures, tiles
etc. Under the Cenvat Credit Rules, 2004, the service provider can take
credit of excise duty paid on such inputs. However, it has been pointed
out that these materials are normally procured from the market and are
not covered under the duty paying documents. Further, a general
exemption is available to goods sold during the course of providing
service (Notification No. 12/2003-S.T. ) but the exemption is subject to
the condition of availability of documentary proof specially indicating
the value of the goods sold. In case of a composite contract,
bifurcation of value of goods sold is often difficult. Considering these facts, an abatement of 67% has been provided in case of composite
contracts where the gross amount charged includes the value of material
cost. (refer Notification No. 15/2004-S.T. , dated 10-9-2004). This
would, however, be optional subject to the condition that no credit of
input goods, capital goods and no benefit (under Notification No.
12/2003-S.T. ) of exemption towards cost of goods are availed ".
>(ii)
Our attention is also invited to a Board circular dated 16-02-2006. This circular purports to clarify the scope of construction of complexes - a taxable service specified in Section 65(30a) read with Section 65 (105) (zzzh) of the Act. To the extent relevant and material for the purposes of this reference, para 8 of this circular clarifies that in the
construction business, different practices and financial arrangements
concerning promoters, developers and builders, land owners, contractors
and buyers exist; these practices influence the "taxable value" under
the construction of complex services; and therefore in all such
situations, the taxable value under section 67 shall be the gross amount charged by the service provider (builder in this case) for such
services provided or to be provided by him. The circular further states
that this circumstance read with Notification No.18/2005-ST dated
07-06-2005 entitles a builder/contractor, abatement of 67% on the gross
amount charged, which shall include the value of goods and materials
supplied; and further that no deductions/exemptio ns are provided for
computation of such taxable value in the composite contract.
>(iii) It requires
to be noticed that Notification No.18/2005-ST also contains an
'Explanation&# 39;, identical to the 'Explanation&# 39; to Notification
No.15/2004-ST (as amended by notification No.04/2005-ST) , namely that
for the purposes of the Notification, the "gross amount charged" shall
include the value of goods and materials supplied or provided or used
for providing the said taxable service provided by the said service
provider.
6. Conflict of opinion, leading to the present reference:
(i) In Cemex Engineers (supra) the appellant was engaged in providing both commercial and industrial
construction and construction of complex – taxable services and paid
service tax availing abatement of 67%, in terms of Notification Nos.
15/2004-ST; 18/2005-ST and 1/2006-ST, for the period 01.10.2005 to
31.03.2006. Proceedings were initiated contending that the value of
materials supplied free of cost by the recipient for incorporation in
the taxable services was not offered to tax and could not be excluded if benefit was claimed under the Notifications. Challenging the
adjudication order, confirming demand of service tax, interest and
penalties, the appellant approach the Tribunal. Allowing the appeal and
relying on an observation of the High Court of Madras in an interim
order in Larsen & Toubro Ltd., Chennai vs. Union of India 2007 (7) STR 123 (Mad)= (2007- TIOL-176- HC-MAD-ST) , we held that the value of goods supplied and provided by the client
cannot be included for calculating service tax; that insisting on
including cost of materials supplied by the service receiver would be
contrary to Section 67 of the Act, (which specifies that the value of
taxable service shall be gross amount charged by the service provider
for such service); and therefore cost of materials supplied by the
service receiver would not therefore be covered, in terms of Section 67.
>(ii) In a
subsequent judgment, in Jaihand Projects Ltd. (supra), a contrary view
is expressed. The appellants were engaged for laying pipelines and
providing (commercial or industrial construction) service to State
instrumentalities like ONGC, GAIL, IOCL etc. apart from providing
services of sand blasting, coating and painting of pipelines to another
recipient Essar Projects Limited. Under the agreements with recipients,
the appellant was required to supply various materials such as cement,
steel, cables valves, etc. The pipes were however, provided by the
service recipient. The appellant availed the benefit of Notification No. 15/2004-ST and remitted service tax on 33% of the gross amount charged
from the service recipient. Revenue, on the basis of the explanation to
Notification No. 15/2004-ST (introduced by Notification No. 4/2005-ST)
alleged that the appellant must have included the value of the free
supply of material (pipes) provided by the service recipient, to avail
the benefits of Notification No. 15/2004-ST. Having suffered an adverse
adjudication order the appeal was preferred to this Tribunal. The
Tribunal held that even under Section 67 of the Act read with Rule 3 of
the Service Tax (Determination of Value) Rules, 2006, the pipes being an essential component and essentially required for providing the pipeline service (though supplied free of cost by the service recipient), must
be treated as consideration other than in the form of money; and the
value of such pipes must be included in the gross value to be offered
for taxation. Dealing with the "Explanation&q uot; to Notification No.
15/2004-ST, the Tribunal held that the 'Explanation&# 39; has explained that
the meaning of "gross amount charged" and once an assessee opts for the
benefits of abatement under the said Notification he must include the
value of the goods for the purpose of the contract used for the service
provided; without availing cenvat credit on inputs of capital goods;
without availing the benefit of exclusion if the goods were sold; and
even though some goods are supplied or provided by the service provider
(free of cost), including the value of such free supplies as well.
Another reason recorded by the Tribunal for holding in favour of Revenue and against the appellant is that discriminatory results would ensue
between two pipeline service providers; where one such provider uses
pipes provided by himself and the other uses pipes provided by the
service recipient. According to the Tribunal, where goods or material
are supplied free of cost by a third party or the recipient, the
expression "used" comes into play and the objective of the explanation
and the proviso is to ensure that in different situations the liability
to service tax would remain the same. This decision negatived the
contention by the appellant based on Board Circular No. 80/10/2004-ST
dated 17.09.2004, by holding that the 'Explanation&# 39; (to Notification No. 15/2004-ST) was not in existence when this Board circular was issued;
and was inserted later, on 01.03.2005.
7. Before we deal with the issue referred to us namely, whether the
'Explanation&# 39; to Notification No.15/2004-ST enjoins inclusion of the
value of "free supplies" used by the service provider, in the 'gross
amount charged' for the service provided and such inclusion is mandatory for availment of benefits under Notification No.15/2004-ST, the scope
of section 67 requires to be considered.
8. Scope of Section 67 of the Act:
(i) We have
earlier extracted the pre and post amended provisions of Section 67.
This provision, both prior and subsequent to the amendment enacts that
the value of any taxable service shall be the gross amount charged by
the service provider for such service. Explanation 1. of the pre-amended provision specified various components that are included in the value
of a taxable service; such as the aggregate commission or brokerage
charged by a broker on the sale/purchase of securities; the commission
received by the travel agent from the airline; the reimbursement
received by the authorized service station from the manufacturer for
carrying out any service of any motor car, light motor vehicle or two
wheeled motor vehicle manufactured by such manufacturer; etc.
Explanation 1. also enumerated components which are to be excluded from
the value of taxable service, such as an initial deposit made by the
subscriber while applying for telephone a connection; or pager or
facsimile; the cost of unexposed photography film or unrecorded magnetic tape; the cost of parts or accessories or consumables such as
lubricants and coolants, if any sold to the customer during the course
of service or repair of motor cars; air fare or rail fare collected by
an air/ rail the travel agent in respect of service provided; the cost
of parts or other materials, if any sold to the customer during the
course of providing maintenance or repair services, etc.
>(ii) After the
amendment, which substitutes Section 67 with effect from 18-04-2006,
where service tax is chargeable on any taxable service with reference to its value then such value shall, in a case when the provision of
service is for consideration in money, be the gross amount charged by
the service provider for such service [sub-clause (i)]. Where provision
of service is for a consideration not wholly or partly consisting of
money, the value shall be such amount in money as, with the addition of
service tax charged, is equivalent to the consideration
[sub-clause( ii)]; and where the provision of service is for a
consideration which is not ascertainable, be the amount as may be
determined in the prescribed manner. The Explanation to the amended
Section 67 purports to define the expressions "consideration ", "money"
and "gross amount charged" .
>(iii) Though
Revenue has contended that the value of "free supplies" to a
construction service provider ought to be included in the value of
taxable services for determination of the liability to tax under Section 67 of the Act in view of sub-clause (ii) of section 67(1), we are not
persuaded that this is the appropriate construction of the provision.
Sub-clause (ii) applies where a taxable service is provided for a
consideration which is not either wholly or partly, for money. Therefore the non-monetary consideration must still be a consideration accruing
to the benefit of the service provider, from the service recipient and
for the service provided.
>(iv) The
expression "consideration " occurring in the U.P. Imposition of Ceiling
on Land Holdings Act, 1961 fell for consideration in Ku. Sonia Bhatia vs. State of U.P. and Others AIR 1981 SC 1274 the Court explained that since the expression "consideration " was not
defined in the U.P. Act, its meaning as derived from the definition of
the expression in Section 2(d) of the Contract Act, 1872 could be
considered. After considering the definition of the expression in the
Contract Act and referring to Black's Law Dictionary; other
dictionaries, English judgments and Corpus Juris Secundum, the Supreme
Court held that: the in escapable conclusion that follows is that
consideration means a reasonable equivalent for other valuable benefit
passed on by the promisor to the promisee or by the transfer of to the
transferee.
>(v) Clearly,
Section 67 of the Act deals with valuation of taxable services and
intends to define what constitutes the value received by the service
provider as "consideration " from the service recipient for the service
provided. Implicit in this legislative architecture is the concept that
any consideration whether monetary or otherwise should have flown or
should flow from the service recipient to the service provider and
should accrue to the benefit of the later. "Free supplies" , incorporated into construction (cement or steel for instance), even on an
extravagant inference, would not constitute a non-monetary consideration remitted by the service recipient to the service provider for providing a service, particularly since no part of the goods and materials so
supplied accrues to or is retained by the service provider. Wherever a
monetary consideration is charged for providing the taxable service and
no non-monetary consideration forms part of the agreement between the
parties, it is clause (i) that applies and the value of the taxable
service would in such case be the gross amount charged by the service
provider and paid by the service recipient.
>(vi) In Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India 2013 (29 STR) DEL = (2012-TIOL- 966-HC-DEL- ST), the Delhi High Court was essentially considering a challenge of the
validity of Rule 5 of the Service Tax (determination of value) Rules,
2006. This provision was challenged to the extent it includes
reimbursement of expenses in the value of taxable services for the
purpose of levy of service tax. Apart from the challenge to its
constitutionality, the provision was challenged on the ground that it is ultra vires the provisions of Sections 66 and 67 of the Act. The High
Court held that section 66 of the Act levies tax only on the taxable
services; that this is an inbuilt mechanism to ensure that only the
taxable service shall be evaluated under the provisions of Section 67;
that on construing the provisions of Sections 66 and 67 (1)(i) together
and harmoniously, it is clear that the value of taxable service shall be the gross amount charged by the service provider; and nothing more and
nothing less than the consideration paid as a quid pro quo for the
service can be brought to charge. The High Court further held that the
common thread that runs through Sections 66 and 67 and 94 (the Rule
making power), manifests that only the service actually provided by the
service provider can be valued and assessed to tax. The High Court
concluded that the provisions of Rule 5(i) of the valuation Rules are
repugnant to Sections 66 and 67 of the Act since the provision purport
to tax not, what is due from the service provider under the charging
section, but seeks to extract something more from him by including in
the valuation of the taxable service other expenditure and costs which
are incurred by the service provider in the course of providing taxable
service.
>(vii) In the light of the clear Legislative text, the unambiguous provisions of sections
66 and 67 of the Act and in the light of the judgment in
Intercontinental Consultants and Technocrats Pvt Ltd. ( supra), the
conclusion is compelling and inviolable that the value "free supplies"
by a construction services recipient, for incorporation in the
constructions would not constitute a non-monetary consideration to the
service provider nor form part of the gross amount charged for the
services provided. Whether the legislature may enact that the value of
"free supplies" should be included in the value of the service provided
for levy of tax; and within its legislative competence, is an aspect
that is speculative for the nonce and outside the purview of either the
substantive appeals or the issue referred to us. In this view of the
matter it is not necessary to consider the contention on behalf of the
assessees that an interpretation that Section 67 of the Act enables or
mandates inclusion of the value of goods and materials incorporated into construction services (whether provided by the service provider or as a free supplies by the service recipient) would render the legislative
provision unconstitutional, since value of the goods incorporated being
sale of goods would be liable to sales tax, an area within the
legislative competence of State, the value of goods sold would thus be
beyond the legislative competence of Parliament for levy of tax on such
sale; consequently could not also constitute the value of taxable
services. Ld. Counsel placed reliance on the judgment in M/s Gannon Dunkerley and Co. and Others vs. State of Rajasthan and Others (1993) 1 SCC 364 = (2002-TIOL- 103-SC-CT) ; and State of Andhra Pradesh and Others vs. Larsen & Toubro Limited and Others (2008) 9 SCC 191 = (2008-TIOL- 158-SC-VAT ) , to buttress this contention.
>(viii) Since
Section 67 of the Act, as currently structured does not, in our view
require inclusion of free supplies in the gross value charged, for
computation of the value of taxable services; and as this is the only
issue presented (on Section 67 of the Act); we find no justification for a wider analysis of a speculative theatre, of potential conflict.
>(ix) On the above
analysis, we hold that the conclusion in Jaihind Projects Ltd. that
section 67 itself mandates inclusion of the value of "free supplies" by
service recipients for incorporation into the service, for valuation of
the taxable service, is with respect, incorrect. Similarly, the analysis in para 24 of Jaihind Projects Ltd., that since goods supplied by
service recipients are essential components for providing the agreed
service, these must be treated as non-monetary consideration and
included in the value of the taxable service, proceeds on a flawed
interpretation of the provisions of Section 67. In para 27 another
reason offered is that the explanation is intended to bring parity among all service providers providing such services. In the words of the
judgment:
>"Basically , the objective of the explanation is to bring parity among all the
service providers providing such services. Let us take a case of two
pipe laying service providers. In one case, the pipes are provided by
the service receiver free of cost and in such case, the service receiver leaves it to the provider to supply the pipes or sell the pipes to him. In latter case, the value of the services would include the value of
the pipes. In the former case, the value of the pipes gets excluded just because of the service receiver has provided the same
free".. ......... ......The objective of the explanation and the proviso
is to ensure that in different situations, the liability of Service tax
would remain the same and it is very difficult to find fault with this
objective" .
>It
would appear that this part of the Jaihind Projects Ltd. analyses was
endeavouring to identify equities in a fiscal legislation (the Act) or
in an exemption Notification issued thereunder. In Union of India and others vs. Bombay Tyre International Ltd. & others 1983 (14) ELT 1986 (SC) =2002-TIOL- 374-SC-CX- LB the Court negated the assessee' s, contention that uniformity of incidence
is a basic character of excise (tax/ duty). The contention was that the
principle of uniformity of taxation requires exclusion of post –
manufacturing expanses and profits, a factor which would vary from one
manufacturer to another. Rejecting this contention the Court held that
levy in this country has the status of a constitutional concept and the
point of collection is located where the statute declares it will be and the legislature is free to adopt any standard for determining the
value. Further, in Union of India vs. Nitdip Textile Processors Pvt. Ltd. 2011 (273) ELT 321 (SC) = (2011-TIOL- 109-SC-CUS) the Court ruled that advantages or disadvantages to individual assessees
are accidental, inevitable and inherent in every taxing Statute. The
relevant observations are:
>"
Advantages or disadvantages to individual assessees are accidental and
inevitable and are inherent in every taxing Statute as it has to draw a
line somewhere and some cases necessarily fall on the other side of the
line. The point is illustrated by two decisions of this Court. In
Khandige Sham Bhat vs. Agricultural Income tax Officer, Kasaragod and
Anr. (AIR 1963 SC 591). Tranvancore Cochin Agricultural Income Tax Act
was extended to Malabar area on November 01, 1956 after formation of the State of Kerala. Prior to that date, there was no agricultural income
tax in that area. The challenge under Article 14 was that the income of
the petitioner was from areca nut and pepper crops, which were harvested after November in every year while persons who grew certain other crops could harvest before November and thus escape the liability to pay tax. It was held that, that was only accidental and did not amount to
violation of Article 14. In Jain Bros. V. Union of India (supra),
Section 297 (2)(g) of Income Tax Act, 1961 was challenged because under
that Section proceedings completed prior to April, 1962 was to be dealt
under the old Act and proceedings completed after the said date had to
be dealt with under the Income Tax Act, 1961 for the purpose of
imposition of penalty. April 01, 1962 was the date of commencement of
Income Tax Act, 1961. It was held that the crucial date for imposition
of penalty was the date of completion of assessment or the formation of
satisfaction of authority that such act had been committed. It was also
held that for the application and implementation of the new Act, it was
necessary to fix a date and provide for continuation of penalty
proceedings. It was also held that the mere possibility that some
officer might intentionally delay the disposal of a case could hardly be a ground for striking down the provision as discriminatory" ;.
>(x). In Moriroku UT India (P) Ltd. Vs. State of U.P., 2008 (224) E.L.T.365 (SC) =(2008-TIOL- 45-SC-CT) the issue for consideration was whether Revenue could impose sales tax on
the value of moulds (toolings) supplied by appellant' s customer i.e.
Honda Siel Cars India Ltd., free of cost, under Section 3. of the UP
Trade Tax Act 1948. In particular, the question considered was whether
the amortization cost of toolings was includable in the sale price of
auto components as in the case of excise duty under Central Excise Act,
1944; and whether Revenue was right in equating sales tax to excise
duty. After considering the provisions of Sections 2(h), 2(i) and 3 of
the 1948 Act, the Supreme Court explained the principle and the
concepts, under excise duty and sales tax, as follows:-
>"19. U.P. Trade Tax Act, 1948 is a self-contained code for levy of tax on
sale or purchase of goods in Uttar Pradesh. Clause (bb) of Section 2
defines the expression "trade tax" to mean a tax payable under the Act.
Clause (h) of Section 2 defines the expression "sale" to include
transfer of the right to use any goods for any purpose for cash or
deferred payment or other valuable consideration. In this case we are
concerned only with Section 3 and not with Section 3-F of the 1948 Act.
Section 3 inter alia provides that every dealer shall for each
assessment year pay a tax at the rates provided under Section 3-A,
Section 3-D or Section 3-H on his turnover of sales or purchases or
both, as the case may be. which shall be determined in such manner as
may be prescribed. Section 3-F provides for tax on transfer of right to
use any goods or goods involved in execution of works contract. The
definition of "sale" in Section 2(h) is in two parts. The first part
covers the normal sale and the second part covers deemed sales. In the
present case, we are concerned with sale of auto components to the
buyer. It is a normal sale. The aggregate amount for which these auto
parts/components are sold constitutes the turnover relating to such
sales within the meaning of turnover in Section 2(i). Therefore, it is
on such turnover that liability of tax under Section 3 of the 1948 Act
has to be determined. Therefore, sales-tax or trade-tax under the 1948
Act is leviable on sale, whether actual or deemed, and for every sale
there has to be a consideration. On the other hand, excise duty is a
levy on a taxable event of "manufacture&q uot; and it is calculated on the
"value" of manufactured goods. Excise duty is not concerned with
ownership or sale. The liability under the excise law is event-based and irrespective of whether the goods are sold or captively consumed. Under the excise law, the liability is there even when the manufacturer is
not the owner of raw material or finished goods (as in the case of job
workers). Excise duty, therefore, is independent of ownership (see:
Ujagar Prints & Ors. v. Union of India & Ors. also reported in
[(1989) 3 SCC 488] = (2002-TIOL- 03-SC-CX) . Therefore, for sales-tax purposes, what has to be taken into account is the consideration for transfer of property in goods from the seller to
the buyer. For this purpose, tax is to be levied on the agreed
consideration for transfer of property in the goods and in such a case
cost of manufacture is irrelevant. As compared to the sales-tax law, the scheme of levy of excise duty is totally different. For excise duty
purposes, transfer of property in goods or ownership is irrelevant. As
stated, excise duty is a duty on manufacture. The provisions relating to measure (Section 4 of 1944 Act read with Excise Valuation Rules, 2000)
aim at taking into consideration all items of costs of manufacture and
all expenses which lead to value addition to be taken into account and
for that purpose Rule 6 makes a deeming provision by providing for
notional additions. Such deeming fictions and notional additions in
excise law are totally irrelevant for sales-tax purposes" .
>From
the above decision, the principle is clear that for the purposes of levy of sales tax it is the consideration for the transfer of the property
in goods from the seller to the buyer, that has to be taken into
consideration and tax must be levied on the consideration for the
transfer of property, unlike in the case of excise duty where the levy
is event based and irrespective of whether goods are sold or captively
consumed, the liability inheres even where the manufacturer is not the
owner of the raw material or finished goods. This principle is equally
applicable to the levy of service tax under the provisions of the Act
and in particular in the context of the specific language in Section 67
of the Act.
>(ix) Shri Lakshmi
Kumaran for the assessees referred to the concept of "consideration "
expounded in Goods and Service Tax Rulings 2001/6, in the context of
Australian GST Legislation, as providing generic guidance for
identifying consideration which is liable to be taxed. This GSTR also
explains the concept, of when non-monetary consideration would be
taxable for levy of tax. In the area of non-monetary consideration, GSTR emphasises that the definition of a taxable supply requires, among
other things that a supply is made for consideration. Thus, there must
be a supply; a payment; and the necessary nexus between the supply and
the payment. Thus, where one party makes monetary payment to another,
something of economic value is provided to the other. Para 90 GSTR sets
out illustrations, of circumstances where the recipient of a supply may
provide or make a thing available to the supplier for use in making the
supply and states that the thing (made available for use) does not
necessarily forms the consideration. Thus, where 'A' agrees to supply
services to 'B' at a specified rate per hour at 'B's' premises and 'B'
agrees to allow 'A' use of its computer facilities, stationery and
safety equipment to perform the services and also agrees to transport
'A' to 'B's' location and to provide accommodation and boarding during
the period of 'A's' performance of the service, the provision of the use of such facilities or meals is not part of the price paid by 'B' to
'A', as it is not payment to or of any value to 'A' in return for his
supply. Rather these are conditions of the contract that define the
supply made by 'A' and are used in providing the services rather than
constituting supplies to 'A' in return for the services; and accordingly form no part of the taxable value of the services provided, is the
exposition. If however the contact required 'A' to himself make
provision for all these facilities / arrangements and the consideration
to 'A' was a composite consideration including the value of such
facilities/ arrangements, then the entire consideration could
legitimately form the value liable to tax.
>(xii) We avoid
further reference to the several illustrations set out in GSTR nor
attempt to integrate the GSTR expositions into the context of Section
67, since on a true and fair construction of the provisions of Section
67 we find no necessity for reliance on guidance derived from overseas
fiscal legislation or clarifications on provisions of such legislation.
8. Summary of Revenue Contentions:
A (i) The scheme for valuation of construction service provides several
alternatives to the service provider. Under the Act and the Rules, the
service provider can avail cenvat credit, of materials used including
goods such as cement and TMT bars needed for providing construction
service while remitting service tax on the full value of the service
provided. Apart from such set off by way of cenvat credit of excise duty paid on goods and material, other options are provided;
>(ii)
Under Notification No. 12/2003-ST exemption is provided to the extent of the value of the goods sold during the course of providing the service
but subject to the condition of producing documentary proof specifically indicating the value of goods sold;
>>(iii) Under
Notification No. 15/2004-ST, a generic abatement of 67% of the "gross
amount charged" is provided in case of a composite contract, where the
"gross amount charged" includes the value of material used, for the
reason that in cases of works contract, bifurcation of the value of
goods sold/ used is difficult and subject also to the conditions
therein, of non availment of credit of input goods, capital goods and
the benefits under Notification No. 12/203-ST, towards cost of goods;
>>(iv) In case of
works contract under a scheme there under the option of discharging the
service liability at a very low rate on the gross amount of the works
contract is provided, without deduction of the value of goods or any
abatement;
>>(v) The
Explanation to Notification No. 15/2004-ST (added by Notification No.
4/2005-ST) enjoins that where an assessee opts for benefits of abatement of 67%, he must include the value of all the goods incorporated for the purpose of the contract, without availing cenvat credit of inputs or
capital goods or the benefits of exclusion of the goods sold;
>>(vi) The word
"used" in the Explanation clearly means that irrespective of the source
of supplies, if some material or goods were used in the construction
service, the value of such goods must also be included, for availing
abatement benefits under Notification No. 15/2004-ST;
>>(vii) Even under
Section 67 of the Act the value of goods whether supplied or provided by the provider or used for providing the taxable service though as free
supplies by the recipient, constitute the "gross amount charged" for
providing the taxable service;
>>(viii) In terms of the contract between the parties (referred to in the written
submissions by Revenue), free supplies constitute the consideration by
the promisor/the service recipient to the promisee/ the service provider for providing the taxable, construction service. In any event, since
goods and materials like cement/ steel are integral components of
construction services these would be the value of the service and this
value is accordingly taxable under Section 67 and must be disclosed and
offerred for tax, if availing exemption benefits under Notification No.
15/2004-ST.
>B. Revenue relies on the decision in M/s N.M. Goel and Co. vs. Sales Tax Officer, Rajnandgaon and Another (1989) 1 SCC 335. The assessee was the building contractor and a registered dealer under
the Madhya Pradesh General Sales Tax Act. In the contract with the PWD
and the assessee, the prices of the materials to be used for
construction included cost of iron, steel and cement. PWD agreed to
supply these materials from its store for the construction work and the
agreement further provided for deduction of the prices of materials so
supplied and consumed in the construction, from the final bill of the
assessee. The Sales Tax Authority assessed liability for payment of
entry tax for iron, steel and cement since the entry of these goods were the instance of the assessee and were eventually used for the
construction. The assessee contested this assessment on the ground that
there was no sale of these materials, as these were used for
construction and therefore levy of entry tax was unsustainable. The
issue therefore was whether there was sale of the material by the PWD
(an unregistered dealer) in the supply of these materials for the
construction work undertaken by the assessee; and whether there was sale of goods in view of the contract between the parties' , whereunder the
custody and control of the goods remain with PWD and these were only
used in the construction under the contract. Rejecting the assessee' 's
appeal, the Court held that in the instant case, by the use or
consumption of materials in the work of construction, there a was
passing of the property in the goods to the assessee from the PWD and by appropriation; and under the agreement between the parties, there was a sale as envisaged in the relevant provision of the applicable act,
which was liable to tax. It must be noticed that in N. M. Goel & Co. (supra) the facts were that though iron, steel and cement were supplied by PWD to the assessee these supplies were not free of cost but were to be deducted from the bills payable by PWD to the assessee. There was
thus a sale of these materials by PWD to the assessee and the ownership
of these materials passed to the assessee, though these materials were
later incorporated in the construction for the benefit of PWD. In case
of free supplies, which is the issue before us, the agreements between
the parties do not provide for recovering the cost of the free supplies
by the service recipient from the service providers i.e. recoveries from the consideration agreed between the parties, to be paid to the service provider.
>C. Revenue places reliance on the judgment of the Supreme Court in Bharat Sanchar Nigam Limited vs. Union of India 2006 (2) STR 161 (SC) = (2006-TIOL- 15-SC-CT- LB) and the decision of this Tribunal in Naresh Kumar & Co. Pvt. Ltd. vs. Commr. of Service Tax, Kolkata 2008 (11) STR 578 (Tri. Kolkata) = (2008- TIOL-1016- CESTAT-KOL) to contend that where there is a nexus between the expenses incurred and
the service provided, the value of such expenditure should also be
included in the value of the service. These judgments, in our considered view do not assist resolution of the issue referred. There could be no
dispute that free supplies by the recipient for use in construction
services have a nexus; and an integral nexus for that matter with the
construction activity. The essential question is however whether such
free supplies by the recipient would constitute consideration accruing
to the economic benefit of the service provider so as to be includible
in the "gross amount charged" for the service provided, for the purpose
of computation of the taxable value under Section 67; or as a case may
be ought to be included in the "gross amount charged" for availing the
benefits under Notification No. 15/2004-ST, as comprehended within the
meaning of the expression "used" in the Explanation thereto.
9. We integrate the contentions presented on behalf of the assessee' s,
with respect to and interpretation of the 'Explanation&# 39; to Notification
No.15/2004-ST, as part of our analyses, to follow.
10. Core analysis of the Explanation to Notification No.15/2004-ST:
(i) The core issue that remains to be considered, is whether Notification
No.15/2004-ST as amended by notification No.4/2004-ST and in particular, the 'Explanation&# 39; thereby appended to Notification No.15/2004-ST
requires the value of "free supplies" by the service recipient to be
added to the gross value of the service (as the gross amount charged),
for availment of abatement benefits under Notification No.15/2004-ST.
While Notification No.12/2003-ST grants exemption of the value of goods
and materials sold by the service provider to the service recipient from the service tax leviable thereon (subject to furnishing documentary
proof specifically indicating the value of goods and materials sold),
Notification No.15/2004-ST provides a generic abatement to the extent of 67% of the service tax leviable, but subject to the exceptions
specified. These exceptions disentitle availment of the abatement
benefit, where CENVAT credit is availed or benefits under Notification
No.12/2003-ST are availed. This was the position upto 01-03-2005. On
this date, Notification No.04/2005-ST was issued engrafting the
'Explanation&# 39; to Notification No.15/2004-ST. This Explanation purports
to explain the meaning of expression "gross amount charged" , to include
the value of goods and materials supplied or provided or used by the
provider of construction service for providing such service. The
expression "gross amount charged" (defined in the Explanation) occurs in the preamble to Notification No.15/2004-ST, whereby exemption is
provided (in respect of the taxable service provided by a commercial
concern to any person in relation to construction service), to the
extent of 67% of the service tax leviable under section 66 of the Act,
as is in excess of the service tax calculated on the gross amount
charged by the service provider from the service recipient for providing the taxable service.
>(ii) On a literal
construction of the expression used in the 'Explanation&# 39;, considered in
isolation, it is perhaps legitimate to infer that "gross amount charged" include the value of goods and materials supplied or the value of goods and materials provided or the value of goods and materials used by the
provider of construction service, for providing the said service. On the literal construction of the expression "used" , in the case goods and
materials used (in the construction) for providing the service, the
"gross amount charged" would include value of goods and materials used,
irrespective of whether goods and materials belong to or are procured by the service provider at his own cost or are issued by the service
recipient free of cost.
>(iii) The
'Explanation&# 39; purports (as earlier noticed), to define the expression
"gross amount charged" occurring in the preamble to Notification
No.15/2004-ST. In the context of the preamble, it is clear that
abatement of 67% of tax (subject to exceptions enumerated therein) is in respect of the "gross amount charged" by the service provider and
remitted to such provider by the recipient, an intention that resonates
the identical expression employed in section 67(1)(i) of the Act.
>(iv) As earlier
noticed, circular No.80/10/2004- ST dated 17-09-2004, in para 13.5
explained the reason for issuance of Notification No.15/2004-ST. This
circular clarified that the earlier Notification No.12/2003-ST was
issued to provide benefit to a service provider to take credit of the
excise duty paid on inputs by building contractors which include
material costs as are that incurred for cement, steel, fittings and
fixtures, tiles, etc., which are normally procured from the market.
However, it was observed that these materials, normally procured from
the market and are not covered by any duty paid documents; and since
Notification No.12/2003-ST requires furnishing of documentary proof
specifically indicating the value of goods sold, such proof is difficult to obtain in the context of market realities and since in a composite
contract, bifurcation of goods sold is difficult, the generic abatement
of 67% is provided in the case of composite contracts, where the gross
amount charged includes the value of material costs, vide Notification
No.15/2004-ST. This clarification accords with the true and fair
construction of the unamended Notification No.15/2004-ST.
>(v) The question
therefore is whether Notification No.04/2005-ST expands the scope of the expression "gross amount charged" , since this expression in the
preamble to Notification No.15/2004-ST does not and cannot comprehend
value of "free supplies" by a construction service recipient.
>(vi) Some of the
Ld. Counsel for assesses contended that if the value of "free supplies"
by service recipients are enjoined to be included in the gross value
charged for the taxable service and the 'Explanation&# 39; were to be so
construed, Notification No.04/2004-ST would run foul of Section 67 of
the Act. In our considered view, this contention does not commend
acceptance. The several exemption Notifications including 12/2003-ST;
15/2004-ST, 04/2005-ST, 18/2005-ST, 19/2005-ST and 01/2006-ST, are
exemptions provided in exercise of powers under section 93 (1) of the
Act, a provision which authorizes grant of exemption, generally or
subject to conditions as may be specified, from the whole or any part of service tax leviable on a taxable service. In incorporating conditions
for grant of exemption, the Government is therefore at liberty to
define, for example, what components should comprise the gross value
charged for providing a taxable service. Mere enlargement of the
contours of "gross amount charged" in a condition incorporated in an
exemption Notification would not amount to bringing to the tax net a
value which is not taxable under Section 67 of the Act. Such a condition would normally indicate that the specified exemption is granted subject to a condition which requires a wider incorporation into the value of
the taxable service, for the limited purpose of computing the extent of
exemption. A condition expanding the scope of "gross taxable value" for
the limited purpose of granting exemption would therefore only mean that the exemption provided is not so generous as facially appears. Any such condition in an exemption Notification would not therefore and per - se violate the provisions of Section 67 of the Act and for that singular
reason. The interpretive problematic however is that the 'Explanation&# 39;
has not by itself introduced the expression "gross amount charged" into
the Notification and proceeded to define it. The Explanation, on the
other hand seeks to define "gross amount charged" , an expression already employed in the preamble to Notification No. 15/2004-ST; and in the
preamble the expression is used in the context of Section 67, a
provision dealing with valuation of taxable services.
>(vii) The
alternative and the substantive contention on behalf of assessees is
however that the expression "goods and materials used by the provider of the construction service for providing such service" , in the
Explanation to Notification No. 15/2004-ST must be considered as use of
materials belonging to the service provider and used in the provision of service; but excluding goods and materials belonging to /owned by the
service recipient and provided to the service provider free of cost, for incorporation in construction service. A nuance of this contention is
that the goods and materials used must connote those goods and materials as are charged on the service recipient. It is argued that only a
benefit, monetary or non-monetary accruing to the service provider from
the taxable service provided constitutes the value of the taxable
service and that value alone is legitimately susceptible to the levy of
service tax. Revenue contends that the literal meaning of expression
"used" in the explanation must be given its full and plenitudinous
effect and ought not to be restricted by reference to the other two
expressions "supply" and "provided nor by reference to the meaning of
the expression "gross amount charged" , in the preamble to Notification
No.15/2004-ST. Assessees would argue that the interpretive principle of " Noscitur A Sociis " or the analogy of the " Ejusdem generis " principle should be employed, to hold that goods and materials "used" would mean
goods and materials supplied or provided by the provider and 'used' for
providing the construction service, i.e. goods and materials, the value
whereof is charged to the service recipient.
>(viii) The
expression "used" in the 'Explanation&# 39; to Notification No.15/2004-ST is
the problematic. It is preceded by two other expressions "supply" and
"provided" ;, the three expressions interspersed by the disjunctive "or" .
The expression "used" would bear a particular meaning on its literal
construction but becomes plurilisignative in the society of the two
other expressions. This potential for multiple meanings of the
expression 'used', has triggered the forensic effort of assessees'
counsel, inviting us to apply the noscitur principle. This principle is
part of linguistic cannons of construction which govern elaboration of
the meaning of individual words and phrases by drawing certain
inferences. Noscitur is the genius of a family of principles embedded in well-known latin maxims. The general principle of construction is that
an Act or other legislative instrument is to be read as a whole, so that the enactment within it is not treated as standing alone but is
interpreted in its context, as part of the instrument. The noscitur
principle posits that a statutory term is recognised by its associated
words i.e. in an associational context, whereby the word or phrase is
not construed as if stood alone but in the light of its surroundings. An associated principle states: Noscitur ex socio, qui non cognoscitur ex
se (what cannot be known in itself may be known from its associate).
Lord Diplock cautioned that the maxim noscitur sociis is always a
treacherous one unless you know the societas to which the socii belong
- Liteteng vs. Cooper (1965) 1 QB 232. The latin word societas
means 'society' and the nature of the intended society (if any) can only be gathered from the words used. There may not be any precise
intention, but the colour of the members of the society (socii) is
nevertheless an approximate indication of meaning." (Bennion on Statutory Interpretation Fifth Edition)
>As Bennion (supra) points out, Maxwell explained that the principle means that when two or more words which are susceptible of analogous meaning are coupled
together, they are understood to be used in their cognate sense. They
take, as it were their colour from each other, that is, the more general is restricted to a sense analogous on to a less general. This
exposition of the principle was quoted with approval by Gajendragadkar J in State vs. Hospital Mazdoor Sabha AIR 1960 SC 610.
>(ix) The Noscitur
principle was applied in a number of cases in the Indian context though
always accompanied with the caveat that it is a principle with some
treacherous implications - vide State of Bombay v. Hospital Mazdoor Sabha(supra) AIR 1960 SC 610; Bank of India vs. Vijay Transport AIR 1988 SC 151 ; Rohit Pulp and Paper Mills Ltd. V. Collector of Central Excise AIR 1991 SC 754 =(2002-TIOL- 577-SC-CX) ; Kerala State Housing Board vs. Rampriya Hotels (P) Ltd., JT 1994 (5) SC 113 ; Samatha vs. State of Andhra Pradesh AIR 1997 SC 3297 ; K. Bhigirathi G. Shenoy vs. K.B. Ballakuraya, JT 1999 (2) SC 563 ; Godfrey Phillips vs. State of U.P. (2005) 2 SCC 515 = (2005-TIOL- 10-SC-LT- CB) ; Commrs. V. Savoy Hotel (1966) 2 ALL ER 299 ; Bageshwari Charan Singh v. Jagannath AIR 1932 PC 55 ;M.K. Ranganathan v. Government of Madras AIR 1955 SC 604 ; State of Assam v. Ranga Muhammad AIR 1967 SC 903 ; Acqueous Victuals Pvt. Ltd. vs. State of U.P. AIR 1998 SC 2278 ; State of Karnataka vs. Union of India AIR 1978 SC 68 ;Rainbow Steels Ltd. vs. Commissioner of Sales Tax AIR 1981 SC 2101 ; Pardeep Aggarbatti,
Ludhiana v. State of Punjab AIR 1998 SC 171, p. 173 ; G.
Radhakrishna Murthy & Co. V. Commercial Tax Officer, JT 1998 (4) SC
426 ;Stonecraft Enterprises v. Commissioner of Income – Tax, JT 1999 (2) SC 332, p. 34 ; Leelabai Gajanan Pansare v. Oriental Insurance Company Ltd (2008) 9 SCC 720.
>(x) In Rohit Pulp
and Paper Mills Ltd., the issue before the Court was whether "coated"
paper even where employed as printing and writing paper and not used for industrial purposes would be entitled to concessional rate of excise
duty under Notification No.25/84-CE. A proviso to the said Notification
excluded the benefit of concessional rate of duty under the said
Notification to enumerated categories of paper. These were: cigarette
tissue, glassine paper, grease proof paper, coated paper (including
waxed paper). The assessee was manufacturing art paper and chromo paper. These two types of papers admittedly fall under the category of
"printing and writing paper" as also under the description of "coated
paper". Since these two types were "coated papers" , Revenue concluded
that they were not entitled to the concessional rate of duty under the
Notification. Allowing the appeal of the assessee, the Supreme Court
applied the noscitu r principle to conclude that the expression "coated
paper" must be considered as analogous to other types of papers which
are excluded the benefit of concessional rate of duty and so construed,
the exclusion would be applicable only to coated paper used for
industrial purposes and not to coated varieties of printing and writing
paper. Analyses and application by the Supreme Court of the noscitur
principle provides guidance on the application of the principle. We
quote :
>".. ......... ..... In other words, it is submitted that the word `coated paper' should be
interpreted by applying the principle of "Noscitur A Sociis" or on the
analogy of the "Ejusdem generis" principle. This contention, it is
submitted, is re-inforced by two considerations. The first is that the
Government must have had some idea or principle in putting together the
exceptions and there is no conceivable principle other than the one
enunciated. The second consideration is the addition of the words used
in parenthesis along with `coated paper' viz. "(including waxed paper)" . It is pointed out that waxed paper obviously means coated paper because waxed paper is nothing but paper coated with wax and would have anyhow
been covered by the exception. Nevertheless, it was considered
necessary, it is said, to specifically include it in order to make it
clear by this illustration that only industrial paper like waxed paper
is taken out from the concession. The words in parenthesis are, in other words, the words illustrative of the limitation to be read into the
expression `coated paper'. It is finally argued that, even if the words
of the proviso are capable of being construed in a wider manner so as to deny exemption to all kinds of coated paper, the Court should apply the well established principle of construction of taxing statutes that an
ambiguous provision should be interpreted in favour of the subject.
>>We have
considered the contentions urged on both sides and we have come to the
conclusion that there is force in the appellant' s contentions. All the
three notifications we have extracted above draw a distinction between
printing and writing paper on the one hand and other types of paper on
the other. They also show that the duty on printing and writing paper is generally less than that on the other varieties of paper. Though paper
can be classified into various varieties, it does appear that one such
classification is between industrial paper and cultural paper....... ...
>>" It is true
that no meticulous reasons can always be made available or discovered
for variations in rates of duty as between various types of goods and
the absence of some common thread in relation to a set of goods treated
alike may not necessarily render the classification irrational or
arbitrary. But, at the same time, one can legitimately postulate that
the denial of a concession to a group proceeds on the basis of some
aspect or feature common to all items in the group. If such a principle
can be conceived of which would rationalise the inclusion of all the
items, it would be quite reasonable and proper to give effect to a
construction of the notification as will accord with that principle. It
is this which the appellant has attempted to do and we are inclined to
think that the ratiocination of the exceptions suggested, far from being artificial or far-fetched, is a plausible and likely one that the
Government could have had in mind and that it should be accepted.
>>The maxim of
noscitur a sociis has been described by Diplock, J. as a "treacherous
one unless one knows the societas to which the socii belong" (vide :
Letang v. Coopex, 1965-1 Q.B. 232). The learned Solicitor General also
warns that one should not be carried away by labels and Latin maxims
when the word to be interpreted is clear and has a wide meaning. We
entirely agree that these maxims and precedents are not to be
mechanically applied; they are of assistance only in so far as they
furnish guidance by compendiously summing up principles based on rules
of common sense and logic. As explained in Collector of Central Excise
v. Parle Exports (P) Ltd. - 1989 (38) E.L.T. 741 (S.C.) = (2002- TIOL-401- SC-CX) and Tata Oil Mills Co. Ltd. v. C.C.E. - 1989 (43) E.L.T. 183 (S.C.) = (2002- TIOL-255- SC-CX) in interpreting the scope of any notification, the Court has first to keep in mind the object and purpose of the notification. All parts of it
should be read harmoniously in aid of, and not in derogation, of that
purpose. In this case, the aim and object of the notification is to
grant a concession to small scale factories which manufacture paper with unconventional raw materials. The question naturally arises : Could
there have been any particular object intended to be achieved by
introducing the exceptions set out in the proviso. Instead of proceeding on the premise that it is not necessary to look for any reason in a
taxing statute, it is necessary to have a closer look at the wording of
the proviso. If the proviso had referred only to `coated paper', no
special object or purpose would have been discernible and perhaps there
would have been no justification to look beyond it and enter into a
speculation as to why the notification should have thought of exempting
only `coated paper' manufactured by these factories from the purview of
the exemption. But the notification excepts not one but a group of
items. If the items mentioned in the group were totally dissimilar and
it were impossible to see any common thread running through them again,
it may be permissible to give the exceptions their widest latitude. But
when four of them - undoubtedly, at least three of them - can be brought under an intelligible classification and it is also conceivable that
the Government might well have thought that these small scale factories
should not be eligible for the concession contemplated by the
notification where they manufacture paper catering to industrial
purposes, there is a purpose in the limitation prescribed and there is
no reason why the rationally logical restriction should not be placed on the proviso based on this classification. In our view, the only
reasonable way of interpreting the proviso is by understanding the words `coated paper' in a narrower sense consistent with the other
expressions used therein.
>(xi)
In Pardeep Aggarbatti, the issue was whether Dhoop and Aggarbatti were
covered by the word 'perfumery' . Entry 16 of Schedule A of the Punjab
General Sales Tax Act, 1948 during the relevant period read " cosmetics, perfumery and toilet goods, excluding tooth paste, tooth powder, kumkum and soaps". The said entry was bifurcated into entries 16 and 16A by a
subsequent Notification No. 289/79. The issue was whether "Dhoop and
Aggarbatti" were covered under 'perfumery" in entry No.16 (prior to its
bifurcation, since the transaction was entered into before the entry was bifurcated). Allowing the assessee' s appeal, Supreme Court applied the
noscitur principle to hold that 'perfumery' , in the context in which the word is used has no application to "Dhoop and Aggarbatti" . The Supreme
Court explained:
>"9. Entries in the Schedules of Sales tax and Excise statutes list some
articles separately and some articles are grouped together. When they
are grouped together, each word in the Entry draws colour from the other words therein. This is the principle of noscitur a sociis.
>>10. We are in
no doubt whatever that the word "perfumery&quo t; in the said Entry No. 16
draws colour from the words `cosmetics&# 39; and `toilet goods' therein and
that, so read, the word `perfumery&# 39; in the said Entry No. 16 can only
refer to such articles of perfumery as are used, as cosmetics and toilet goods are, upon the person. The word "perfumery&quo t; in the context in
which it is used has, therefore, no application to `dhoop' and
`aggarbatti&# 39;. The distinction between the present case and the case of
Indian Herbs Research and Supply Company is evident for the word
`perfumes' in the entry under consideration in the latter case was not
limited by the words before and after, as in the entry before as; both
the words `scent' and `perfumes' related to articles that produced
fragrances. "
>(xii) Earlier, in Hariprasad Shivshankar Shukla and another vs. A.D. Divelkar and Others - 2002- TIOL-447- SC-MISC-CB, the Supreme Court applied the noscitur principle to infer a contextual
meaning to the phrase "for any reason whatsoever" , occurring in Section
25F of the Industrial Disputes Act, to hold that termination of a
workman occasioned by a bonafide closure of the business is excluded and would not amount to retrenchment within the meaning of the expression
in Section 25F.
>(xiii) Elaborating on the noscitur principle it is contended that the expression "used" in the Explanation to Notification No. 15/2004-ST (to explain the meaning
of "gross amount charged" , an expression in the preamble to the
Notification) , cannot be construed, in so far as language permits, as be inconsistent with the meaning of the expression "gross amount charged"
in the preamble to the Notification. In substance, the contention is
that the Notification exempts service tax to the extent of the tax
leviable on 67% of the "gross amount charged" , in relation to
construction service; Section 67 (a provision dealing with valuation of
taxable services for charging tax) enacts that the value of any taxable
service shall be the "gross amount charged" ; and "gross amount charged"
under Section 67 would not include the value of free supplies. We have
also concluded that that is the position; that implicit in this
legislative architecture (of Section 67) is the concept that any value
to constitute a consideration, whether monetary or otherwise should have flown or should flow from a service recipient to a service provider and should accrue to the benefit of the later; and that this is a
precondition of taxability under Section 67. On this syllogism, in
defining to explain the meaning of "gross amount charged" , the
Explanation could not be construed as expanding the scope of "gross
amount charged" in the preamble to the Notification, is the contention.
>(xiv) The appellants placed reliance for the above proposition on Bihta Cooperative Development Cane Marketing Union Ltd. vs. Bank of Bihar & Others AIR 1967 SC 389. The core issue in Bihta was whether Explanation (1) to Section 48(1) of the Bihar and Orissa Cooperative Societies Act, 1935 ousts the jurisdiction of the Civil Court in respect of disputes other than those covered by
Clauses (a) to (e) of Section 48(1). Allowing the appeal, the Supreme
Court observed that the word "non-member&qu ot; was not found in the
Explanation to the Section before the 1948 amendment of the Act; that
Clause (e) was added to Section 48 (1) by the 1948 amendment; that by
the addition of Clause (e), a dispute between the financing bank
authorised under the provisions of Section 16(1) and a person who is not a member of a registered society could also be referred to the
Registrar; and that Explanation (1) cannot be considered as enlarging
the scope of the main Section 48(1), so as to make all kinds of disputes between a registered society and a non-member cognisable by the
Registrar and thus excluding the jurisdiction of the ordinary courts.
The following observations of Supreme Court (explaining the scope of the Explanation and notwithstanding its broad cover), are relevant:
>"9. We find ourselves unable to accept this contention. Before the
amendments introduced in 1948, the Explanation to the section made no
mention of non-members and non-members had to be included in the
Explanation because of the inclusion of this class of persons in
category (e) of sub-s.(1) of s.48. The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It
should not be so construed as to widen the ambit of the section. The
scheme of sub-section (1) of s.48 seems to be that certain disputes
touching the business of a registered society should not be taken to
civil courts and made the subject matter of prolonged litigation. The
legislature took pains to specify the persons whose disputes, were to be subject matter of reference to the Registrar. Non-members did not come
into the picture at all. Non-members other than officers, agents or
servants of the society do not figure in sub-cls.(a) to (d) except as
sureties of members. By sub0cls.(e) only those non-members who had
disputes with a financing bank authorised under the provisions of
sub-s.(1) of s. 16 were made amendable to the jurisdiction of the
Registrar. It was probably thought desirable in the interest of the
financing bank which might otherwise be faced with litigation in a civil court in respect of its ordinary day-to-day transactions of advances to agriculturists who were non-members that disputes between the society
and this class of person should be quickly and inexpensively adjudicated upon by the Registrar. Before the amendment of 1948, the Explanation
only served to clear up the doubt as to whether a dispute was referable
to the Registrar when the debt or demand was admitted and the only point at issue was the ability to pay or the manner of enforcement of
payment. As already pointed out by this Court, the Explanation had to
include non-members after the insertion of category (e) in sub-s.(1) of
s.48. The purpose of the Explanation never was to enlarge the
scope of sub-s.(1) of s.48 and the addition of category (e) to that
sub-section and the inclusion of non-members in the Explanation cannot
have the effect " .
(Emphasis added)
(xv) The principle in Bihta Co-operative was applied again in M/s Oblum Electrical Industries Pvt. Ltd. Hyderabad vs. Collector of Customs, Bombay (1997) 7 SCC 581 = (2002-TIOL- 218-SC-CUS) . In this case the issue was whether customs duty exemption could be
claimed on imported crystal beams. Explanation (viii) to Notification
No. 116/88-Cus dated 30.03.1988 as defined "materials&quo t; as meaning goods
which are raw material, components, intermediate products or consumables used in the manufacture of the resultant products and their packings or mandatory spares to be exported in the resultant products. Imported
crystal beams were actually used in kilns for manufacture of porcelain
insulators. Allowing the assessee' s appeal, the Court observed that in
trying to explain the language used in an exemption Notification, one
must keep in mind (a) the object and purpose of the exemption; and (b)
the nature of the actual process involved in the manufacture of the
commodity in relation to which exemption is granted. The principle and
its application to interpretation of the relevant part of the
Explanation, is set out in paras 12 and 13 of the judgment, which read:
>"12. It is true that in Clause (viii) of the Explanation to the Notification expression 'materials' has been defined to mean goods which are raw
materials, components, intermediate products or consumables used in the
manufacture of resultant products and their packings or mandatory spares to be exported in the resultant products. But the said definition in
the Explanation has to be read in consonance with the main part of the
notification. It is a well settled principle of statutory construction
that the Explanation must be read so as to harmonize with and clear up
any ambiguity in the main provision. (See: Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar MANU/SC/0260/ 1966:
[1967]1SCR 848. The definition of "materials&quo t; in Clause (viii) of the
Explanation mast, therefore, be so construed as not to eliminate the
distinction between the words materials required for the purpose of
manufacture of products and the words materials used in the manufacture
of the resultant products in the main part of the definition.
>>13. On a
proper Construction the definition of "materials&quo t; in Clause (viii) of
the Explanation must be confined in its application to the word
"materials&quo t; in the expression replenishment of materials used in the
manufacture of the resultant products in Notification No. 116/88-Cus.
Dated March 30, 1988".
>(xvi) Reliance is also placed by appellant on several judgments which
propound the principle that the charging section of a taxing statute
would not be attracted where the corresponding computation provision is
inapplicable. In CIT, Bangalore vs. B.C. Srinivasa Setty (1981) 2 SCC 460 = (2002-TIOL- 587-SC-IT- LB) the question was whether capital gains could arise, under Section 45 of the Income Tax Act, 1961, on transfer of its goodwill by the assessee –
firm to the newly constituted firm. Dismissing the appeal by Revenue,
the Supreme Court observed:
>"The character of the computation provisions in each case bears a
relationship to the nature of the charge. Thus the charging section and
the computation provisions tougher constitute an integrated code. When
there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the
charging section. Otherwise one would be driven to conclude that while a certain income seems to fall within the charging section there is no
scheme of computation for quantifying it. The legislative pattern
discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through
the entire conspectus of provisions pertaining to each head of income.
No doubt there is a qualitative difference between the charging
provision and a computation provision. And ordinarily the operation of
the charging provision cannot be affected by the construction of a
particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain
interpretation is pressed on the charging provision. That pertains to
the fundamental integrality of the statutory scheme provided for each
head".
>The
Supreme Court also observed that none of the provisions pertaining to
the head "Capital gains" suggest that they include an asset in the
acquisition of which no cost at all can be conceived.
>(xvii) Ld. Counsel also refers to the observations in Govind Saran Ganga Saran vs. Commissioner of Sales Tax 1985 (Supp) SCC 205 = (2002-TIOL- 589-SC-CT) . The observation of the Court to which our attention is drawn are set out in paragraph 6 where the Court explain the components which enter into the concept of a tax. The Court pointed out that among the components are
firstly, the character of the imposition, known by its nature which
prescribes the taxable event attracting the levy; the second is a clear
indication of the person on whom the levy is imposed and who are obliged to remit the tax; the third is the rate at which tax is imposed; and
the fourth is the measure or value to which the rate would be applied,
for computing the tax liability. The Court proceeded to observe that if
those components are not clearly and definitely ascertainable, it is
difficult to say that the levy exists in point of law; and any
uncertainty or vagueness in the legislative scheme defining any of those components of the levy, will be fatal to its validity. This principle
is analogous to the principle that a liability to tax could not be
inferred on a doubtful or an ambiguous provision and the benefit of
ambiguity must be resolved in favour of the assessee and against
Revenue.
>(xviii) Assessee' s rely on the above judgments to contend that since the expression
"used" , in the Explanation to Notification No. 15/2004-ST is inherently
ambiguous and more so in the context of the other expressions therein
i.e. "supplied" ; or "provided" ;, the noscitu r principle must be applied
to conclude that only such goods and materials which are "supplied" ; by
the service provider or "provided" ; by the service provider or "used"
when supplied or provided by the service provider, i.e., goods and
materials whether supplied, provided or used in the construction and
charged on the service recipient and the value whereof is received by
the provider towards a consideration that accrues to the provider' s
benefit, would alone comprise the "gross amount charged" by the provider for providing construction service; and the value of such material
alone would form part of the "gross amount charged" within the meaning
of Section 67; and for the purpose as well, of availing the benefits
under Notification No. 15/2004-ST (apart from the other conditions
therein). Alternatively, it is contended that since the value of free
supplies is incapable of computation (since no principle of computation
of free supplies is indicated and the provisions of Section 67(1) (iii)
would not apply as free supplies would not fall within Section 67), the
computation provision fails and consequently this restriction on the
availability of the benefits of exemption under the said Notification
would nugatory.
>(xix) Shri Mittal, for the assessees would rely on the judgment in Associated Cement
Companies Ltd. vs. State of Bihar and Others (2004) 7 SCC 642 . The
issue was whether the assessee was entitled to avail reduction of sales
tax liability to the extent of entry tax paid, though it was granted
exemption from sales tax on additional/ incremental production. The
exemption Notification provided for reduction of the liability of an
importer of cement to sales tax on sale of such cement, to the extent of entry tax paid by him. The assessee imported cement by paying the tax
but was granted exemption from Sales Tax Act on the additional /
incremental production of cement, under a scheme. In these
circumstances, allowing the assessee' s appeal, the Supreme Court
observed that the question of exemption arises only when there is a
liability and that exigibility to tax is not the same as the liability
to pay tax; that the former depends on the charge created by the
Statute, the latter on computation in accordance with the provisions of
the Statute and the Rules framed there under if any; and that liability
to pay tax and the actual payment of tax are conceptually different. The observation of the Court that exemption presupposes a liability and
unless there is liability, the question of exemption does not arise,
were made in that context. In the reference before us it is not the case that there is no liability to tax on construction services under the
scheme of the Act. Since there is admittedly such liability exemption
Notification No. 15/2004-ST was issued (and benefits thereunder are
claimed). We are only concerned with the scope of the expression "used"
in the Explanation to the said Notification, introduced by Notification
No. 4/2004-ST. On the same premise, the decision in Peekay Re-Rolling Mills (P) Ltd., vs. Assistant Commissioner 2007 (219) ELT 3 (SC) = (2007-TIOL- 43-SC-CT) cited by Shri Mittal for the same proposition, does not really assist in
interpretation of the expression "used" nor for resolution of the issue
referred to this Bench.
11. Etymologically the words supplied and provided are closely associated
words. Pr ovided also means to supply; furnish. S upply bears a similar
connotation. The word used is structurally associated (in the
Explanation) with the earlier two words and the three words are employed to define the meaning of the expression gross amount charged, an
expression that occurs in the preamble to Notification No. 15/2004-ST.
The word use variously means cause to act or serve for a purpose; avail
oneself of; exploit for one's own ends; the right of power of using.
12. The word use therefore has multiple connotation and bears different
meanings depending upon the context. The word used is therefore per se
ambiguous or obscure. Since in its preambular context, the expression
gross amount charged (as our analysis has concluded) means an amount
charged on the service recipient, received by the provider and accruing
to the benefit of the later in relation to the taxable service provided
and the Explanation seeks to define gross amount charged, an expression
occurring in the preamble, by employing three words to contextualise the definition – supplied, provided, used, we are satisfied that
application of the noscitur principle could be gainfully employed to
identify the legal meaning of the word used from several grammatical/
literal meanings of the said word, by employing the associational
context. It is true, as contended by Revenue, that even if one of the
literal meanings of the expression used, namely free supplies used is
considered as the legal meaning as well, construction service providers
may not be handicapped as they may seek benefits under Notification No.
12/2003-ST. In our view however the fact that the assessee have an
alternative recourse to avoiding the rigour cannot be the criterion for
interpreting the Explanation. This contention by Revenue proceeds on a
fallacious comprehension of Notification No. 12/2003-ST. The benefits
under this Notification are only in respect of the value of goods and
materials sold by a service provider to the recipient of a taxable
service. In the case of free supplies by the recipient there is no sale
or transfer of title in the goods and materials in favour of the service provider, at any point of time. Therefore when free supplied goods and
materials are incorporated into the construction would be no sale by the provider to the recipient either. Notification No. 12/2003-ST would
therefore be inapplicable.
13. In any event, provisions of the Explanation must be interpreted and the true meaning of the problematic expressions therein ascertained,
independent of a cost - benefit analysis.
14. Board Circular dated 16.02.2006 (a circular issued subsequent to the
introduction of the Explanation in Notification No. 15/2004-ST) and in
the context of an identical Explanation introduced in Notification No.
18/2005-ST, clarified that gross amount charged shall include the value
of goods and materials supplied. This circular constitutes contemporanea expositio of the meaning of the Explanation in Notification No.
18/2005-ST.
15. From the several aids to interpretation, referred to (supra) we are
compelled to conclude that goods and materials, supplied/ provided/ used by the service provider for incorporation in the construction, which
belong to the provider and for which the service recipient is charged
towards the value of such supply/ provision / use and the corresponding
value whereof was received by the service provider, to accrue to his
benefit, whether independently specified as attributable to the specific material/ goods incorporated or otherwise, would alone constitute the
gross amount charged., This is not to say that an exemption Notification cannot enjoin a condition that the value of free supplies must also go
into the gross amount charged for valuation of the taxable service. If
such intention is to be effectuated the phraseology must be specific and denuded of ambiguity.
16. In conclusion we answer the reference as follows:
(a) The value of
goods and materials supplied free of cost by a service recipient to the
provider of the taxable construction service, being neither monetary or
non-monetary consideration paid by or flowing from the service
recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of
the later expression in Section 67 of the Finance Act, 1994; and
>(b) Value of free
supplies by service recipient do not comprise the gross amount charged
under Notification No. 15/2004-ST, including the Explanation thereto as
introduced by Notification No. 4/2005-ST.
17. Consequent on our answer to the reference, the appeals shall be listed
before the appropriate Bench for disposal on merits and in accordance
with this decision, to the extent applicable to each of the appeals.
(Pronounced in the Court on 06.09.2013). --
Regards,
Alternate Minimum Tax – Section 115JC
Posted In Income Tax | Articles | No Comments »
Background and Provisions
The Alternate Minimum Tax (AMT) is income tax imposed by the United States federalgovernment on individuals, corporations, estates and trusts. The AMT was enacted in 1982.
This concept was taken by India in the Finance Act, 2011. Finance Act, 2011
introduced a new "Chapter XIIBA" to provide payment of Alternate Minimum Tax (AMT) by LLPs and after that it has been amended by Finance Act,
2012 in which it is covered all non-corporate assesses. However, AMT is
not payable by Individual, HUF, Association of Persons/ Body of
Individuals and Artificial judicial person if adjusted total income of such person does not exceed Rs 20 Lac.
The AMT is required to be paid at the rate of eighteen and half percentage as increased by education cess and higher secondary education cess i.e.
19.055%. The AMT is payable only if the tax payable under the normal
provision is lesser than AMT.
AMT will also apply to the assesses claiming profit linked deductions Part C of Chapter VI-A
i.e. under section 80-IA to 80RRB and under section 10AA. However,
deduction under section 80P shall not be added back. Also Deduction
under section 80C to 80GGC, 80U and 80TTA shall not be added back.
Further we have to say that if a person claims deduction under section 35AD,
then he is not eligible to claim deduction under section 80-IA/ 80-IB/
80-IC/ 80-ID. So, a person claims deduction under section 35AD is not
liable to pay AMT. Therefore, it is beneficial to the assessee to claim
deduction under section 35AD rather than to claim deduction under
section 80-IA/ 80-IB / 80-IC/80-ID.
The assessee has profits and gains of business or profession on presumptive basis under section
44AD, 44AE, 44B, 44BB, 44BBA and 44BBB. Section 44AD does not apply to
taxpayers claiming profit linked tax holiday. Therefore, total income is computed taken into account profits and
gains of business or profession on presumptive basis. If the assessee is eligible to take deduction under section 1 0AA or deduction under
Chapter VI-A, then such deductions shall be added back to thetotal
income for computation of adjusted total income.
Calculation of Adjusted Total Income
Total income as per normal provision of Income Tax Act xx
Add: Deduction under Part C of Chapter VI-A (Except Section 80P) xx
Add: Deduction under section 1 0AA (Profits of SEZ units) xx
AMT Credit
Section 11 5JD of the Act provides for tax credit of AMT. The Tax credit is allowed for that assessment year in which AMT is excess than tax payable under normal provisions. The tax creditis
allowed for next 10 assessment year in which tax payable under normal
provisions is more than AMT.
Illustration-
Ques:- If a LLP has net profit as per profit and loss account relating to the
year ended on 31/03/2013 R 248 Lac and paid R 2 Lac as advertisement
published in the souvenir released by BJP. Deduction of R 200 Lac is
also available to the LLP. Compute the tax liability.
Ans:- Computation of Total Income
Particulars (Rs In Lac)
Gross Total Income 248.00
Less: Deduction U/S 80GGC 2.00
Less: Deduction U/S 80-IE 200.00
Total Income 46.00
Tax Liability @ 30.9% 14.214
Computation of Adjusted Total Income
Particulars (Rs In Lac)
Total Income 46.00
Add: Deduction U/S 80-IE 200.00
Adjusted Total Income 246.00
Tax Liability @ 19.055% 46.8753
Tax Payable (Higher of Tax on Adjusted Total Incomeand Total Income) 46.8753
AMT Credit 32.6613
AMT can be carried forward upto Assessment Year 2023-24.
Report
As per section 115JC of the Income Tax Act, 1961, an assessee is liable to AMT should obtain a report in Form No- 29C prescribed under Rule 40BA
from CA certifying the adjusted total incomeand the alternate minimum
tax duly computed and furnish the report on or before the due date of filing the return u/s 139(1).
ICAI Guidance Note
ICAI through a Guidance Note clarified the following points to be included in CA reports-
The report consists of three paragraphs-
1- The First paragraph contains the declaration about the examination of
accounts and records of non- corporate assessee in order to arrive at
adjusted total income and the alternate minimum tax.
2- The Second paragraph involves certification of computation of
adjusted total income and thealternate minimum tax and also the tax
payable under section 115JC.
3- The Last paragraph requires expression of the opinion that the particulars given in Annexure A are true and correct.
Further ICAI clarified that Annexure A consists following points-
1- Name of the Assessee
2- Address of the Assessee
3- Permanent account Number
4- Assessment Year
5- Total Income of the Assessee as per manner laid down in Income Tax Act.
6- Income Tax Payable on total income referred in column 5 above.
7- The amount of deduction claimed under Part C of Chapter VI-A (except section 80P)
8- The amount of deduction claimed under section 1 0AA
9- Adjusted total income of the assessee (5+7+8)
10- Alternate Minimum Tax (19.055% of column 9 above)
Conclusion
* It can be concluded that the ICAI has imposed the higher responsibility on the CA to examine the records and certifying the correct Alternate
Minimum Tax through his report.
* It is a good concept to collect the minimum tax revenue from higher income earning assesses and restricts the tax evasion.
* The Government is able to plan the future programmes for the further development.
* Now a day, devaluation of rupees is a main problem for the India. So
imposition of this tax will reduce the luxury good's demand like gold
etc. and save the rupees value.
IT : Where Assessing Officer disallowed depreciation on goodwill for
earlier years but allowed same for current assessment year and for
subsequent years, Commissioner rightly assumed jurisdiction under
section 263 on premise that order was erroneous and had deprived revenue of certain amount of taxes
■■■
[2013] 36 taxmann.com 527 (Karnataka)
HIGH COURT OF KARNATAKA
Fibres and Fabrics International (P.) Ltd.
v.
Commissioner of Income-tax, Bangalore I*
D.V. SHYLENDRA KUMAR AND MRS. B.S. INDRAKALA, JJ.
IT APPEAL NOS. 119 & 120 OF 2013†
JUNE 21, 2013
Section 32, read with section 263, of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment years 2006-07 and 2007-08 - Whether
Commissioner, assumes jurisdiction on premise that order is erroneous
and had deprived revenue of certain amount of taxes, which is a
legitimate due by allowing a deduction otherwise not entitled for
deduction - Held, yes - Commissioner proposed to revise assessment on
ground that assessee had been disallowed depreciation on goodwill for
earlier years but for assessment year in question and for subsequent
years such depreciation had been allowed by Assessing Officer without
assigning any reason - Assessee raised objection pointing out that there was no error in order passed by Assessing Officer, and that without
order being erroneous, Commissioner did not assume jurisdiction -
Tribunal observed that Commissioner assumed jurisdiction only on
assessing authority having not given reason for passing of order;
therefore, Tribunal thought it not necessary to interfere on that ground and remanded matter to Assessing Officer directing not to go by
directions issued by Commissioner - Whether no prejudice was caused to
assessee under impugned order and in fact, it was an order more in
favour of assessee - Held, yes [Paras 16 & 17] [In favour of
revenue]
FACTS
■ The assessee had been disallowed depreciation on goodwill for earlier years but for the assessment year in question and for subsequent years the
Assessing Officer had allowed the depreciation on the goodwill part
without assigning any reason.
■ The Commissioner proposed to revise that part of the assessment order.
■ The assessee raised a preliminary objection pointing out that there was no
error in the order passed by the Assessing Officer; that without order
being erroneous, Commissioner does not assume jurisdiction and
therefore, he cannot pass any orders by issuing directions but
Commissioner nevertheless proceeded to pass an order that it had
jurisdiction to issue directions to the assessee to redo the assessment
in a particular manner.
■ The Tribunal directed the Assessing Officer to redo the matter after giving an opportunity of hearing to the assessee with a categorical direction
to the assessing authority not to go by the directions issued by the
Commissioner.
HELD
■ The Tribunal has rightly observed that the Commissioner assumed
jurisdiction only on the assessing authority having not given reason for passing of the order and therefore, the Tribunal thought it not
necessary to interfere on this ground, more importantly the Tribunal
directing the Assessing Officer for re-examining the matter in the light of the existing position of law. [Para 13]
■ Where an Assessing Officer does not assign any reason for passing an order
having effect on the revenue in the sense that allowing or disallowing a claim put forth by the assessee and if that is not the correct thing,
it can amount to an erroneous order. [Para 14]
■ The Commissioner whether he is right or wrong, assumes jurisdiction on the
premise that the order is erroneous and had deprived the revenue of
certain amount of taxes, which is a legitimate due by allowing a
deduction otherwise not entitled for deduction. The question is not
that, Commissioner is right or wrong but whether bona fide had assumed jurisdiction under section 263. [Para 16]
■ Be that as it may. Now that the direction issued by the Commissioner has
been set aside and the Tribunal by setting aside the direction issued by the Commissioner has remanded the matter to the Assessing Officer
applying the relevant case law, no prejudice is caused to the assessee
under the impugned order and in fact, it is an order more in favour of
the assessee. [Para 17]
CASES REFERRED TO
CIT v. Smifs Securities Ltd. [2012] 210 Taxman 428/24 taxmann.com 222 (SC) (para 10), CIT v. L.F. D'Silva [ 1991] 192 ITR 547/[[1992] 62 Taxman 161 (Kar.) (para 12) and CIT v. Infosys Technologies Ltd.[2012] 205 Taxman 98/17 taxmann.com 203 (Kar.) (para 14).
Nageswar Rao for the Appellant. K. V Aravind for the Respondent.
JUDGMENT
1. These appeals by the assessee is
directed against the order dated 9th November, 2012 passed by the Income Tax Appellate Tribunal in ITA Nos. 557 and 558/Bang/2012 for the
assessment years 2006-2007 and 2007-2008.
2. Assessee is a Private Limited Company. Under the impugned order, the Appellate
Tribunal had in fact allowed the appeals of the assessee though termed
it as for statistical purposes, had directed the Assessing Officer to
examine the claims put forth by the assessee to reconsider the question
of allowing depreciation on goodwill part of the assessee and for such
purposes, the Tribunal had directed the Assessing Officer to ignore the
earlier direction that had been issued by the Commissioner of Income Tax while revising the assessment order to disallow depreciation on the
goodwill part.
3. The assessee, it appears, had been disallowed such depreciation for earlier years but for the assessment year in question, the Assessing Officer
had allowed the depreciation on the goodwill part and for subsequent
years without assigning any reason, but it was done otherwise.
4. It is this part of the assessment orders the Commissioner proposed to
revise and the assessee had raised a preliminary objection pointing out
that there was no error in the order passed by the Assessing Officer;
that without order being erroneous, Commissioner does not assume
jurisdiction and therefore, he cannot pass any orders by issuing
directions but Commissioner nevertheless proceeded to pass an order that it has jurisdiction to issue directions to the assessee to redo the
assessment in a particular manner.
5. It is aggrieved by this order, the assessee had approached the Tribunal.
The Tribunal examined the contention of the assessee and thought it
proper to interfere with the direction given by the Commissioner to the
Assessing Officer and instead, directed the Assessing Officer to redo
the matter after giving an opportunity of hearing to the assessee with a categorical direction to the assessing authority not to go by
directions issued by the Commissioner (Appeals) which virtually amounts
to the Tribunal as appellate authority has set aside the direction
issued by the Commissioner.
6. It is against this remand order for the two assessment orders, the present appeals by the assessee. Appearing on behalf of the appellant/assessee, submission of Sri Nageshwar Rao, learned Counsel is that the Tribunal
has committed an error in not deciding the question of jurisdiction
which has been specifically raised by the assessee in the appeal; that
in the first instance, the Commissioner assumed jurisdiction by over
looking the objections raised by the assessee that the order was not
erroneous and secondly, the question is also concluded by a judgment of
the Supreme Court on the issue and therefore, the Tribunal should have
allowed the appeal on that ground instead of remanding the matter to the Assessing Officer.
7. It is also submitted that an Assessing Officer will not be in a position
to over look the directions that had been earlier issued by the
Commissioner, a Superior Officer and in this state of affairs, the
Tribunal instead of remanding the matter on such question, and for
overlooking the direction of the Commissioner, it should have proceeded
to hold that the Commissioner did not have any jurisdiction to pass any
order and therefore should have set aside the order passed in its
totality.
8. Notice had been issued to the respondent/revenue and the revenue is
represented by Mr. K.V. Aravind, learned standing Counsel. Both Counsel
for appellant and respondent being present and making submissions, we
have heard for disposal though the appeals have come up only for
Admission.
9. Mr. Aravind, learned Standing Counsel appearing on behalf of the
respondent/revenue points out that it is only a remand order passed by
the Tribunal and the order passed by the Assessing Authority for the
subsequent years without assigning reasons is an erroneous order coming
within the purview of the revisional jurisdiction of the Commissioner
under Section 263 of the Income Tax Act, 1961 (for short 'the Act').
10. Mr. Nageshwar Rao, learned Counsel appearing for the appellant places
strong reliance on the judgment of the Supreme Court in the case ofCIT v. Smifs Securities Ltd. [2012] 210 Taxman 428/24 taxmann.com 222. Submission placed on this decision is that a goodwill is held as part
of the asset within the scope of Section 32 of the Act in that case and
therefore, depreciation can be claimed etc.
11. We notice that the question really does not arise from the order of the
Tribunal for the simple reason that the Tribunal has not decided the
issue. Question of law arises from the order of the Tribunal only when
the question is decided by the Tribunal, one way or the other.
12. Mr. Nageshwar Rao, learned Counsel appearing on behalf of the petitioner
also places reliance on the judgment of this Court in the case ofCIT v. L.F. D'Silva [ 1991] 192 ITR 547/[1992] 62 Taxman 161. Submission is that reasoning given by the Commissioner alone will be
the criteria for invoking jurisdiction under Section 263 of the Act and
other authorities cannot supplement or give their own reasons and
therefore, the Tribunal could not have given any further reasons to
uphold the order of the Commissioner on the question of jurisdiction.
Submitted that the Tribunal giving the reasons that the question was
covered by the decision of the Supreme Court on the aspect whether the
Assessing Officers action was right or wrong could have been set right
by the Tribunal etc.
13. The Tribunal has rightly observed that the Commissioner assumed
jurisdiction only on the Assessing Authority having not given reason for the passing of the order and therefore, the Tribunal thought it not
necessary to interfere on this ground, more importantly the Tribunal
directing the Assessing Officer for re-examining the matter in the light of the existing position of law. In that view of the matter, we do not
think that the Tribunal has committed any error at variance with the
judgment relied upon by the learned Counsel and rendered by this Court
in the case of L.F. D'silva ( supra).
14. So far as the jurisdiction is concerned, that was not an issue before the
Supreme Court in the case relied on. We find by a judgment of this
Court, it has been held that where an Assessing Officer does not assign
any reason for passing an order having effect on the revenue in the
sense that allowing or disallowing a claim put forth by the assessee and if that is not the correct thing, it can amount to an erroneous order.
The Tribunal as well as the Commissioner of Income Tax have placed
reliance on the decision of this Court in the case of CIT v. Infosys Technologies Ltd.[2012] 205 Taxman 98/17 taxmann.com 203.
15. Mr. Aravind, learned Standing Counsel for the revenue points out to this
decision and submits that an assessment order without assigning reasons
is erroneous and prejudice to the interest of revenue if it has resulted in loss of revenue or has resulted in reducing the tax liability of an
assessee.
16. It is not for us to go into further facts on this aspect. The Commissioner whether he is right or wrong, assumes jurisdiction on the premise that
the order is erroneous and had deprived the revenue of certain amount of taxes, which is a legitimate due by allowing a deduction otherwise not
entitled for deduction. The question is not that, Commissioner is right
or wrong but whether bona fide had assumed jurisdiction under Section
263 of the Act.
17. Be that as it may. Now that the direction issued by the Commissioner has
been set aside and the Tribunal by setting aside the direction issued by the Commissioner has remanded the matter to the Assessing Officer
applying the relevant case law, we do not think any prejudice is caused
to the assessee under the impugned order and in fact, as pointed out by
the learned Standing Counsel for the revenue, it is an order more in
favour of the assessee, it is not necessary for us to go into further
aspects in this appeal when such facts had not been decided by the
Tribunal itself and therefore, these appeals are dismissed at the
admission stage as not raising questions of law which are required to be examined in an appeal under Section 260-A of the Act.
Execution of irrevocable power of attorney of a property in favour of land developers deemed as 'transfer&# 39;
IT: Where an irrevocable power of attorney was executed and registered
by a housing society, leading to overall control of property in hands of developer, it constituted transfer under section 2(47)
■■■
[2013] 36 taxmann.com 503 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Smt. Binder Khokher
v.
Assistant Commissioner of Income-tax, Circle -5(1), Chandigarh*
T.R. SOOD, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NO. 738 (CHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
JULY 31, 2013
I. Section 2(47) of the Income-tax Act, 1961, read with section 53A of
the Transfer of Property Act, 1882 - Capital gains - Transfer [Immovable property] - Assessment year 2008-09 - Assessee was a member of a
housing society which entered into a joint development agreement with
two developers, whereby each member was entitled to monetary
consideration and a flat in lieu of existing plot - An irrevocable power of attorney was also executed and registered in favour of developers -
Whether, an irrevocable general power of attorney leading to overall
control of property in hands of developer would constitute transfer
under section 2(47)(v), even if developer
did not have exclusive possession - Held, yes - Whether,
non-registration of joint development agreement cannot be reason for
non-applicability of section 2(47)(v) -
Held, yes - Whether, where developers were vigorously pursuing issue of
permission/sanction for executing agreement, requirement under section
53A of Transfer of Property Act, regarding willingness of transferee to
perform contract, was also fulfilled - Held, yes - Whether, therefore
capital gain tax had to be paid on total consideration arising on
transfer, including consideration already received as well as
consideration due and to be received later - Held, yes [Para 6] [In
favour of revenue]
II. Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house [Investment in new
residential house] - Assessment year 2008-09 -Whether, where assessee
was a member of a housing society which had entered into an agreement
with a developer, whereby members were to be given flats in lieu of
their plot, deduction under section 54F could not be allowed when
construction of such flat had not yet started as it could not be said
that amount had been invested in a new residential house - Held, yes
[Para 8] [In favour of revenue]
FACTS
■ The assessee was a member of a housing society, which transferred 27.3
acres of land to two Developers 'T' and 'H' under a Joint Development
Agreement, whereby each member having a plot of 500 sq.yd was entitled
to monetary consideration of Rs. 80 lakhs and furnished flat measuring
2250 sqft. An irrevocable Power of Attorney was executed in favour of
the developers. It was treated as a transfer under section 2(47) by
revenue and estimated at Rs. 5000 per sqft.
■ On appeal, assessee claimed that handing over of possession of property
was conditional in order to enable the builder to obtain necessary
permission from the Government agencies, and there was no transfer as
per section 2(47).
HELD
■ Identical issue came up for consideration in the case of Charanjit Singh Atwal v. ITO IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013, where it was held that
an irrevocable general power of attorney which leads to overall control
of the property in the hands of the developer, even if that means no
exclusive possession by the Developer, would constitute transfer. It can be said that it has to be construed as 'possession&# 39; in terms of clause (v) of section 2(47). [Para 6]
■ A reading of the clauses of the irrevocable Special Power of Attorney and JDA clearly show that the developer was authorized to enter upon the
property not only for the purpose of development but other purposes
also. 'T' was authorized to amalgamate the project with any other
project in the adjacent area or adjoining area as per the special Power
of Attorney. If the possession was never given to the developer by the
Society then how could the developer amalgamate the project with another project which may be acquired later in the adjoining area. [Para 6]
■ The position contemplated by clause (v) of section 2(47) need not be exclusive possession. What is required is
that the transferee by virtue of possession should be able to exercise
control for overall intended purposes. In the present case, the assessee had not given only a license as claimed by the assessee, because of the powers of selling, amalgamating etc. mentioned in the JDA and irrevocable Special Power of Attorney. [Para 6]
■ Also, it is not only the money which has been received by the assessee which
is required to be taxed, but the consideration which has accrued to the
assessee is also required to be taxed. [Para 6]
■ Non-registration of agreement cannot lead to the conclusion that provision of section 2(47)(v) is not applicable as claimed by assessee. [Para 6]
■ The combined reading of these clauses show that if any of the party could
not perform its part of the obligation because of the unforeseen
circumstances which included Government directions, Court orders,
injunctions etc. such party would not be liable to other party. In view
of Force Majeure clause which included Court injunction, it can not be
said that 'T' was not willing to perform its obligation as required
under section 53A of the Transfer of Property Act. In fact, The
developers i. e. 'T'/ 'H' were pursuing the issue of permissions/ sanctions vigorously. [Para 6]
■ A plain reading of section 2(47)(vi) shows that any transaction by way of becoming a Member or acquiring
shares in the Co-operative Society or shares in the company, which has
the effect of transferring or enabling the enjoyment of any immovable
property would be covered by the definition of transfer. In the present
case, initially the members of the society were holding shares in the
society for ownership of plot of 500 sq.yd or 1000 sq.yd. This
membership was surrendered to the society vide resoluti on of the society passed in the Executive Committee on 4-1-2007, which was later ratified in the General Body Meeting of the Society on 25-1-2007, so that the society could enter into JDA. In the JDA, the Society
agreed to transfer the land. Therefore, technically it can be said that
the developer i.e. 'T'/ 'H' had purchased
the membership of the members in the society which would lead to
enjoyment of the property and in that technical sense, clause (vi) of section 2(47) is applicable. [Para 6]
■ It was contended that since the society had transferred the land through
JDA on a pro-rata basis, therefore, only whatever money was received
could be taxed and notional income i.e. the money to be received later, could not be taxed. Though there is no
quarrel that it is a settled principle of law that notional income
cannot be taxed but in case of capital gain, section 45, which is
charging section and section 48, which is computation section, makes it
absolutely clear that rigor of tax in case of capital gain would come
into play on the transfer of capital asset and total consideration which is arising on such transfer, has to be taxed. Section 48 clearly talks
about full consideration received or accruing as result of transfer.
[Para 6]
■ Therefore, capital gain tax has to be paid on the total consideration arising on
transfer which would include the consideration which has been received
as well as the consideration which has arisen and become due and may be
received later on. [Para 6]
■ It was also contended that the assessee had already terminated the
agreement and had revoked the irrevocable power of attorney. [Para 6]
■ A reading of the termination clause of the JDA shows that power of
termination had been given in many circumstances to the developers. But
the right to terminate with the owner i.e.
the Society was available only in case of default in making the payment. There was no default on the part of developer in making the payment,
therefore, the assessee had no right to terminate the contract. In any
case, if the Society had some grievance it was duty bound to give a
notice for appointment of an Arbitrator to the developer. In the absence of such notice, the termination would not stand scrutiny of law as such irrevocable Power of Attorney cannot be revoked. [Para 6]
■ Therefore, following the decision in the case of Charanjit Singh Atwal (supra) this issue is decided against the assessee. However, it is found that in case of Charanjit Singh Atwal (supra) as well as other plot holders in the society, the flats had been valued at Rs. 4500 per sqft and since nature and specification of the flat
remains same, there is no justification in valuing the flat Rs. 5000 per sqft. Accordingly, the principle issue of tax on capital gain is
decided against the assessee, however, the Assessing Officer is directed to value the flat Rs. 4500 per sqft. [Para 6]
CASE REVIEW
Charanjit Singh Atwal v. ITO [IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013] (Para 6) followed.
CASES REFERRED TO
Charanjit Singh Atwal v. ITO [IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013] (para 2) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 5).
N.K. Saini for the Respondent.
ORDER
T.R. Sood, Accountant Member - This appeal is directed against the order dated 4-6-2012 of the Ld. CIT(A), Chandigarh.
2. Since the issues raised in this appeal were covered by other group of cases and particularly the lead case in case of Shri Charanjit Singh Atwal v. ITO in IT Appeal No. 448/Chd/2011, dated 29-7-2013 and therefore, we proceeded to hear this appeal on ex-parte basis because the issues raised are covered by the case of Shri Charanjit
Singh Atwal, ITA No. 448/Chd/2011 which has already been adjudicated by
us.
3. In this appeal the assessee has raised the following grounds:
"1 That the Learned CIT(A) has erred in law and on facts in upholding
reopening of proceedings U/s 147(3)/148 which were not valid as no copy
of the reasons recorded were furnished to the appellant.
2 That the learned CIT(A) has taxability of capital gain on notation
consideration not received by the appellant is erroneous in law. Handing over of possession of property was conditional in order to enable the
builder to obtain necessary permission from the Govt. Agencies. There is no transfer of property as envisaged u/s 2 (47) (vi) of the Income-tax
Act 1961.
3. That the learned CIT(A) has fallen in error in including the cost of flats
on estimation basis which could not be ascertained as no construction or other activity has been commenced by the Developer and hence no capital gains could be levied on the cost of flats on the date of the agreement i.e. 27-04-2007. That, the Assessing Officer has fallen in error and
has misconstrued the terms of the agreement dated 27-04-2007.
4. That the learned CIT(A) has also not allowed deduction u/s 54 F which was
eligible to the applicant since, he has included the cost of proposed
flat in the sale consideration. "
4. The Ld. DR for the revenue submitted that since the issue involved is same as in the case of lead case of Charanjit Singh Atwal (supra) and therefore same arguments may be adopted in this case.
5. Ground No. 1 - After considering the submissions of Ld. DR for the revenue and relevant material on record, we find that the facts of the case are
that original return of income was processed u/s 143(1) of the Act and
later on notice u/s 148 was issued. The issue regarding reopening the
assessment has been adjudicated by the Ld. CIT(A) vide para 4.2 to 4.2.2. which is as under:
"4.2 I have considered the facts of the case. The ld. counsel of the
assessee has himself mentioned from the 'reasons recorded' in his
submissions and so he is not correct in saying that the appellant was
not given the copy of reasons recorded.
4.2.1 The argument of the Ld. counsel of the assessee that notice u/s 148 had been issued to the Society also does not hold water since the appellant had been issued notice u/s 148 after recording proper reasons and it is none of the appellant' s business to point out as to which other persons had been issued notice u/s 148.
4.2.2 There was information available with the Assessing Officer that the
appellant, being a member of M/s Defense Services Co-operative House
Building Society Ltd., Mohali (who had 27.3 acres of land in village
Kansal and had entered into an agreement with TATA and HASH for sale of
land), had received Rs. 32 Lacs as consideration and was liable to pay
capital gain tax on sale of land. The appellant had declared Rs. 32 Lacs only as the sale consideration for the purposes of calculation of
capital gain on sale of land in the return of income originally filed
and the correct value of capital gain had not been declared. As the full value of consideration was at least Rs. 1,92,50,000. 00/- (Rs.
80,00,000/- monetary consideration and Rs. 1,12,50,000/ - as cost of
furnished flat of 2250 sq.feet), the Assessing Officer formed his
reasons to believe that some income had escaped assessment and so issued notice u/s 147 of the Act. It has been held by Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500) that at the stage of issue of notice u/s 148, the only question to be
seen is whether there was relevant material, on the basis of which a
reasonable person could have formed the requisite belief. Whether
material would conclusively prove escapement of income is not the
concern at the stage of issue of notice u/s 148. It is so because the
formation of belief is within the realm of the subjective satisfaction
of the Assessing Officer. In view of this judgment of Hon'ble Supreme
Court and by respectfully following the same, the action of the
Assessing Officer of reopening the assessment is upheld. Ground of
appeal No. 1 is dismissed."
Since original return was processed u/s 143(1) and the Revenue got
information later on that Defence Services Co-op House Building Society
Ltd. has transferred the land to developers to Tata Housing Development
Company Ltd. and Hash Builders Pvt. Ltd. therefore, the Ld. CIT(A) has
correctly adjudicated the issue in view of the decision of Hon'ble
Supreme Court in case of Asstt. CIT v. Rajesh Jhaveri Stock Broker (P.) Ltd.[2007] 291 ITR 500/161 Taxman 316.
6. Grounds No. 2 & 3 - We have considered the submissions of the ld. DR for
the revenue and carefully gone through the material available on record. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the
Joint Development Agreement. The assessee is a member of Defence
Services Co-op House Building Society Ltd. The Society has transferred
27.3 acres of land to the Developer i.e. M/s Tata Housing Development
Company Ltd. and M/s Hash Builders Pvt Ltd. A Member having plot of 500
sqyd was entitled to monetary consideration of Rs. 80 lakhs and
furnished flat measuring 2250 sqft which has been estimated by the
Revenue at Rs. 5000 per sqft. We further find that identical issue came
up for consideration in the case of Shri Charanjit Singh Atwal (supra) in ITA No. 448/Chd/2011 and others and it was held vide para 27 to 110 as under:
'27 We have considered the rival submissions and carefully gone through the written submissions filed by both the parties in the light of material
on record, paper books and various judgments cited by the parties. The
main issue is whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the JDA. For charging capital gains, the charging section is 45 and the relevant
portion is as under:—
Section 45. (1) Any profits or gains arising from the transfer of a capital
asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F 54G and 54H, be chargeable
to income-tax under the head "Capital gains", and shall be deemed to be
the income of the previous year in which the transfer took place.
28. The plain reading of the above provision would show that charging an
item of income under the head 'Capital gains" require three ingredients
i.e. ( i) there should be some profit. (ii) Such profit must be arising
on ac count of transfer and (iii) there should be capital asset which
has been transferred. There is no dispute that a capital asset was
involved and there was some profit also i.e. why assessee has himself
returned income under the head 'capital gains;. The dispute is mainly on account of transfer and that too whether the transfer could be covered
under clauses (ii), ( v) & (vi) of section 2( 47) so as to bring
into picture the whole of consideration arising on transfer of such
assets. W e shall deal with each of the aspect in detail at appropriate
time.
29. Apart from charging provisions u/s 45 another important provision is
section 48 which deals with the mode of computation and relevant portion reads as under:—
48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or
accruing as a result of the transfer of the capital asset the following
amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto:
30 Again plain reading would show that capital gain would be computed by considering the full value of consideration whether received or
accruing as a result of the transfer . Therefore, it is not only the
consideration received which is relevant but the consideration which has accrued is also relevant.
31. The expression 'transfer&# 39; has been defined u/s 2(47) of the Act which reads as under:—
2(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, 1882 (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.
Explanation. - For the purposes of sub-clauses (v) and (vi), "immovable property"
shall have the same meaning as in clause (d) of section 269UA;
Clauses (v) & (vi) to section 2(47) of the Act have been inserted by
Finance Act, 1987 w.e.f. 1-4-1988. The purpose of this insertion has
been explained by CBDT in Circular No. 495 dated 22-9-1987. The relevant part 11.1 and 11.2 of the circular reads as under:–
"11.1 The existing definition of the word " transfer " in section 2(47) does
not include transfer of certain rights accruing to a purchaser, by way
of becoming a member or acquiring shares in a co-operative society,
company, or as way of any agreement or any arrangement whereby such any
building which is either being constructed or which is to be
constructed. Transactions of the nature referred to above are not
required to be registered under the Registration Act, 1908. Such
arrangements confer the privileges of ownership without transfer of
title in the building and are a common mode of acquiring flats
particularly in multi-storeyed constructions in big cites. The
definition also does not cover cases where possession is allowed to be
taken or retained in part performance of a contract, of the nature
referred to in section 53A of Transfer of Property Act, 1882. New
sub-clauses (v) & (vi) have been inserted in section2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights
in the manner referred to above.
11.2 The newly inserted sub-clause (vi) of section 2(47) has brought in to
the ambit of transfer" , the practice of enjoyment of property rights
through what is commonly known as Power of Attorney arrangements. The
practice in such cases is adopted normally where transfer of ownership
is legally not permitted. A person holding the power of attorney is
authorized the powers of owner, including that of making construction.
The legal ownership in such cases continues to be with the transferor."
32. Before insertion of the clause (v) & (vi) to section 2( 47) of the
Act, the position of law was that unless and until a sale deed was
executed for transfer of immovable property, the same could not be
construed as transfer for the purpose of charging capital gain tax. This was particularly so in the light of various judgments particularly the
judgment of Hon'ble Apex Court in the case of Alapati Venkatramian vCIT (57 ITR 185) (SC). In this case it was held that in the context of transfer for the
purpose of capital gain tax, what is meant by transfer is the effective
conveyance of the capital asset by a transfer or to the transferee.
Delivery of possession and agreement to sell by itself could not
constitute conveyance of the immovable property. In the meantime apart
from this decision a practice came into vogue by which certain
properties were being transferred without executing the proper sale
deeds. This was being done because there was restriction on sale of
properties in various towns e.g. in case of lease hold plots and flats
in Delhi if the same were to be transferred, permission was required to
be taken from the Government/DDA and transferor was required to pay 50%
of the market value - cost (i.e. unearned increase) to the Government.
To avoid such payments and/or also to avoid the payment of stamp duty or cumbersome procedure of obtaining permission, some properties were
being sold by way of sale agreement and also execution of General Power
Of Attorney and possession was given on receipt of full consideration
without executing the proper sale deeds etc. which as mentioned earlier
was not even permissible in some cases. These transactions are popularly called "power of attorney" transactions. To avoid these and to stop the leakage of Revenue, the Parliament has inserted clauses (v) & (vi)
to section 2(47) so as such type of transactions are also be brought in
to taxation net. However, interpretations of these clauses has led to
lot of litigation and the main point of litigation was that at what
point of time the possession can be said to have been given. In the
present case, the Revenue has mainly relied on two decisions namely (i) Chaturbhuj Dwarkadas Kapadia vCIT 260 ITR 491 (Bom.) and; (ii) Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria 294 ITR 196.
33. In the case of Chaturbhuj Dwarkadas Kapadia v CIT ( supra), the facts before the Hon'ble Bombay High Court were that assessee who
was an individual had 44/192 undivided share in an immovable property in Greater Bombay which consisted of various lands and buildings. By
Agreement dated August 18, 1994, the assessee agreed to sell to Floreat
Investment Ltd. (herein referred to 'Floreat&# 39;) his share of immovable
property for a total consideration of Rs. 1,85,63,220/ - with right to
said Floreat to develop the property in accordance with the
rules/regulations framed by local authorities. For this purpose, the
assessee also agreed to execute a limited power of attorney authorizing
Floreat to deal with the property and also obtain permissions and
approvals from various authorities. Under clause 11 of the agreement, it was provided that after Floreat was given an irrevocable license to
enter upon the assessee' s share of property and after Floret investment
have obtained all necessary approvals, the Floret was entitled to
demolish various buildings for settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive
proportionate rent till the payment of last instalments and till that
time assessee was bound to pay all outgoings. Under clause 20 of the
Agreement, it was agreed that sale shall be completed by execution of
conveyance, however, till the matter was adjudicated by the Hon'ble High Court, no conveyance was executed. Pursuant to this agreement, Floreat
obtained various permissions namely (i) clearance from CRZ Authority
dated February 7, 1996; (ii) letter from ULC for redevelopment of
property dated April 26, 1995. Other permissions were also obtained
during the financial year ending March 31, 1996 relevant to assessment
year 1996-97. By March, 31, 1996, Floreat had paid almost the entire
consideration expect for a small sum of Rs. 9,98,000/-. However, the
commencement certificate permitting construction of the building was
issued on November 15, 1996. The power of attorney was executed on March 12, 1999. The question arose whether liability of the assessee for
capital gain arose in the assessment year 1996-97 or 1999-2000. The
observation of the Court has been summarized in head note as under:-
"Clauses (v) and (vi) were introduced in section 2( 47) of the Income-tax Act,
1961, with effect from April 1, 1988. They provide that "transfer "
includes ( i) any transaction which allows possession to be
taken/retained in part performance of a contract of the nature referred
to in section 53A of the Transfer of Property Act, 1882, and ( ii) any
transaction entered into in any manner which has the effect of
transferring or enabling the enjoyment of any immovable property.
Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of
the immovable property is not effective or complete under the general
law. Under section 2( 47)(v ) any transaction involving allowing of
possession to be taken over or retained in part performance of a
contract of the nature refer red to in section 53A of the Transfer of
Property Act would come within the ambit of section 2(47)(v). In order
to attract section 53A, the following conditions need to be fulfilled.
There should be a contract for consideration ; it should be in writing ; it should be signed by the transfer or ; it should pertain to transfer
of immovable property ; the transferee should have taken possession of
the property ; lastly , the transferee should be ready and willing to
per form his part of the contract. Even arrangements confirming
privileges of ownership without transfer of title could fall under
section 2(47)(v). Section 2(47)(v) was introduced in the Act from the
assessment year 1988-89 because prior thereto, in most cases, it was
argued on behalf of the assessee that no transfer took place till
execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the
builders, they used to confer privileges of owners hip without executing conveyance and to plug that loophole, section 2(47)(v) came to be
introduced in the Act.
** ** **
Held, that section 2( 47) (v) read with section 45 indicates that capital
gains was taxable in the year in which such trans actions were enter ed
into even if the transfer of immovable property is not effective or
complete under the general law. In this case, the test had not been
applied by the Department. No reason had been given why that test had
not been applied, particularly when the agreement in question, read as a whole, showed that it was a development agreement. Once under clause 8
of the agreement a limited power of attorney was intended to be given to the developer to deal with the property, then the date of the contract, viz., August 18, 1994, would be the relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of
substantial performance of the contract thereafter would not arise……"
34. The Hon'ble Court referred to clauses (v) & ( vi) of section 2(47)
and made the following observations at page 499 of the report:
".... The above two clauses were introduced with effect from April 1, 1988.
They provide that "transfer" ; includes (i) any transaction which allows
possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and
(ii) any transaction entered into in any manner which has the effect of
transferring or enabling the enjoyment of any immovable property (see
section 269UA(d)). Therefore, in these two cases capital gains would be
taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete
under the general law (see Kanga and Palkhivala&# 39;s Law and Practice of
Income-tax-VIII edition, page 766) . This test is important to decide
the year of chargeability of the capital gains."
35 The above observations were made on the basis of opinion expressed by
Ld. author in the commentary - "The Law and Practice of Income-tax by
Kanga and Palkhivala Eighth Edition at page 766.
Relevant observations read as under:
"Cls. (v) and (vi) of s. 2(47), inserted by the Finance Act 1987, with
effect from 1st April, 1988, provide that "transfer" ; includes (a) any
transaction which involves the allowing of the possession of an
immovable property (s. 269UA(d)) to be taken or retained in part
performance of a contract of the nature referred to in s.53A of the
transfer of Property Act 1882, and (b) any transaction entered into in
any manner which has the effect of transferring, or enabling the
enjoyment of, any immovable property (s. 269UA(d)). Therefore in these
two cases capital gains would be taxable in the year in which such
transactions are entered into, even if the transfer of the immovable
property is not effective or complete under general law."
36. From the above , it is clear that Court was of the view that in case
any transaction covered by clause (v) and (vi) to section 2 ( 47) the
liability for capital gain would arise on the date when such
transactions are entered into. In the judgment at some other places, the similar observations have been made. However, despite this observation
the case was decided in favour of the assessee. The reason for the same
have been given in the judgment itself. Firstly it is observed that
provision of section 2(47)(v) of the Act were not invoked by the Revenue itself. This becomes clear from the following para:
"It was argued on behalf of the assessee that there was no effective
transfer till grant of irrevocable licence. In this connection, the
judgment of the Hon'ble Supreme Court were cited on behalf of the
assessee, but all those judgment were prior to introduction of the
concept of deemed transfer u/s 2(47)(v). In this matter, the agreement
in question is a development agreement. Such development agreements do
not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of
entering into a development agreement is to enable a professional
builder/contractor to make profits by completing the building and
selling the flats at a profit. That the aim of these professional
contractors was only to make profits by completing the building and,
therefore, no interest in the land stands created in their favour under
such agreements. That such agreements are only a mode of remunerating
the builder for his services of constructing the building (see Gurudev Developers v. Kurla Konkan Niwas Co-operative Housing Society [2003] 3 Mah LJ 131). It is precisely for this reason that the Legislature has introduced section 2(47)(v) read with section 45 which indicates that
capital gains is taxable in the year in which such transactions are
entered into even if the transfer of immovable property is not effective or complete under the general law. In this case that test has not been
applied by the Department. No reason has been given why that test has
not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference
between the contract on the one hand and the performance on the other
hand. In this case, the Tribunal as well as the Department have come to
the conclusion that the transfer took place during the accounting year
ending March 31,1996, as substantial payments were effected during that
year and substantial permissions were obtained. In such cases of
development agreements, one cannot go by substantial performance of a
contract. In such cases, the year of chargeability is the year in which
the contract is executed. This is in view of section 2 (47)(v) of the
Act."
Secondly, it is mentioned in the order of the Court that law was not very clear
on this point and since the assessee has admitted and paid capital gain
in the Assessment year 1999-2000, therefore, tax was held to be
chargeable in Assessment year 1999-2000.
Thirdly certain shortcomings were also noted in the order of the Tribunal where certain documents were mentioned to have been executed before March 31, 1996 e.g. the following observation of the Tribunal was not found
correct as something is done on Ist April, 1997 then the same cannot
fall in the year ending 31-3-1996.
"From the dates it is evident that from the very next day, i.e., April 1,
1997, from the end of the financial year ending on March 31, 1996, the
builder was using the well water against payment of relevant charges to
the assessee."
37. Thus it is very clear that in cases where an arrangement had been
entered into by an assessee in terms of clause (v) of Section 2(47)
which has effect of handing over the possession then the transfer is
said to have been taken place on the date of entering into such
arrangement.
38. We do not find any force in the contention of the Ld. Counsel for the
assessee that judgment has to be read in the context of the decision
made in such judgment. In fact, it is well settled that doctrine of
precedent which means what needs to be followed later on particularly by subordinate Tribunals and Courts is the ratio of a particular judgment
given by the higher Court or Forum . Further , there is no force in the
contention that decision of the Hon'ble Bombay High Court in the case
of Chaturbhuj Dwarkadas Kapadia v CIT ( supra) does not show that the date of agreement itself constitute the
transfer. Again there is no force even in the contention that in that
case it was ultimately decided that capital gain taxes is chargeable in
Assessment year 1999-2000 because of the reasons given in above noted
paras particularly because the Revenue itself never invoked the
provisions of section 2(47)(v) of the Act and held it to be tax able in
Assessment year 1996-97. No doubt in that case ultimately it was held
that capital gain was in assessment year 1999-2000 but Court had made it very clear that this is first time that law is being laid down and
guidelines are being issued which means that there was a confusion
earlier. Clauses (v) & (vi) to section 2(47) were introduced in the
year only in 1998. Perhaps Court took a lenient view because of these
reasons and held that capital gain was taxable in Assessment year
1999-2000. It is quite clear that ratio of the above decision is that in case of any arrangements or transactions whereby the other party
becomes entitled to enjoy the property then that date of such
transaction itself needs to be construed as the date of transfer.
39. The second relevant decision cited by the Revenue is by Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria (supra) . In that case the assessee was co-owner of agricultural land measuring
about 27.7 acres and his share was 4/9. The co-owner decided to develop
the land by constructing residential complex through developer and
entered into a Collaboration agreement on 8-6-2005 with M/s Santur
Developer Pvt Ltd. New Delhi (herein after called 'Developer&# 39;).
According to the terms of agreement, the Developer should obtain a
letter of intent from the concerned Government department and obtain
other permissions and sanctions for developing the land at its own risk
and cost. The Developer was to take 84% of the built up area and balance 16% would belong to assessee and other co-owner. The consideration for
the agreement was taken as the built up area to be handed over to the
owners free of cost. The owners were entitled to visit the site in order to review the progress of the project. It w as clarified by clause 18
that owners hip would remain exclusively with the owner still it vests
with both the parties as per their respectives hare s on the completion
of the project. The other clauses and the steps in the agreement were
that a sum of Rs. 1 crore towards payment of earnest money at the time
of entering into agreement; a special power of attorney was to be
executed in favour of the Developer to enable to deal with the Statutory authorities etc . for obtaining necessary approvals/sanctions ; letter
of intent was to be obtained not later than March 8, 2006 and in case of a failure to do so, the agreement shall stand terminated. Letter of
intent is basically a license granted by the Director of Town Planting
to Developer of land for the purpose of constructing residential flats
subject to payment of certain charges and compliance of other
conditions. It was further stated in the agreement that on fulfilment of the requirement in the letter of intent, owners will have to execute
irrevocable general power of attorney in favour of the Developer
authorizing the Developer to took and sell the dwelling units out of
developer' s share and collect the money for the same. However, finally
sale deeds could be executed only after the owner received their share
of constructed area. Three months later, a supplementary agreement was
entered on September 15, 2005 between the assessee and other co-owners
and Developers through which it was agreed that owner s will s ell their 16% share in the built up area to the Developer or its nominee for
consideration of Rs. 42 crores. A sum of Rs. 2 crores was received. This collaboration agreement and balance of Rs. 40 crores was payable by the Developer to the owners in six instalments from March 06, 2008. The
instalments could be extended subject to payment of interest and further subject to maximum extension of three months. There were various other
clauses which are not relevant for our purposes. The question arose
whether capital gain accrue/arise to the assessee during the financial
year 2006-07 relevant to assessment year 2007-08 or during financial
year 2007-08 relevant to assessment year 2008-09.
40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:-
".... The section can be analysed thus :
(a) transfer of a capital asset effected in the previous year,
(b) resultant profits or gains from such transfer,
(c) those profits or gains would constitute the income of the assessee/ transferor
(d) such income shall be deemed to be the income of the same previous year in which the transfer had taken place.
Two aspects may be noted at this juncture. Firstly, the expression used
is "arising" which is not to be equated with the expression "received" ;.
Both these expressions and in addition thereto, the expression "accrue"
are used in the Income-tax Act, either collectively or separately
according to the context and nature of the charging provision. The
second point which deserves notice is that by a deeming provision, the
profits or gains that have arisen would be treated as the income of the
previous year in which the transfer took place. That means, the income
on account of arisal of capital gain should be charged to tax in the
same previous year in which the transfer was effected or deemed to have
taken place.
The effect and ambit of the deeming provision contained in section 45 has
been considered in decided cases and leading text books. The following
statement of law in Sampath Iyengar' s
Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the
income of the previous year in which the transfer took place'. Since
this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years
etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of
transfer.
....In the words of section 45, the capital gains arising from the transfer
'shall be the income of the previous year in which the transfer took
place'. So, the payments of consideration stipulated to be paid in
future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer."
41. Thereafter , the Authority referred to section 2(47) and objects of the introduction of clauses (v) & (vi) and also referred to paras 11.1
& 11.2 of the Board Circular No. 495 (which we have already
discussed earlier). The Hon'ble Authority has discussed various
implications of clause ( v) of section 2( 47) and also implication of
section 53A of the Transfer of Property Act as well as observations of
Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT ( supra). The Authority observed that to understand this provision properly
meaning of 'possession&# 39; has to be understood properly and went on to
discuss the meaning of term 'possession, and how the same is to be
understood in the context of clause (v). These are very important
observations and have been discussed in most elucidated fashion. These
observations will answer many of the questions raised before us and,
therefore, we are extracting these observations as under:-
"Meaning of "possession&qu ot; and how should it be understood in the context of clause (v)
The next question is, in what sense we have to understand the term
"possession&qu ot; in the context of clause (v) of section 2(47). Should it
only mean the right to exclusive possession- which the transferee can
maintain in his own right to the exclusion of everyone including the
transferor from whom he derived the possession ? Such a criterion will
be satisfied only after the entire sale consideration is paid and the
transferor has forfeited his right to exercise acts of possession over
the land or to resume possession. In our view, there is no warrant to
place such a restricted interpretation on the word "possession&qu ot;
occurring in clause (v) of section 2(47). Possession is an abstract
concept. It has different shades of meaning. It is variously described
as "a polymorphous term having different meanings in different contexts" (per R. S. Sarkaria J. in Superintendent and Remembrance of Legal Affairs, W. B. v. Anil Kumar Bhunja [1979] 4 SCC 274 and as a word of "open texture" (see Salmond on
Jurisprudence, paragraph 51, Twelfth Edition, Indian reprint). Salmond
observed : "to look for a definition that will summarize the meanings of the term "possession&qu ot; in ordinary language, in all areas of law and in
all legal systems, is to ask for the impossible" . In the above case of
Anil Kumar Bhunja [1979] 4 SCC 274, Sarkaria J. speaking for a
three-Judge Bench also referred to the comments of Dias and Hughes in
their book on Jurisprudence that "if a topic ever suffered too much
theorizing it is that of 'possession&# 39;" . Much of the difficulty is caused by the fact that possession is not a pure legal concept, as pointed out by Salmond. The learned judge then explained the connotation of the
expression "possession&qu ot; by referring to the well known treatises on
jurisprudence (page 278) :
"'Possessi on', implies a right and a fact : the right to enjoy annexed to the right to property and the fact of the real intention. It involves power of
control and intent to control, (see Dias and Hughes)
14** ** **
15. While recognizing that 'possession&# 39; is not a purely legal concept but
also a matter of fact, Salmond (12th Ed., 52) describes possession, in
fact, as a relationship between a person and a thing. According to the
learned author, the test for determining 'whether a person is in
possession of anything is whether he is in general control of it'."
In Salmond' s Jurisprudence, at paragraph 54, we find an illuminating
discussion on "immediate&quo t; and "mediate possession" . The learned author
states "in law one person may possess a thing for and on account of some one else. In such a case the latter is in possession by the agency of
him who so holds the thing on his behalf. The possession thus held by
one man through another may be termed mediate, while that which is
acquired or retained directly or personally may be distinguished as
'immediate or direct'. " Salmond makes reference to three types of
mediate possession. In all cases of "mediate possession" , two persons
are in possession of the same thing at the same time. An allied concept
of concurrent possession has also been explained in paragraph 55 of
Salmond' s Jurisprudence in the following words :
"It was a maxim of the civil law that two persons could not be in
possession of the same thing at the same time. As a general proposition
this is true : for exclusiveness is of the essence of possession. Two
adverse claims of exclusive use cannot both be effectually realized at
the same time. Claims, however, which are not adverse, and which are
not, therefore, mutually destructive, admit of concurrent realization.
Hence, there are several possible cases of duplicate possession.
1. Mediate and immediate possession co-exist in respect of the same thing as already explained.
2. Two or more persons may possess the same thing in common, just as they may owe it in common …."
On a fair and reasonable interpretation and on adopting the principle of
purposive construction, it must be held that possession contemplated by
clause (v) need not necessarily be sole and exclusive possession. So
long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for
the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure
performance of the terms of agreement does not introduce any
incompatibility. The concurrent possession of the owner who can exercise possessory rights to a limited extent and for a limited purpose and
that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) of section 2(47) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gain
to a point of time when the concurrent possession will become exclusive
possession of developer/transfere e after he pays full consideration.
Further, if "possession&qu ot; referred to in clause (v) is to be understood as
exclusive possession of the transferee/develope r, then, the very purpose of the amendment expanding the definition of transfer for the purpose
of capital gains may be defeated. The reason is this: the owner of the
property can very well contend, as is being contended in the present
case, that the developer will have such exclusive possession in his own
right only after the entire amount is paid to the owner to the last pie. There is then a possibility of staggering the last instalment of a
small amount to a distant date, may be, when the entire building complex gets ready. Even if some amount, say 10 per cent., remains to be paid
and the developer/transfere e fails to pay, leading to a dispute between
the parties, the right to exclusive and indefeasible possession may be
in jeopardy. In this state of affairs, the transaction within the
meaning of clause (v) cannot be said to have been effected and the
liability to pay capital gains may be indefinitely postponed. True, it
may not be profitable for the developer to allow this situation to
linger for long as the process of transfer of flats to the prospective
purchasers will get delayed. At the same time, the other side of the
picture cannot be over-looked. There is a possibility of the owner with
the connivance of the transferee postponing the payment of capital gains tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied,
will then perpetuate. We are, therefore of the view that possession
given to the developers need not ripen itself into exclusive possession
on payment of all the instalments in entirety for the purpose of
determining the date of transfer.
While on the point of possession, we would like to clarify one more aspect.
What is spoken to in clause (v) of section 2(47) is the "transaction&q uot;
which involves allowing the possession to be taken. By means of such
transaction, a transferee like a developer is allowed to undertake
development work on the land by assuming general control over the
property in part performance of the contract. The date of that
transaction determines the date of transfer. The actual date of taking
physical possession or the instances of possessory acts exercised is not very relevant. The ascertainment of such date, if called for, leads to
complicated inquiries, which may frustrate the objective of the
legislative provision. It is enough if the transferee has, by virtue of
that transaction, a right to enter upon and exercise acts of possession
effectively pursuant to the covenants in the contract. That tantamounts
to legal possession. We are referring to this aspect because the
authorized representative has submitted when he appeared before us in
the last week of May, 2007, that even by that date the development work
could not be commenced for want of certain approvals, and therefore, the developer was "not willing to take possession of the land". Such an
unsubstantiated statement which is not found in the original application or even written submissions filed earlier need not be probed into
especially when it is not his case that the developer was not allowed to take possession in terms of the agreement."
42. After the above discussion, the Authority discussed the facts of the
case before it. It was observed that paragraph 18 of the Collaboration
Agreement provides that on issuance of letter of intent, the owners will allow and permit the Developer to enter upon and survey the land, erect site/sales office, carry out the site development work and do
activities for advancing & sale promotion, construction etc. The
Authority further observed that if this clause is read in isolation this would suggest on passing of possession but according to Authority the
other factors are to be considered. Clause 15 provided that on
fulfilment of the requirements laid down in the letter of intent which
is provisional license, the owners should execute an irrevocable general power of attorney in favour of the developer allowing inter alia to
book and sell the dwelling unit failing under their share. This was
possible only after deposit of requisite charges etc. and perhaps there
was litigation regarding ownership of land which has also to be
withdrawn. The Authority has discussed the significance of general power of attorney and the terms of the general power of attorney at para 33
and the relevant portion of the same is as under:-
"A copy of the irrevocable GPA executed in terms of paragraph 15 of the
agreement has been furnished by the applicant. It authorizes the
developer : (i) to enter upon and survey the land, prepare the layout
plan, apply for renewal/extension of licence, submit the building plans
for sanction of the appropriate authority and to carry out the work of
development of a multi-storied residential complex, (ii) to manage and
control, look after and supervise the property in any manner as the
attorney deems fit and proper, (iii) to obtain water, sewage disposal
and electricity connections. The developer is also authorized to borrow
money for meeting the cost of construction on the security and mortgage
of land falling to the developer' s share. The other clauses in the GPA
are not relevant for our purpose. The GPA unequivocally grants to the
developer a bundle of possessory rights. The acts of management, control and supervision of property are explicitly mentioned. It is fairly
clear that the GPA is not a mere licence to enter the land for doing
some preliminary acts in relation to the development work. The power of
control of the land which is an incidence of possession as explained
supra has been conferred on the developer under this GPA. The developer
armed with the GPA cannot be regarded merely as a licensee or an agent
subject to the control of the owners. His possession cannot be
characterized as precarious or tentative in nature. The fact that the
agreement describes the GPA as irrevocable and an express declaration to that effect is found in the GPA itself is not without significance.
Having regard to the second and supplemental agreement by virtue of
which the entire developed property including the owners' share has been agreed to be sold to the developer or his nominees for valuable money
consideration, the developer has a vital stake in the entire property.
As far as the quality of possession is concerned, he is on a higher
pedestal than a developer who apportions built up area with the owner.
Even if he is an agent in one sense in the course of developing the
land, that agency is coupled with interest. For these reasons, the
prefix "irrevocable&q uot; is deliberately chosen. As discussed earlier, the
owner's limited right to enter the land and oversee the development work is not incompatible with the developer' s right of control over the land which he derives from the GPA. Exclusive possession, as already pointed out, is not necessary for the purpose of satisfying the ingredients of
clause (v) of section 2(47). We are therefore, of the view that the
irrevocable GPA executed by the owners in favour of the developer must
be regarded as a transaction in the eye of law which allows possession
to be taken in part performance of the contract for transfer of the
property in question…….."
43. Thus, the above clearly shows that irrevocable general power of
attorney which leads to over all control of the property in the hands of the Developer, even if that means no exclusive possession by the
Developer would constitute transfer. It can be said that it has to be
construed as 'possession&# 39; in terms of clause (v) of section 2(47) of the Act.
44. A question may arise that why the transfer was not held to be taken
place in Assessment year 2006-07 when first agreement was entered into
on June 8, 2005. The supplementary agreement was also entered into on
Sept 15, 2005 both of which fall in Financial Year 2005-06 relevant to
Assessment year 2006-07. Then why transfer was not construed in
Assessment year 2006-07 it was because the first agreement itself
contained a condition that "letter of intent" should be procured not
later than March 8, 2006. In case of failure to do so the agreement
shall stand terminated. Therefore, obtaining the "letter of intent" was
the crucial factor. It has been explained in the decision that the
"letter of intent" basically is a license issued by the Director of Town and Country Planning, Haryana which gives permission for construction
of the flats. The other crucial point was execution of irrevocable of
GPA which was executed on May 8, 2006 which according to the Ld.
authority depicts the intention of the handing over of the possession.
Therefore, it becomes very clear that it is not necessary that transfer
would take place on the signing of development agreement but the same
has to be inferred only when the possession has been handed over by the
transferor to the developer which can be inferred from the documents
e.g. Power of Attorney. After above discussion Hon'ble authority has
summarized the decision in para 41 which is as under:
"The following is the summary of conclusions:
1. Where the agreement for transfer of immovable property by itself does not
provide for immediate transfer of possession, the date of entering into
the agreement cannot be considered to be the date of transfer within the meaning of clause (v) of section 2 (47) of the Income-tax Act.
2. To attract clause (v) of section 2(47), it is not necessary that the
entire sale consideration up to the last instalment should be received
by the owner.
3. In the instant case, having regard to the terms of the two agreements and
the irrevocable GPA executed pursuant to the agreement, the execution of the GPA shall be regarded as the "transaction involving the allowing of the possession" of land to be taken in part performance of the contract and therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on May 8, 2006, i.e., during the previous
year relevant to the assessment year 2007-08 and the capital gains must
be held to have arisen during that year. Incidentally, it may be
mentioned that during the said year, i.e., financial year 2006-07, a
final license was granted and the applicant/owners received nearly
2/3rds of the consideration. "
45. Legal position has been discussed in above noted paras and now let us
discuss the facts of the case in the light of above noted legal
position.
46 Undisputed facts of the case are that the assessee is a Member of
Punjabi Co-op House Building Society Ltd. which had 96 members (Number
of members were stated as 95 during arguments but clause 13 of the JDA
refers to number of members as 96). The Society was owning 21.2 acres of land in village Kansal Distt. Mohali adjacent to Chandigarh. There were two types of members firstly the members who were owning plot of 500
sqyd and secondly the members who are holding plot of 1000 sqyd.
Somewhere in 2006 it was decided to develop a Group Housing commercial
project and do development as per the applicable municipal building
bye-laws in force and accordingly a bid was invited through
advertisement in the Tribune dated 31-5-2006. HASH a developer,
approached the Society with proposal for development of the property.
Since Hash did not have sufficient means to develop the property, Hash
had approached THDC for development of the property by constructing the
building and/or structures to be used for interalia residential, public
use and commercial purposes. This proposal was discussed by the Society
in its Executive Committee meeting on 4-1-2007. Minutes of the meeting
are placed at page 58 to 65 of the paper book. In the Executive
committee it was decided to appoint Hash who was acting alongwith the
joint developer THDC as joint developer on the terms and conditions to
be mentioned in the JDA. It was further resolved that member owing plot
of 500 sqyd would receive a consideration of Rs. 82,50,000/- each to be
paid in four instalments by Hash directly in favour of the members and
one flat with super area of 2250 sqft to be constructed by THDC. The
members who held the plot of 1000sqyd were to receive a consideration of Rs. 1,65,00,000/ - and two flats consisting of 2250sqft to be
constructed by the THDC. It was further resolved to enter into a JDA
with THDC/HASH. It was also resolved to execute irrevocable Power of
attorney by the Society in favour of THDC for this purpose. This
resolution was ultimately ratified in the General Body meeting held by
the Society on 25-2-2007. Pursuant to the above resolution, tripartite
JDA was executed (copy of the same is available at page 15 to 54 of
first paper book). Through recitation clause it has been mentioned that
owner is in possession of land measuring about 21.2 acres of land which
has come in the purview of Nagar Panchayat, Naya Gaon vide Notification
issued on 18-10-2006 duly substituted by another notification dated
21-11-2006 and that no part of land of the property falls under Forest
Area under the Punjab Land Preservation Act. It has been further recited that the Society has agreed to accept the proposals of Hash and further executed this agreement with THDC/HASH. Hash was responsible to make
payment to the owner as described earlier and the flats were to be
provided by THDC. In case of Hash fails to make the payment, THDC agreed to make the payments. Copy of the resolution of the Executive Committee of the Society dated 4-1-2007 as well as resolution of the General Body Meeting of the Society dated 25-2-2007 were made part of JDA by way of
annexure. The Society agreed to execute an irrevocable Special Power of
Attorney in favour of THDC and all other necessary documents, at the
request of the developers.
47. In clause 1 of JDA various expressions have been defined. Clause 2 describes the project as under:
"2.1 The owner hereby irrevocably and unequivocally grants and assigns in
perpetuity all its rights to develop, construct, mortgage, lease,
license, sell and transfer the property along with any and all the
construction, premises, hereditaments, easements, trees thereon in
favour of THDC for the purpose of development, construction, mortgage,
sale, transfer, lease, license and or exploitation for full utilization
of the Property (Rights) and to execute all the documents necessary to
carry out, facilitate and enforce the Rights in the Property including
to execute Lease Agreement, License Agreements, Construction Contracts,
Supplier Contracts, Agreement for sale, Conveyance, Mortgage Deeds,
finance documents and all documents and agreements necessary to create
and register the mortgage, conveyance, lease deeds, license agreement,
Power of Attorney, affidavits, declaration, indemnities and all such
other documents, letters as may be necessary to carry out, facilitate
and enforce the Rights and to register the same with the
revenue/Competent authority and to appear on our behalf before all
authorities, statutory or otherwise, and before any Court of law (the
'Development Rights') . The owner hereby hands over the original title
deeds of the Property as mentioned in the list Annexed hereto and marked as Annexure IV and physical, vacant possession of the property has been handed over to THDC simultaneous to the execution and registration of
this agreement to develop the same as set out herein.
It is hereby agreed and confirmed that what is stated in the recitals
hereinabove, shall be deemed to be declarations and representations on
the part of the Owner as if the same were set out herein verbatim and
forming an integral part of the agreement.
2.2 The Project shall comprise of development/ construction of the Property
into the premises as permissible under Punjab Municipal Building
Bye-laws/Punjab Urban Development Authority or any other Competent
Authority by the Developer at their own cost and expense. The Project
shall be developed as may be sanctioned by the concerned local authority i.e. Department of Local Bodies, Punjab/Punjab Urban Planning and
Development Authority (PUDA) or any other Competent Authority.
2.3 The owner hereby irrevocably and unequivocally grants and assigns all
its Development Rights in the property to THDC to develop the property
and undertake the project at its own costs, efforts and expenses
whereupon the Developer shall be entitled to apply for and obtain
necessary sanctions, licenses and permissions from all the concerned
authorities for the commencement, development and completion of the
project on the property."
48 Clause 3 describes the obligations of the developers & Society for
getting the plans, etc. sanctioned from competent authority/applicati ons to be signed by owner for plans, drawings etc., construction. Clause 4
deals with consideration clauses 5 to 8 deals various aspects of project and obligations of Society and Developer. Clause 9 talks about
ownership and rights and read as under:
"9 Transfer of ownership/Rights
9.1 The owner shall simultaneously on receipt of Payment as set out in
Clause 4.1 above, execute an irrevocable Special Power of Attorney to
THDC for development of the property authorizing THDC to do all lawful
acts, deeds, matters and things pertaining to the development of the
property for the project along with interalia right to mortgage the
property and/or premises, sell, lease, license the premises and
receive/collect monies in it's name in respect of the same and approach
interact, communicate with the Competent authorities and for doing all
acts, deeds, matters and things to be done or incurred by THDC in that
behalf as also to sign all letters, applications, agreements and
register the same if necessary, documents, Court proceedings, affidavits and such other papers containing true facts and correct particulars as
made from time to time be required in this behalf.
9.2 The owner shall execute in favour of THDC the sale deed is in
accordance with the provisions of clause 4.1( ii) to Clause 4.1(iv) of
this Agreement and execute all other necessary documents and papers to
complete the aforesaid transaction.
9.3 That all the original title deeds pertaining to property as mentioned
in Annexure IV has been handed over to THDC by the owner at the time of
signing of this Agreement and in furtherance of the common interest of
the Parties for the development of the Project and except the Sale
Transaction made by the Owner in favour of THDC as et out in Clause 4.1
above. THDC hereby undertake and assure the owner that they shall use
the title deeds only for the purpose of furtherance of the Project in
the manner that it does not adversely effect the Owner/Allottee in any
manner whatsoever."
49. Clause 10 describes the consent given by the Society to THDC for
raising finance for development and completion of project. Clause 11
talks about formation of maintenance Society for the project after its
completion. Clause 13 talks about transfer of rights which reads as
under:
"13 Transfer of Rights
The owner herein i.e. The Punjabi Co-op House Building Society Ltd.
along with all its ninety six (96) members have given their express,
free and clear consent in writing in the form of an Affidavit/No
Objection Certificate/ Consent Letter whereby the Developers have been
allowed to develop the property in accordance with the Project and that
THDC shall be entitled to transfer the rights obtained under this
agreement to any third party and to get the development/ construction
work completed on such terms and conditions as THDC may deem fit so long as it does not adversely effect the Owner in terms of their right to
receive Entire consideration as mentioned in this agreement subject to
all other conditions mentioned therein as well. The owner shall at all
times provide full support to the Developers herein."
50. Other clauses provide for termination, General provisions, Disclaimer,
Partial Invalidity, Arbitration, Notices and Force Majeure &
Jurisdiction.
51. In addition to above an irrevocable Special Power of Attorney has also
been executed by the Society in favour of the developers i.e. THDC.
(Copy of which is available at pages 40 to 52 of the paper book in case
of Society in ITA No. 556 of 2012 as discussed earlier in para 25
(complete copy of Supplementary Power of Attorney was not available in
the paper book of the assessee, therefore, reference was made to the
paper book in case of the Society) .
52. The first major contention of the Ld. counsel of the assessee is that
the possession was not given by the Society because according to him as
per clause 2.1 of the JDA the possession of the property was to be
handed over simultaneously to the execution and registration of JDA and
since the JDA was not registered, therefore, the possession was not
given. We can not accept this contention because in "Power of Attorney"
transactions , it is not necessary to register the JDA if a Special
Power of Attorney has been given and same is registered. Secondly clause 9.3 of the JDA as reproduced above clearly show that original title
deed which have been mentioned along with the possession in para 2.1
which according to the ld. counsel of the assessee were to be handed
over simultaneously to execution and registration of the JDA, is not
correct because clause 9.3 clearly mention that original title deed of
the property have been handed over to the THDC at the time of signing of this agreement because clause 9.3 there is no mention about
registration of JDA.
53. Special Power of Attorney which has been executed on 26.2.2007 and has
been registered also. The irrevocable Special Power of Attorney has been executed as provided in clause 6.7 of the JDA which reads as under:
"6.7 The Owner shall execute an irrevocable Special Power of Attorney
granting its complete Development Rights in the Property in favour of
THDC interalia including the right to raise finance by mortgaging the
property and register the charge with the Competent Authority and
execute registered sale deeds) as set out in Clause 4.1 (ii), (iii),
(iv) and (v) and the Owner confirms, undertakes, declares and binds
itself not to revoke the same for any reason whatsoever out of its own
will and discretion without obtaining a specific prior written consent
of THDC or any of its duly constituted attorneys."
Through this Power of Attorney various powers have been given like to assign,
file, amend etc. various plans, designs to represent before various
authorities, to appoint architect, Lawyers. Some of the specific clauses relevant, are extracted below:
(j) To negotiate and agree to any/or to enter into agreement(s) to
construct/sell and to under take construction/ sale of the Premises on
the Property or any portion thereof with/to such persons(s) or body and
for such consideration and upon such terms and conditions as the
Attorney deem fit.
(n) To enter upon the Property either alone or with others for the purpose
of development, Coordination, execution, implementation of the Project
and commercialization of the Property/Premises.
(t) To amalgamate the Property with any other contiguous, adjacent and
adjoining land sand properties wherein development and/or other right,
benefits and interests are acquired and/or proposed to be acquired and
developed or proposed to be developed by THDC and/or their associate
and/or group concerns/s and/or utilize the FSI, FAR, DR and TDR of the
contiguous, adjacent and adjoining lands for the purpose of constructing buildings and/or structures thereon and/or on the Property or utilize
such lands and properties for making provision of parking spaces
thereon, and/or may utilize the same for any other lawful purpose, as
THDC and/or their associate and/or group concerns may in their sold,
absolute and unfettered discretion think fit.
(w) To hand over the possession of the Property or any part or portion
thereof to the authorities to whom the same is required to be handed
over or otherwise and to execute and deliver any undertakings ,
declarations, affidavits, bonds, deeds , documents, etc. as may be
required by the authorities concerned for vesting such a part or portion in such authority and to admit execution thereof before the concerned
Competent Authority and get the same registered with the concerned
sub-registrar.
(y) Reasonable opportunity of hearing shall be given to mortgage, encumber
or create a charge on the Property or any part or portion thereof and
execute the necessary security documents in favour of any bank
/financial institution to raise funds for the construction/ development
of the Property and for the said purpose to deposit title deeds ( if
required) in respect of the Property in favour of such bank /financial
institution, execute the necessary documents and register the charge
created on the Property if so required in the revenue records and/or
desired by the Attorney.
(aa) To sell, transfer, lease, license the Premises that may be constructed
on the Property on ownership basis, lease, license and/or in any other
manner for such price as the Attorneys may deem fit and proper. To
collect and receive from the purchased, transferees, lessees, licensees
of the Premises, monies /price and/or consideration and/or maintenance
charges and to sign and execute and/or give proper and lawful discharge
for the receipts.
(bb) To execute from time to time all the writing, agreement, deeds etc. in
respect of the premises which may be constructed on the Property and
also to execute and sign conveyance, transfer or surrender in respect of the Property or any part thereof.
(cc) To sign, execute and register the conveyances or assignments and/or
Power of Attorney' s and/or other documents and/or agreements and/or any
other writings in respect of the Property in part or full and/or the
Premises constructed thereon or any part thereof in favour of any person as the Attorneys may determine including in favour of any individual
and/or legal entitles and/or Co-operative Society and/or Limited Company and/or any other entity that may be formed for such purpose.
(dd) To issue letter of lien/NOC' s and to sign documents on behalf of the
Owner as required by the prospective buyers/lending instructions to
create a charge on the allotted premises.
(gg) To look after and maintain the Property and the Premises constructed
thereon till its transfer in favour of the Co- operative Society or
Limited Company or any other Organisation.
54. It is pertinent to note that power/authorization which have been given
by the Society to the developer, were in fact were required to be given
in terms of various clauses of the JDA. Clause 6.7 reproduced above
itself shows that the Society was required to give powers to raise
finance to mortgage the property and even the registration of charge was also required to be given. Further through clause 6.15 it was agreed
that documents of original title deeds of the property would be handed
over to the developer i.e. THDC/HASH so that same can be used in
furtherance of development of the Project as well as security for the
money paid by the owner. Through clause 6.24 it was agreed that
developer THDC/HASH was always permitted by owner to amalgamate the
property with any other contiguous, adjacent and adjoining land and the
properties wherein developmental and or other rights, benefits and
interest were acquired by the developer or would be acquired in future.
This clearly shows that the Society was under obligation in terms of
agreement itself to allow the developer to amalgamate the project.
Towards the end of clause 6.24 it has been clearly stated that in the
event of termination of JDA, provision of clause 6 would be surviving
which clearly shows that developer continues to be in possession for the purpose of development, mortgage etc. even after termination. Clause 8
which describes the obligation and undertaking of the THDC/HASH and
provides specifically that all environmental clearance shall be obtained by THDC/HASH out of its own sources. Thus it was clearly understood by
the parties that requisite environmental clearances had to be obtained
before start of the project. Clause 10 again casts specific obligation
on the owner Society to give consent to THDC/HASH to raise finance for
the development and completion of the project on the Security of the
property by way of mortgaging the property. Thus whatever
power/authorization have been given through irrevocable Special Power of Attorney are emanating from the terms and conditions agreed to among
the parties from the JDA.
55. The combined reading of the above clauses of the Irrevocable Special
Power of Attorney and JDA clearly show that the developer was authorized to enter upon the property for not only for the purpose of development
but other purposes also. THDC was authorized to amalgamate the project
with any other project in the adjacent area or adjoining area as per
clause (t) of the Special Power of Attorney. If the possession was never given to the developer by the Society then how the developer could
amalgamate the project with another project which may be acquired latter in the adjoining area. Through clause (w) THDC was authorized to hand
over the possession of property or portion thereof to the authority to
whom the same is required. In large Housing Society Projects sometimes
Municipal authorities takes some portion of land for the purpose of
roads, parks or other general utility purposes like installation of
electricity transformers and before sanctioning the plans the developer
is required to undertake that such portions of land would be given for
such a common purpose. If possession was not given then how THDC was
authorized to hand over such land or portions thereof which have not
been identified in the JDA out of the total land. Similarly through
clause (y) THDC has been authorized to mortgage, encumbrance or create
charge on the property in favour of any bank or financial institution
for raising the funds for the project. In the absence of possession such powers cannot be given. Clause (aa) clearly authorized the THDC to
sell, transfer, lease, license the premises which were to be constructed on ownership basis and further to receive moneys against such sale etc. and to issue final receipt. Nowhere it is mentioned in this clause that such sale deeds were to be singed by the Society as confirming party.
In the absence of possession it is just not possible for the developer
to sell and transfer the premises which were to be constructed. This is
further clarified by clause (bb) and (cc) which gives the power of
execution of conveyance and other documents involving in respect of the
premises to be constructed without any interference of the Society being made confirming party. All these clauses clearly show that the
possession was given by the Society and/or its members to THDC/HASH on
the execution of irrevocable Power of Attorney. Through these clauses of JDA and irrevocable Power of Attorney the developer was able to
completely control the property and make use of it not only for the
purpose of development but also for the purpose of amalgamation, sale,
mortgage etc. When the above clauses are compared on touch stone of the
discussion on possession in paras 26 to 28 in the case of Jasbir Singh Sarkaria(supra) which we have reproduced above, it becomes clear that the possession has been given.
56. In that discussion, it has been clearly mentioned that the position
contemplated by clause (v) of section 2(47) of the Act need not to be
exclusive possession. What is required is that the transferee by virtue
of possession should be able to exercise control from overall intended
purposes. We do not think in the present case the assessee has given
only a license as claimed by ld. counsel of the assessee because of the
powers of selling, amalgamating etc. mentioned in the JDA and
irrevocable Special Power of Attorney. The issue has been discussed in
he judgment of Jasbir Singh Sarkaria (supra) in further discussion which has been made in para 33 regarding Power of Attorney (which has been
reproduced earlier). In that case the powers were given to enter upon
and survey the land, prepare lay out plans, submit building plan f or
sanction with the appropriate authorities to control, manage and look
after and supervise the property, to obtain water and sewerage, disposal and electricity connection. In that case the developer was authorized
to mortgage the property to obtain money for meeting the cost of
construction on security and mortgage of land falling only to the
developer 's share. In that case it was held that GPA was not a license
to enter upon for doing some preliminary acts in relation to development of work but the power to control the land has also been confirmed. It
has also been noted that the agreement described the Power of Attorney
as irrevocable and extra declaration to that effect in the Power of
Attorney is not without significance. In case before us, many more
powers have been given to THDC in addition to powers which have been
described in that judgment and Power of Attorney has been described as
irrevocable in clause 6.7 of JDA. Therefore, it is clear that the
assessee' s plea that the possession was to be given only at the time of
registration of the JDA, is not correct. Once irrevocable power was
given then it cannot be said that the possession was not given. The
issue regarding revocation of irrevocable Power of Attorney and
cancellation of the JDA would be discussed later on while dealing with
that contention.
57. We find force in the submissions of the ld. DR for the revenue that
interpretation of clause (v) to section 2(47) should be made in the
light of Heydon's Rule. There is no force in the objection of the ld.
counsel of the assessee that this clause should be interpreted on
general rules of interpretation particularly in the light of the fact
that no reason has been given for the same. Heydon's Rule has been
applied by the Indian Courts many times. The Rule was applied and
initiated in Heydon's case (1584) 3 Co. Rep 7a. This Rule was upheld by
the Constitution Bench of Hon'ble Apex Court in case of Bengal Immunity Co. Ltd. v State of Bihar [1955] 2 SCR 603 for consideration of Article 286 of the Constitution. It has been held in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another, 176 ITR 1 that for understanding amendment in the Act, perhaps Heydon's Rule is best
rule for interpretation of such amendment. We find that without
mentioning this rule Ld. Authority For Advance Ruling has discussed this issue in para 27 of the judgment which we have extracted above. It has
been held that if 'possession&# 39; refer red to in clause (v) is to be
understood as exclusive basis of the transferee then very purpose of the amendment or enlargement of the definition of transfer would get
defeated. We are reproducing following head note of the Hon'ble Apex
Court in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another (supra) :
"The following principles enunciated in Heydon" s case (1584) 3 Co. Rep 7a
and firmly established, are still in full force and effect: "that for
the sure and true interpretation of all statutes in generals (be they
penal or beneficial, restrictive or enlarging of the common law), four
things are to be discerned and considered: (1) what was the common law
before the making of the Act; (2) what was the mischief and defect for
which the common law did not provide; (3) what remedy Parliament has
resolved and appointed to cure the disease of the common wealth and (4)
the true reason of the remedy. And then, the office of all the judges is always to make such construction as shall suppress the evasions for the continuance of the mischief and pro private commando and to add force
and life to the cure and remedy according to the true intent of the
makers of the Act pro bono public." There is now the further addition
that regard must be had not only to the existing law but also to prior
legislation and to the judicial interpretation thereof."
58. Going by the Heydon's Rule of interpretation if we analyze the purpose
of clause (v) of Section 2(47) then it would emerge that law before
making the amendment was that capital gain could be charged only if a
transfer has been effected and transfer was interpreted by various
Courts including the decision of Hon'ble Supreme Court in case of Alapati Venkatramian v CIT, 57 ITR 185 (SC) that proper conveyance of the property has been made under the common law.
The mischief was with regard to transfer in the sense that there was
common practice that properties were being transferred in such a manner
that transferee could enjoy the benefit of the property without
execution of the conveyance deed. Thirdly we need to examine the remedy
which was insertion of clause (v) and (vi) so that cases of giving
possession of the property, were also covered by the definition of
transfer. Fourthly, true reason for this amendment was to plug a loop
hole in the law. Therefore, considering the purpose of insertion of
clause (v) and (vi) of section 2(47) and various clauses of Power of
Attorney and JDA it becomes absolutely clear that the Society has handed over the possession of the property to THDC/HASH.
59. Second important contention on behalf of the assessee is that JDA was
executed on 25.2.2007 and if possession was given then how the assessee
was having possession in terms of later sale deeds executed on 2.3.2007
and 25.4.2007. The Society has executed two sale deeds for conveyance of parts of the total land. First sale deed has been executed on 2.3.2007
for 3.08 acres and recitation clause ( A) reads as under:
Clause (A) - The vendor is the absolute owner and in possession of land total
measuring 169 kanal 7 marlas equivalent to approx. 21.2 acres in Village Kansal, Tehsil Mohali and more particularly described in Schedule A
hereunder written and delineated in green colour boundary line in the
Shizra Plan issued by the Patwari dated 23.2.2007."
60. According to the Ld. counsel of the assessee if Society had already
given the possession then the Society would not have/had possession on
2.3.2007 of the land. At face value this argument looks attractive but
when examined in terms of possession which has been explained in case
of Jasbir Singh Sarkaria (supra) , actual reality will come forward. In this judgment concept of
concurrent possession has also been discussed and following extract of
paragraph 55 of Salmond' s Jurisprudence has been extracted which reads
as under:
"It was a maxim of the civil law that two persons could not be in
possession of the same thing at the same time. As a general proposition
this is true: for exclusiveness is of the essence of possession. Two
adverse claims of exclusive use cannot both be effectually realized at
the same time. Claims, however, which are not adverse, and which are
not, therefore, mutually destructive, admit of concurrent realization.
Hence there are several possible cases of duplicate possession.
1 Mediate and immediate possession Cross-objections- exist in respect of the same thing as already explained.
2 Two or more persons may possess the same thing in common; just as they may owe it in common.
The concurrent possession of the owner who can exercise possession right to a limited extent and for a limited purpose and that of the
buyer/developer who has a general control and custody of the land can
very well be reconciled."
61. In further discussion in para 26 to 28 of the above decision it has
been held that it is not necessary in terms of clause (v) that the
developer should have exclusive possession. The concurrent possession of the owner is possible which gives rights to a limited extent for a
limited purpose. Thus it is very much possible to hold concurrent
possession. Mere recitation in the sale deed to the effect that the
Society was owner of and in possession of land measuring 21.2 acres,
does not show that the Society was having actual possession. What the
Society was having is only ownership right and the possession was only
concurrent as the possessary right. Further it is a standard clause in
the conveyance deed and it does not prove or indicate anything except
that a portion of land measuring 3.08 acres, has been sold/conveyed to
the developer. In the light of this position, this contention is
rejected.
62. We find no force in the next contention of the Ld. counsel of the
assessee that possession if at all was given should be held to be only a license as defined in Section 52 of Indian Easement Act because clearly as per Section 52 of this Act, where one person grants to another or
many other persons to do something upon immoveable property which in the absence of such right would be unlawful.
63. Here in case before us, the right has not been given for the purpose of doing something but all the possible rights in property including right to sell, right to amalgam ate the project with another project in the
adjoining area which m ay be acquired later, right to mortgage etc.
clearly show that rights given by the Society are much more larger than
what is covered in the term "license" .
64. Fourth contention is that the money received at the time of execution
of JDA can be termed as advance and whatever money has been received has already been shown as capital gain. We find no force in this submission because Section 45 which has been extracted above clearly provide for
taxing of profits and gains arising from the transfer. We have already
discussed the implication of Section 45 r.w.s. 48 while discussing the
legal position. We had also discussed this issue in the light of the
decision in case of Jasbir Singh Sarkaria (supra) and pointed out that when Section 45 is read along with Section 48 it
becomes clear that whole of the consideration which is received or
accrued is to be taxed once capital asset is transferred in a particular year.
65. We would like to discuss this aspect of the issue in little more detail and try to understand why the whole of the consideration is required to be taxed. At the cost of repetition let us again reproduce the
observations of the Ld. authority in case of Jasbir Singh Sarkaria (supra) which we have earlier extracted at para 40 and the relevant portion is as under:
"40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:
".... The section can be analysed thus :
(a) transfer of a capital asset effected in the previous year,
(b) resultant profits or gains from such transfer,
(c) those profits or gains would constitute the income of the assessee/ transferor
(d) such income shall be deemed to be the income of the same previous year in which the transfer had taken place.
Two aspects may be noted at this juncture. Firstly, the expression used
is "arising" which is not to be equated with the expression "received" ;.
Both these expressions and in addition thereto, the expression "accrue"
are used in the Income-tax Act either collectively or separately
according to the context and nature of the charging provision. The
second point which deserves notice is that by a deeming provision, the
profits or gains that have arisen would be treated as the income of the
previous year in which the transfer took place. That means, the income
on account of arisal of capital gain should be charged to tax in the
same previous year in which the transfer was effected or deemed to have
taken place.
The effect and ambit of the deeming provision contained in section 45 has
been considered in decided cases and leading text books. The following
statement of law in Sampath Iyengar' s Commentary (10th Edition- Revised
by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the
income of the previous year in which the transfer took place'. Since
this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years
etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of
transfer.
. . . . In the words of section 45, the capital gains arising from the
transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year
of transfer, even as payments made prior to the year of transfer."
66. The above clearly shows that it is because of expression used in
Section 45 that is "arising" which cannot be equated with "receipt" . In
this respect the ld. authority has quoted a very old decision of Hon'ble Madras High Court in case of T.V. Sundaram Iyengaar and Sons Ltd.v. CIT, 37 ITR 26 (Mad). At para 13 of the said decision is extracted in the following manner:
"13. In T.V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26, a Division Bench of the Madras High Court while construing section 12 B of the Indian Income-tax Act, 1922 clarified the import of the
expression "arise" as follows
" Section 12B does not require that profits should have been actually
received. It is sufficient if they have arisen. Throughout the
Income-tax Act the words "accrue" and "arise" are used in
contradistinction to the word "receive" and indicate a right to receive. This was explained by Fry L.J., in Colquhoun v. Brooks. The learned
Judge observed:
' I think, therefore, that the words "arise or accruing" are general words descriptive of a right to receive profits.'
See also CIT v. Anamallais Timber Trust Ltd. To attract the operation of section 12B it is therefore sufficient if the
profits arose. They need not have been actually received."
14. Thus the criterion of right to receive the profits/gains was applied in that case.
15. The legal position does not therefore admit of any doubt that the
actual receipt of the entire sale consideration during the year of
"transfer" ; is not necessary for the purpose of computing capital gains."
Further the expression arising has been defined in the Advanced Law Lexicon by
P. Ramanatha Aiyer edited by Y.V. Chandrachud, Former Chief Justice of
India:
"The words "Arising or accruing" describe a right to receive profits, and
that there must be a debt owed by somebody. Ld. Commissioner of
Income-tax, West Bengal-II, Calcutta V. Hindustan Housing and Land
Development Trust Ltd. AIR 1986 S.C 1805, 1807."
The expression "accrual of income" has been defined in the same
Lexicon as under:
"Accrual of income. E.D Jassoon & C. Ltd. v. Ld. Commissioner of Income-tax, AIR 1954 S.C 470 quoted - Income may accrue to an assessee without the
actual receipt of the same. If the assessee acquires a right to receive
the income, the income can be said to have accrued to him though it may
be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Bhogilal v. Income- tax Ld. Commissioner, AIR 1956 Bom 411, 414 (Income-tax Act (11 of 1992) Ss. 16(1) and (3))"
67. The combined reading of these two definitions show that it (i.e.
accrual) is not equal to the receipt of income. In fact it is a stage
before the point of time when the income becomes receivable. In other
words, once the vested rights come to a person then it can be said that
such right or income has accrued to such person. The concept of accrual
or arousal of income has also been discussed by the ld. author S.
Rajaratnam in the commentary of Law of Income-tax by Sampath Iyengar
XIth Edition by discussing the meaning of "accrued and arise" at page
1300 it has been observe as under:
"(1) Important principles.- (a) Meaning - 'Accrue&# 39; means 'to arise or spring as a natural growth or result', to come by way of increase' . 'Arising&# 39;
means 'coming into existence or notice or presenting itself'. 'Accrue&# 39;
connotes growth or accumulation with a tangible shape so as to be
receivable. In a secondary sense, the two words together mean 'to become a present and enforceable right' and 'to become a present right of
demand'. In the Act, the two words are used synonymously with each other to denote the same idea or ideas very similar, and the difference lies
only in this that one is more appropriate than the other, when applied,
to a particular case. It will indeed be difficult to distinguish between the two words, but it is clear that both the words are used in
contradistinction to the word 'receive&# 39; and indicate a right to receive. They represent a stage anterior to the point of time when the income
becomes receivable and connote a character of the income, which is more
or less inchoate and which is something less than a receipt. An
unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual."
68. Therefore, it is not only the money which has been received by the
assessee which is required to be taxed but the consideration which has
accrued to the assessee is also required to be taxed. In view of this,
this contention is rejected.
69. The fifth contention made by the Ld. Counsel for the assessee was that
since section 53A of the Transfer of Property Act itself has undergone
amendment w.e.f. 24-9-2001 by which the agreement referred to in that
section is required to be registered and therefore, now in section
2(47)(v) only the amended provisions can be read. We find no force in
this contention. It is well known that section 53A of the Transfer of
Property Act was passed on equitable doctrine so as to protect the
taking over or retention of the possession by the transferee. It was not a source by which title of immovable property could be acquired.
Section 53A of TP Act read as under:-
53A. Part performance. - Where any person contracts to transfer for
consideration any immoveable 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 the contract, [***]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"
70. A plain reading of the above provision shows that it provides a safety
measure or a shield in the hands of the transferee to protect the
possession of any property which has been given by the transferor as
lawful possession under a particular agreement of sale. This position of law was incorporated in the definition of 'transfer&# 39; by insertion of
clauses (v) & (vi) in section 2(47) of the Act. It is important to
note that clause (v) uses the expression "contract of the nature
referred to in section 53A of T .P. Act, therefore, clearly the idea is
that an agreement which provides some defense in the hands of transferee was incorporated under the definition of 'transfer&# 39; in the Income-tax
Act. Now originally section 53A of T.P. Act provided that even if "the
contract though required to be registered has not been registered" ,
which means the right of defending the possession was available even if
the contract was not registered but by Amendment Act 48 of 2001, the
expression "though required to be registered has not been registered" ,
has been omitted which means for the purpose of possession u/s 53A of
T.P. Act, a person has to prove that possession has been given under a
registered agreement. In other words, now u/s 53A of T.P. Act, the
agreement referred is required to be registered. This requirement cannot be read in clause (v) of section 2(47) because that refers only to the
contract of the nature of section 53A of T.P. Act without going into the controversy whether such agreement is required to be registered or not. The Ld. Counsel for the assessee had referred to the decision of
Hon'ble Supreme Court in the case of Surana Steels v Dy. CIT237 ITR 777 (SC) for the proposition that when a section of a particular statute is
introduced into another Act it must be read in the same sense as it bore in the original Act. The careful perusal of that judgment would show
that situation is applicable only when a particular provision of an Act
has been incorporated in the later Act. In that case a question arose
that for the purpose of MAT provision what is the meaning of past losses or unabsorbed depreciation. It was found that in explanation to section 115J clause (iv) , the following ex press ion was used:-"
(iv) the amount of the loss or the amount of depreciation which would be
required to be set off against the profit of the relevant previous year
as if the provisions of clause (b) of the first proviso to sub-section
(i) of section 205 of the Companies Act, 1956 (1 of 1956) are
applicable.
71. The Hon'ble Apex Court referred to the Principles of Statutory
Interpretation by Shri G.P. Singh and extracted following piece:
" Section 115J, Explanation clause ( iv), is a piece of legislation by
incorporation. Dealing with the subject, Justice G .P. Singh states in
Principles of Statutory Interpretation (7th edition, 1999) .
Incorporation of an earlier Act into a later Act is a legislative device adopted for
the sake of convenience in order to avoid verbatim reproduction of the
provisions of the earlier Act into the later. When an earlier Act or
certain of its provisions are incorporated by reference into a later
Act, the provisions so incorporated become part and parcel of the later
Act as if they had been "bodily transposed into it". The effect of
incorporation is admirably stated by LORD ESHER, M.R. : "If a subsequent Act brings into itself by reference some of the clauses of a former
Act, the legal effect of that, as has often been held, is to write those Sections into the new Act as if they had been actually written in it
with the pen, or printed in it.(p.233)
Even though only particular Sections of an earlier Act are incorporated into later, in construing the incorporated Sections it may be at times
necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by LORD BLACKBURN: "When a
single Section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from
which it was taken, and that consequently it is perfectly legitimate to
refer to all the rest of that Act in order to ascertain what the
Sections meant, though those other Sections are not incorporated in the
new Act. ( p.244)
72. On the basis of above observation, it was held that meaning of past
losses or unabsorbed depreciation has to be taken same as was defined in the Companies Act. In this case it is clear that provision itself
refers to clause (b) of sub-section (1) of section 205 of Company' s Act
1956 and therefore, same meaning was given to past losses or unabsorbed
depreciation as is given under the Companies Act, 1956.
73. In case of clause (v) to section 2(47), clearly the expression used is
"contract of the nature referred to in section 53A of T .P. Act", which
means it is not a case of incorporation of one piece of legislation into another piece of legislation. If that was the intention of the
Parliament, obviously clause (v) would contain the expression "contract
as defined under section 53A of Transfer of Property Act, 1882".
Further, it is settled position of law that any interpretation which
could render a particular provision redundant should be avoided. If the
contention of the Ld. counsel was to be accepted, obviously the
provisions of clause (v) of section 2(47) of the Act would become
redundant in the sense that registration of agreement would again be
made compulsory but since properties were being sold in the market on
"power of attorney" basis through unregistered agreements which would
make this provision redundant. This position we have already discussed
earlier while discussing the Heydon's Rule in the interpretations of
this clause. Further the issue of interpretation of clause (v) and
amendment to section 53A of the Transfer of Property Act came for
consideration before the Mumbai Bench of the Tribunal in the case of
Suresh Chander Aggarwal v. ITO 48 SOT 2010. The Tribunal discussed this issue at page 7 and after quoting the provisions of section 2(47) and also section 53A before and after
amendment as wall as para Nos. 11.1 to 11.2 of the Board's Circular No.
495 dated 22.9.1987 observed as under:-
"The above clearly shows that there was certain situation where properties
were being transferred without registration of transfer instruments and
people were escaping tax liabilities on transfer of such properties
because the same could not be brought in the definition of "transfer" ;
particularly in many States of the country properties were being held by various people as leased properties which were allotted by the various
Govt. Departments and transfers of such lease were not permissible.
People were transferring such properties by executing agreement to sell
and general power of attorney as well as Will and receiving full
consideration, but since the agreement to sell was not registered and
though full consideration was received and even possession was given,
still the same transactions could not be subjected to tax because the
same could not covered by the definition of "transfer" ;. To bring such
transactions within the tax net, this amendment was made. It has to be
appreciated that clause (v) in section 2(47) does not lift the
definition of part performance from section 53A of the Transfer of
Property Act, 1882. Rather, it defines any transaction involving
allowing of 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. This means such transfer is hot
required to be exactly similar to the one defined u/s.53A of the
Transfer of Property Act, otherwise Legislature would have simply stated that transfer would include transactions defined in sec. 53A of the
Transfer of Property Act. But the Legislature in its wisdom has used the words "of a contract, of the nature referred in section 53A".
Therefore, it is only the nature which has to be seen. As discussed
above, the purpose of insertion of clause (v) was to tax those
transactions where properties were being transferred by way of giving
possession and receiving full consideration. Therefore, in our humble
opinion, in the case of a transfer where possession has been given and
full consideration has been received, then such transaction needs to be
construed as "transfer" ;. Therefore, the amendment made in section 53A by which the requirement of registration has been indirectly brought on
the statute need not be applied while construing the meaning of
"transfer" ; with reference to the Income-tax Act.
8. The above situation further becomes clear if we refer to the celebrated decision of Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. (supra). In that case, the assessee was owner of four flats in a building called "Silver Arch"/on Nepean Sea Road, Bombay. Out of these four flats, two
were purchased directly from the Builders, Malabar Industries Pvt. Ltd., and two were purchased by its sister concerns which were later
purchased by the assessee. The possession of the flats was taken after
full payment of consideration. The flats were let out. The assessee
contended that the rental income from these flats was assessable as
"income from other sources" because the assessee was not the legal owner because the title of the property had not been conveyed to the
Co-operative Society which was formed by the purchasers of the flats.
The Hon'ble Court noted that section 27 had been amended vide clause
3(a) wherein when a person was allowed to take possession of the
building in part performance of the nature referred to in section 53A,
such person shall be deemed to be the owner. It was further observed
that for all practicable purposes the assessee was the owner and
possibly there cannot be two owners of same property at the same time.
In fact, the amendments to section 27 were made later on but were taken
into cognizance on the basis of above principle and ultimately it was
held as under:
"Hence, though under the common law "owner" means a person who has got valid
title legally conveyed to him after comply with the requirements of law
such as the Transfer of Property Act, the Registration Act, etc., in the context section 22 of the Income-tax Act, 1961, having regard to the
ground realities and further having regard to the object of the
Income-tax Act, namely, to tax the income, "owner" is a person who is
entitled to receive income from the property in his own right. The
requirement of registration of the sale deed in the context of section
22 is not warranted."
Thus, from the above, it is clear that it is not necessary to get the
instrument of transfer registered for the purpose of Income-tax Act when a person has got a valid legally conveyed after complying with the
requirements of the law.
9. Similarly, in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC), the assessee had purchased for the use of its staff seven low income
group houses from a Housing Board. The payment had been made and in turn possession of the houses was taken over by the assessee. The actual
conveyance deed was not executed. The assessee claimed depreciation
which was denied by the department. After great discussion, it was
observed that for all practicable purposes and for the purpose of
Income-tax Act, the assessee shall be construed as owner of the
property. In fact, it was held as under: -
"Held, reversing the judgment of the High Court, that the finding of fact
arrived at in the case at hand was that though a document of title was
not executed by the Housing Board in favour of the assessee, the houses
were allotted to the assessee by the Housing Board, part payment
received and possession delivered so as to confer dominion over the
property on the assessee whereafter the assessee had in its own right
allotted the quarters to the staff and they were being actually used by
the staff of the assessee. The assessee was entitled to depreciation in
respect of the seven houses in respect of which the assessee had not
obtained a deed of conveyance from the vendor although it had taken
possession and made part payment of the consideration" .
Thus, from the above two decisions, it becomes absolutely clear that for the
purpose of the Income-tax Act the ground reality has to be recognized
and if all the ingredients of transfer have been completed, then such
transfer has to be recognized. Merely because the particular instrument
of transfer has not been registered will not alter the situation. This
position is further strengthened by the fact that Legislature itself has inserted clause (v) to section 2(47) and while referring to the
provisions of section 53A, reference has been made by stating that
contracts in the nature of section 53A should also be covered by the
definition of "transfer" ;. Therefore, in our humble view, the amendment
to sec. 53A of the Transfer of Property Act, whereby the requirement of
the documents not being registered has been omitted, will not alter the
situation for holding the transaction to be a transfer u/s.2(47)(v) if
all other ingredients have been satisfied."
74. Thus , it is clear that non-registration of agreement cannot lead to
the conclusion that provision of section 2( 47) (v) is not applicable.
Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G. Sreenivasan v. Dy. CIT 28 Txmann.com 200 (Coch.) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganeshwade v ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected.
75. The next contention was that the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia (supra) is not applicable particularly because ultimately in that case it was
held that capital gain tax should be charged in Assessment year
1999-2000 whereas agreement was executed in August, 1994.
76. We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in paras 33 to 38. We had also examined why in that case capital gain
was not held to be chargeable in Assessment year 1995-96.There is no
need to repeat the same and in view of the said observations, we reject
this contention.
77. The next contention is that it is necessary for invoking of section 2(
47)( v) of the Act to comply with the provisions of section 53A of the
Transfer of Property Act to the extent that there should be willingness
on the part of the transferee to perform his part of the contract.
78. In this aspect we have no quarrel with the proposition that for
invoking section 53A of T .P. Act read with clause (v) of section 2 ( 4
7) , the transferee has to perform or is willing to perform his part of t he contract. In this respect as referred to by Ld. Counsel for the
assessee, the comments of the Ld. Author in the commentary by Mulla -
Dinshan Frederick Mulla vide para 16 are clear and shows that this
requirement has to be absolute and unconditional. Some observations have been made in the case of General Glass Company Pvt Ltd. v. Dy. CIT (supra). In that case it was held that willingness to perform for the purpose of section 53A is something m ore than a statement of intent and it is
unqualified and unconditional willingness on the part of the transferee
to perform his obligation. In that case the transferee has agreed to
make certain payments in instalments in consideration of the development agreement but such payments were not made. Later on, the agreement was
modified and more time was given to the transferee for payment of such
instalments. However, the instalments were not paid even under the
modified terms and that is why it was ultimately held that such
agreement cannot be construed as transfer.
79. The second decision referred to by Ld. Counsel for the assessee is K. Radika v Dy. CIT (supra). In this case, similar observations were made, though it is not pointed
out in what respect the transferee has failed to perform his part but it has been observed that the facts of the case shows that transferee has
not performed his part of the contract.
80. The third judgment relied upon by the Ld. Counsel for the assessee is in the case of Dy. CIT v Tej Singh (supra) . In that case land was acquired by the Government and the matter went
for litigation. During the pendency of litigation, the assessee entered
into a Development agreement with a Developer for the purpose of
development of the property, however, it was clarified in the agreement
that there is litigation in respect of acquisition of property and the
developer has to take clearance from the government in the matter of
denotification of the land. It was held that since the land was under
compulsory acquisition and no compensation has been received, therefore, there could not be any capital gain tax u/s 2( 47) (iii) which deals
with the compulsory acquisition. It was further observed that assessee
could not have given possession unless and until the land was
denotified. Since facts of the case are different than the case in hand
and therefore, same are not relevant for our purpose.
81. Now coming to the facts, firstly it was contended that Developer i.e
transferee has not obtained various permissions which were required to
be taken by the Developer as per clauses 3.1, 7.9, 8.4 and 8.6 of the
JDA. This is not correct as pointed out by the Ld. CIT DR that assessee
had already got the municipal plan sanctioned but in the meantime PIL
was filed before the Hon'ble Punjab & Haryana High Court against the implementation of the project. Initially, the construction was banned
by the Hon'ble High Court. However, later on it was observed in the CWP
No. 20425 of 2010 and as clarified by the order of the Hon'ble Supreme
Court that refusal of sanction under the Environment (Protection) Act,
the society have sought a review of the order because the findings
arrived were ex.parte. No order in the matter has been passed by the
competent authority perhaps because of the order of High Court. In the
interim order passed in the PIL it has been clarified by the Hon'ble
Supreme Court vide order dated 31.1.2012 permitting the concerned
authority under the different statutes governing the matter to their
respective jurisdiction to be decided in accordance with law. Thus, it
becomes clear that developer i.e. THDC has applied for various
permissions before the relevant authorities and in some cases permission were declined on ex parte basis and in some cases the same were
declined in view of the High Court order banning the construction. After the clarification of the order of the High Court by Hon'ble Supreme
Court by order dated 31.1.2012, the authorities have already been
permitted to examine the issue on merits under various laws. Further in
the JDA there is a clause 26 which deals with the Force Majeure clauses. The clause 26 (i) to (v) reads as under:-
FORCE MAJEURE
(i) None of the parties shall be liable to the other Party or be deemed to
be in breach of this Agreement by reasons of any delay in performing or
any failure to perform, any of its own obigations in relation to the
Agreement, if the delay or failure is due to any Event of Force Mejeure. Event of Force Majeure is any event caused beyond the parties
reasonable control. The following shall be regarded as issues beyond the Parties reasonable control.
(ii) For the purposes of this Clause, an Event of Force Majeure shall mea n
events of war, war like conditions , blockades, embargoes, insurrection, Governmental directions, riots, strikes , acts of terrorism , civil
commotion, lock - outs, sabotage , plagues or other epidemics, acts of
God including fire, floods, volcanic eruptions , typhoons , hurricanes , storms, tidal waves , earthquake , landslides , lightning, explosion s
and other natural cal amities, prolonged failure of energy, court
orders/injunctions, charge of laws, action and/or order by statutory
and/or Government authority, third party actions affecting the
development of the Project, acquisition/ requisition of the Property or
any part thereof by the government or any other statutory authority and
such circumstances affecting the development of the project (Event of
Force Majeure).
(iii ) Any Party claiming restriction on the performance of any of its obligations under this agreement due to the happening or arising of an Event of
Force Majeure hereof shall notify the other Party of the happening or
arising and the ending of ceasing of such event or circumstance with
three (3) days of determining that an Event of Force Majeure has
occurred. In the event any Party anticipates the happening of an Event
of Force Majeure, such Party shall promptly notify the other party.
(iv) The Party claiming Event of Force Majeure conditions shall, in all
instances and to the extent it is capable of doing so , use its best
efforts to remove or remedy the cause thereof and minimize the economic
damage arising thereof.
(v) Either Party may terminate this Agreement after giving the other Party a prior notice of fifteen (15) days in writing of the Event of Force Majeure
continues for period of ninety (90) days. In the event of termination of this Agreement all obligations of the Parties until such date shall be
fulfilled.
82. The combined reading of these clauses show that if any of the party
could not perform its part of the obligation because of the unforeseen
circumstances which included Government directions, Court orders ,
injunctions etc . such party would not be liable to other party. In view of Force Majeure clause which included Court Injunction it can not be
said that THDC is not willing to perform its obligation. In fact
Develpers i.e. THDC/HASH were perusing the issue of
permissions/ sanctions vigorously. These aspects become further clear if
the judgment of the Hon'ble Punjab & Haryana High Court in CWP No.
20425 of 2010 vide order dated March 26, 2012 is perused. Paras 3, 4,
22, 25 & 26 of the judgment read as under:-
3. The broad contours of the present proceeding having been outlined, we
may now proceed to take note of the specific contentions of the
contesting parties as made before us. However, before we do so, it may
be appropriate to mention the somewhat conflicting stand of the parties
with regard to the present stage of the applications filed under the
provisions of the Environment (Protection) Act as well as the Wild Life
(Protection) Act. While the petitioner , who is supported by the
respondent No.6-Chandigarh Administration, asserts that necessary
sanction/permission under both the Acts have been refused by orders
passed by the competent authorities, the promoters of the project
contend to the contrary. The facts, as unfolded before us, indicate that against the refusal of sanction under the Environment (Protection) Act, the respondents have sought a review of the order on the ground that
the findings arrived at, which have formed the basis of the refusal, are ex-parte. No order in the review matter has been passed by the
competent authority, perhaps, because of the interim order passed in the PIL which has been clarified by the Hon'ble Supreme Court by order
dated 31.1.2012 permitting the concerned authority under the different
statutes governing the matter to exercise their respective jurisdictions in accordance with law. Insofar as the Wild Life ( Protection) Act is
concerned, it appears that the rejection has been made by the Chief Wild Life Warden who, the respondents claim, is merely a recommending
authority and is required to forward his recommendation to the Central
Government. As the rejection under the Wild Life (Protection) Act has
been made by an authority not competent to do, the promoters of the
project have sought a review of the order which is still pending for the same reason(s) as noticed above.
4. On these facts we are of the view that it would be prudent on our part
to take the view that the issue with regard to clearance/sanction under
the two enactments i.e. Environment (Protection) Act and Wild Life
(Protection) Act is presently pending and as the promoters of the
project have submitted themselves to the jurisdiction of the authorities under the said enactments we should refrain from addressing ourselves
on any of the issues connected with either of the two statutory
enactments as any such exercise, even though may be unintended, may have the effect of fettering the jurisdiction of statutory a uthorities
functioning under the two relevant statutes .
22. Insofar as the provisions of the Environment (Protection) Act and the
Wild Life (Protection) Act are concerned, it need not be emphasised that every project attracting the provisions of the Periphery Control Act
and/or the provisions of the 1995 Act must satisfy the ecological
concerns of the area in the light of the provisions of the two statues
in question. As already held by us, a public trust has been bestowed on
the authorities by provisions of the said Acts which cast on such
authorities a duty to interdict any project or activity which even
remotely seems to create an imbalance in the pristine ecology and
environment of the area on which the city of Chandigarh is situated or
for that matter in the immediate vicinity thereof. As already observed,
necessary clearances under the aforesaid two enactments, insofar as the
respondents are concerned, are presently pending before the concerned
authorities and, therefor e, it would be highly incorrect on our part to enter into any further discussion on the afores aid aspect of the case.
25. We also hasten to emphasise that a more rigorous regulated development
in what are now the remnants of the periphery and the areas adjoining to it is the need of the hour for which the stakeholder s i.e. the
Administration of Chandigarh, the States of Punjab and Haryana as also
the authorities under the Environment (Protection) Act and the Wild Life Protection Act have to demonstrate the need to engage themselves
intensively and not acquire a placid approach indicating an eloquent
acquiescence to the violation of the 1995 Act, Periphery Control Act and the Periphery Policy.
26. We thus conclude on the aforesaid note by holding and observing that
the provisions of the Periphery Control Act and the 1995 Act are
complementary to each other and the provisions of the two statutes would apply to the housing project in question. The respondents , therefore,
will have to comply with all the requirements spelt out by both the
aforesaid statutes. As the requirement of clearances under the Wild Life (Protection) Act and Environment (Protection) Act is not a contentious
issue, and as we have already held that the process of grant of such
clearances is pending before the appropriate authorities under the
respective Acts, the same will now have to be brought to its logical
conclusion keeping in mind our observations and directions contained
hereinabove.
83 The combined reading of the above paras in the order of Hon'ble High
Court clearly shows that Developer THDC/ HASH i.e. transferee have made
their sincere efforts for obtaining the necessary permissions/ sanctions
which were required under the JDA. However, some of the sanctions could
not be taken in time because of the litigation by way of PIL but since
none of the party was liable to the other party in view of the clause 26 dealing with FORCE MAJEURE it cannot be said that Developer was not
willing to perform his part of contract. In any case no specific
evidence has been shown us to prove that THDC/HASH were declining to
perform particular obligation provided in JD A. In view of this
discussion, it cannot be said that transferee i.e. Developer THDC/HASH
is not willing to perform his part of contract.
84 Secondly, it was contended that payments have not been made as per the
JDA. However, again this is not correct. As per clause 4(iv) of the JDA, the instalment for Rs. 31,92,75,000/ - was required to be paid. The
clause 4(iv) read as under:-
"(iv) Payment being Rs. 31,92,75,000/ - (Rupees One Crore ninety two lacs
seventy five thousand only) calculated @ Rs. 24,75,000/- (Rs. Twenty
Four lacs seventy five thousand only) per plot holder of 500 Sq. yards
and (Rs. 49,50,000/- (Rs . Forty nine lacs fifty thousand only) as per
plot holder of 1000 square yards to be made to the Owner and/or the
respective members of the Owner (as the case may be) within six (6)
months from the date of execution of this agreement or within two (2)
months from the date of approval of the plans/Design and Drawings and
grant of the final licence to develop where upon the construction can
commence, whichever is later, against which the Owner shall execute a
registered sale deed for land of equivalent value being 6.36 acres out
of the Property as demarcated in green colour (also hatched in green
colour) in the Demarcation Plan annexed hereto as Annexure V and bearing Khasra Nos. 123/15, 123/6, 123/7 (balance part), 123/3 (part),
123//4//1, 123///4//1/2, 123//4/2, 123/5/1, 123//5/2, 123//5/3,
112/24/24 (part)"
85. The careful reading of the said clause of the JDA would show this
payment was required to be made within a period of six months from the
date of execution of this agreement or within two months from the date
of approval of plan/sanction and drawing grant of final license to
develop where upon the construction can commence, whichever is later.
Thus, this instalment was dependent on two contingencies first the
expiration of a period of six months from the date of agreement or
alternatively on the expiration of a period of two months from the date
of approval of plans/designs drawing etc. leading to grant of final
licenses which can lead to commencement of construction, whichever is
later. The matter was taken up by way of PIL by certain citizens and
Administration of the Union Territory before the Hon'ble High Court
which initially stayed the sanction of such plan etc. This led to
situation where construction could not be commenced and hence payment
was not required to be made in view of the pending litigation. The
clauses of force majeure came into operation and therefore, it cannot be said that the developer is not willing to perform its part of the
contract. In any case there is no default on the part of the developer
as payment was not yet due as per clause 4(i)(iv) of JDA.
86. This position was informed to the Society by letter dated 4-2-2011 by
HASH Builder, copy of which has been filed at pages 23 & 24 of the
paper book dealing with the additional evidence. Through this letter it
has been clearly stated that since permission is pending from the
Ministry of Environment and Forest Department and therefore
constructions could not commence. These permissions were pending because of the PIL filed by Shri Aalok Jagga before the Hon'ble Punjab &
Haryana High Court. All these facts clearly shows that in view of clause 4.1( iv) read with clause 26(v) of the JDA, HASH Builder were not
required to make the payment and it cannot be said that they were not
willing to perform their part of the contract on this aspect. Therefore, this contention is rejected.
87. Seventh contention is that revenue wrongly held that even clause (vi)
of Section 2(47) is applicable. We find no force in this contention.
Clause (vi) to Section 2(47) reads as under:
"any transaction (whether by way of becoming a member of, or accruing 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" .
88. The plain reading of the provision shows that any transaction by way of becoming a Member or acquiring shares in the Co-operative Society or
shares in the company which has the effect of transferring or enabling
the enjoyment of any immoveable property would be covered by the
definition of transfer. In the case before us, initially the Members of
the Society were holding shares in the Society for ownership of plot of
500 sqyd or 1000 sqyd. This membership was surrendered to the Society
vide resolution of the Society passed in the Executive Committee on
4.1.2007 which was later ratified in the General Body Meeting of the
Society on 25.1.2007, so that the society could enter into JDA. In the
JDA the Society has agreed to transfer the land. Therefore, technically
it can be said that the developer i.e. THDC/HASH has purchased the
membership of the Members in the society which would lead to enjoyment
of the property and in that technical sense, clause (vi) of Section
2(47) is applicable.
89. Eighth contention is that since the Society has transferred the land
through JDA on a pro-rata basis, therefore, only whatever money is
received against which sale deeds have also been executed, can be taxed
and notional income i.e. the money to be received later, can not be
taxed. In this regard reliance was placed on certain Supreme Court
decisions and other cases for the proposition that notional income
cannot be taxed. There is no need to discuss the cases relied on by the
ld. counsel of the assessee because it is settled position of law that
no notional income can be taxed. Though there is no quarrel that it is a settled principle of law that notional income can not be taxed but in
case of capital gain, Section 45 which is charging Section and Section
48 which is computation section, makes it absolutely clear that rigor of tax in case of capital gain would come into play on the transfer of
capital asset and total consideration which is arising on such transfer, has to be taxed. Section 48 clearly talks about full consideration
received or accruing as result of transfer. This aspect we have already
discussed in detail at paras 64 to 68.
90. Second aspect of this contention was that if consideration which has
not been received was to be taxed then the assessee would be deprived
for claiming exemption u/s 54 and 54EC. As observed above as per Section 45 r.w.s 48 whole of the consideration, received or accrued has to be
taxed. Every person is supposed to know the law and if the transaction
is structured in such away for the transfer of capital asset that some
of the consideration would be received later then such person is
supposed to know the consequences of the denial of such benefits.
However, if the section is interpreted in the manner suggested by the
ld. counsel of the assessee then no person would pay capital gain tax on transfer of a property. This will be clear from a simple example. Let
us assume if "A" sells the property to "B" for a consideration of Rs.
100 crores and receive only a consideration of 1.00 crore and it is
mentioned in the transfer instrument that balance of consideration would be paid after 20 years then no tax can be levied on such balance
consideration of Rs. 99.00 crores which has not been received as per the contention of the ld. counsel of the assessee. But in that case no
taxes can be levied even after 20 years because no transfer can be said
to have taken place after 20 years and Revenue cannot do any thing
because capital gain can be charged u/s 45 only on transfer of capital
asset. We do not think that this kind of interpretation can be made
while interpreting Section 45 r.w.s. 48 by invoking the rule that there
can not be any tax on notional receipt. Generally speaking it is only
the real income which can be taxed but this has to be understood subject to limitations. Commenting on these limitations, the Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income-tax by Sampat Iyengar' s
Volume 1, (11th Edition) has observed at page 343 as under:-
"5. Reservations on real income theory. - Whether accrual of income has
taken place or not, must be judged on the principle of the real income
theory. After accrual, non-charging of tax on the same because of
certain conduct based on the ipse dixit of a particular assessee cannot
be accepted. In determining the question whether it is hypothetical
income or whether real income has materialized or not, various factors
will have to be taken into account. It would be difficult and improper
to extend the concept of real income to all cases depending upon the
self-serving statement of the assessee. What has really accrued to the
assessee has to be found out and what has accrued must be considered
from the point of view or real income taking the probability or
improbability of realization in a realistic manner, but once accrual
takes place, on the conduct of the parties subsequent to the year of
closing, an income which has been accrued cannot be made "no income'. "
91. The above position can be understood by examining some of the
provisions of the Act which would show that concept of notional income
can not be extended if specific provision is available in the Act. For
example in case of income from house property, the income has to be
determined as per section 23. Section 22 of the Income-tax Act, provides that it is the annual value of the property which can be taxed under
the head "income from house property" . Sector 23 prescribes the method
for determining the annual value. Section 23(1)(a) reads as under:-
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be -
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual
rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or
receivable; or……….
92. On this aspect the settled position of the law is that the annual value has to be determined even if the property is not let out. This position has been discussed by the Ld. author Chaturvedi & Pithisaria&# 39;s in
Commentary of Income-tax Law (fifth edition) Volume 1 in this respect at pages 1275 & 1276 observed as under:
"Annual value- determination of - Section 23(1)(a) provides that for the
purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to
let from year to year. The word used is 'might&# 39; and not 'can' or 'is' .
It is thus a notional income to be gathered from what a hypothetical
tenant would pay which is to be objectively ascertained on a reasonable
basis irrespective of the fact whether the property is let out or not [Sultan Bros. Pr. Ltd. v. CIT, [1964] 51 ITR 353 (SC);Jamnadas Prabhudas v. CIT, [1951]20 ITR 160(Bom); D.M. Vakil v. CIT, [ 1946] 14 ITR 298, 302(Bom); CIT v. Biman Behari Shaw, Shebait,[1968] 68 ITR 815 (Cal); Sri Sri Radha Govinda Jew v. CIT, [1972] 84 ITR 150, 156 (Cal); CIT v. Ganga Properties Ltd.,[1970] 77 ITR 637, 647 (Cal); Liquidator, Mahmudabad Properties Ltd. v. CIT, [1972] 83 ITR 470 (Cal), affirmed, [1980] 124 ITR 31 (SC); CITv. Zorostria n Building Society Ltd., [1976] 102 ITR 499 (Bom); C.J. George v. CIT, [1973] 92 ITR 137 (Ker); D.C. Anand & Sons v. CIT,(1981) 131 ITR 77 (Del). Also see, CIT v. Parbutty Churn Law, [1965] 57 ITR 609, 619 (Cal); In the matter of Krishna Lal Seal, AIR 1932 Cal 836; Lalla Mal Samgham Lal v. CIT, [1936] 4 ITR 250 (Lah); New Delhi Municipal Committee v. Nand Kumar Bussi, [1977] Tax LR 2130 (Del)]"
93. Similar view has been expressed by Shri N.A. Palkhivala in his
commentary on the Law land Practice of Income-tax, Volume 2 (Eighth
edition) by Kanga and Palkhivala&# 39;s observation at pages 22 & 23.
Again even Shri S. Rajaratnam in the Commentary of Law of Income-tax by
Sampat Iyengar' s Volume 2, (11th edition) expressed identical views in
his commentary at page 2738.
94. In all the leading commentaries cited above, it has been observed that
annual value is to be computed whether property has been let out or not. This means that notional value of the property has to be charged to the Income-tax under the head "income from house property" . From the above, it becomes clear that though there is no real income from letting out
of the property, still the notional annual value is subjected to tax
under the head "income from house property" . However, we may mention
that u/s 23(1)(c) of the Act if the property is let out and then
remained vacant for some part of the year or for whole of the year then
vacancy allowance can be claimed. Here, it is important to note that if
property is not let out, then notional income becomes chargeable to the
tax because of provisions of sections 22 and 23 (1) (a) of the Act.
Similarly, under the Mat provisions, it is basically the notional income which is being subjected to charge under the head "income from business and profession" . A businessman may have income of Rs. 100/- but because of higher depreciation allowable under the Income-tax Act or some other weighted deductions say for example in case of expenditure on
scientific research, the tax able income as per the provisions of the
Act may be zero but still because of the Mat provisions, tax has to be
charged on book profits. Similarly in the case of presumptive tax
provisions e.g. u/s 44AD if a person is civil contractor and does not
maintain books of account and his turnover is less than Rs. 60 lakhs
then the profit would be presumed to be 8% of turnover even if he has
suffered a loss. Another example of Section 2(22)(e) can be taken. Under this provision a loan or advance given by certain companies to a
substantial share holder is to be treated as deemed dividend. Such loan
under the normal accounting principle or on commercial principles cannot be regarded as income but because of this specific provision regarding
deemed dividend such amount has to be treated as income of the person
receiving such loans.
95. The above position of law makes it absolutely clear that theory of real income is subject to the provisions of the Act and whenever any
specific provisions of the Act is there for charging of a particular
item of income, then the same has to be charged accordingly. It may be
sometimes hard to the assessee' s but again it has been held in numerous
decisions that Fiscal statues have to be interpreted on the basis of
language used and there is no scope for equity or intent. Ld. Author
Shri S. Rajaratnam in the Commentary of Law of Income-tax by Sampat
Iyengar' s Volume 1, page 236 in this regard has observed as under:-3
"Once it is shown that the case of the assessee comes within the letter of
the law, he must be taxed, however, great the hardship may appear to the judicial mind. Considerations of hardship, injustice or anomalies do
not play any useful role in construing taxing statutes unless there be
some real ambiguity. Thus, any benevolent construction in favour of the
assessee has been held to be uncalled for.
96. Therefore, it can be said that generally speaking notional income could not be subjected to tax but whenever there is a specific provision, the same has to be taxed. Now, in case of capital gain, section 45 read
with section 48 very clearly provides that it is the profit " arising"
from the transfer of a capital asset which would be subjected to charge
of capital gain tax and section 48 clearly provides for taking the total consideration into account while computing the capital gains. This
aspect we have already discussed in detail at para Nos. 64 to 68 from
which it becomes clear that it is the whole consideration whether
received or accrued, which has to be taxed under the capital gain once
transfer of the capital asset takes place. Accordingly, there is no
force in this part of the contention.
97. Now let us examine the issue of taxability of flat on the basis of
above principles. Relevant portion of clause 4 of the JDA which deals
with consideration are as under:
"4. Consideration
4.1 It is specifically understood and agreed amongst the Parties that
THDC shall use its expertise and its Brand name and/or any other brand
name at its discretion to develop the Property into the Premises as per
applicable building bye-laws of the Competent Authority and the Owner
shall have no objection to the same in whatsoever manner. In
consideration of the Owner granting and assigning, its Development
Rights in the Property, irrevocably and in perpetuity, to THDC to
develop the Property and for transfer of the Property upon the surrender of allotment rights of 500 sq. yards and/or 1000 sq. yards (as the case may be) by its members to the Owner, vide resolution dated 04-01-2007
and 25-02-2007 (copy attached as per Annexure I & II), HASH is
committed to pay to the Owner and/or the respective members of the Owner (as the case may be) a total amount of Rs. 106,42,50,000/ - (Rupees One
Hundred Six Crores Forty Two Lacs Fifty Thousands Only) calculated @ Rs. 82,50,000/- (Rupees Eighty Two Lacs Fifty Thousands Only) payable to 65 members having plot of 500 sq. yards each, Rs. 1,65,00,000/ -(Rupees One Crore Sixty Five Lacs Only) payable to 30 members having plot of 1000
sq. yards each and Rs. 3,30,00,000/ - (Rupees Three Crores Thirty Lacs
Only) payable to the Owner for the 4 plots of 500 sq. yards each, which
shall tantamount to the full and final payment to the Owner and/or the
respective members of the Owner (as the case may be) in a manner set out herein below ('Payment&# 39;). Further, the transfer, sale and conveyance of 21.2 acres of land of the Property shall be made by the Owner in favour of THDC pro rata to the Payment received by the Owner and/or the
respective members of the Owner (as the case may be) from HASH by
executing sale deeds and registering the same. It is expressly provided
that as resolved by the Owner, the total amount payable by HASH to the
Owner and/or the respective members of the Owner (as the case may be)
for assignment of the Development Rights and for transfer and sale of
21.2 acres of land of the Property shall be Rs. 106,42,50,000/ - (Rupees
One Hundred Six Crores Forty Two Lacs Fifty Thousand only) and one
hundred and twenty nine (129) flats consisting of Super Area of 2250 Sq. feet ('Flats&# 39;); one flat each for sixty five members having a plot of
500 sq. yards, two flats for the (thirty) 30 members having a plot of
1000 sq. yards and 4 flats to the Owner for the 4 plots of 500 sq. yards each as per list annexed with this Agreement as Schedule B ('Sale
Transaction&# 39;)
It is expressly agreed between the Developers that HASH shall be
responsible for making all payments to the Owner and/or the respective
members of the Owner (as the case may be) as per the negotiated and
agreed terms between the Owner and HASH, HASH expressly undertakes to
make timely payments of the Payment to the Owner and/or the respective
members of the Owner (as the case may be) as under:
4.2 As resolved by the Owner, THDC either by itself or along with HASH
shall allot the Flats in the name of members of the Owner as per list
annexed with this Agreement as Schedule B attached herein (hereinafter
referred to as the 'Allottees&# 39;). The specifications of the flats would
be provided by the Developers to the Owner and more particularly
described in the Schedule C attached herein (hereinafter referred to as
the 'Specifications '). The Allotment letters shall be issued to the
Allottees (members of the Owner) within forty-five (45) days from the
date of sanction of the building plans/Design and Drawing and on
obtaining final license/permission for the development of the Project
from the Competent Authority. Thereafter, the possession of the flats
shall be handed over to the Allottees within thirty(30) months form the
date of issuance of the Allotment Letter.
It is expressly provided that the Payment to be made by HASH to the Owner
and/or to the respective members of the Owner (as the case may be) and
the Flats to be allotted to the Allottees as set out in this Clause 4.2
shall hereinafter be collectively referred to as the 'Entire
Consideration&# 39;
98 From this clause it becomes absolutely clear that each Member having
500 sqyd of plot was entitled to receive one furnished flat measuring
2250sqft and Members having 1000sqyd flat were entitled to receive two
furnished flats. Thus upon execution of the JDA vested right came to
such Members to receive such flats. Once this vested right arises out of the above contract it can easily be said that this right has also
accrued to the assessee. Clause 4.2 makes it absolutely clear that
developer i.e. THDC/HASH was to allot the letters of allotment within 45 days from final sanction from the competent authority and such flats
were part of entire consideration. Merely because such allotment letter
has not been given because of sanctions/permissio ns could not be
obtained because of Public Interest Litigation before the Hon'ble Punjab & Haryana High Court, it cannot be said that such right has not
accrued. Though it may be hard on the assessee but it is well settled
that taxation and equity are strangers. Further commenting on this
aspect Shri Rajarathnam in his commentary has observed at page 5164 as
under:
"It is hard on the owners when required to pay tax, when handing over the
possession for purposes of construction without being able to enjoy the
construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory
clarification in such cases. In view of the increasing scale of such
development agreements to solve the housing problem in the cities, a
statutory clarification or circular is overdue."
99. These comments and the other detailed discussion on this aspect clearly show that capital gain tax has to be paid on the total consideration
arising on transfer which would include the consideration which has been received as well as the consideration which has arosen and become due
and may be received later on. In view of this discussion this contention is rejected.
100. Ninth contention is that the assessee has already terminated the
agreement and has revoked the Power of Attorney. We find no force in
this submissions.
101. In this regard ld. counsel of the assessee has relied on the decision of Mumbai Bench of the Tribunal in case of Chemosyn Ltd. v ACIT(supra) . In that case the assessee-Company was owner of two plots bearing 256
& 257 in Gundabali Andheri Mumbai. The assessee-company entered into a development agreement with Dipiti Builders for the development rights for a consideration of Rs. 16.11 crores. Dipiti Builders had also
agreed to construct 18000 sqft carpet area for the benefit of assessee
on plot No. 256. In the return of income total consideration was shown
only at Rs. 16.11 crores. It was explained that before Dipiti Builders
could start the development /construction work, entire property
comprising of plot nos. 256 & 257 was sold to a third party M/s
Financial Technology Ltd. by a tripartite conveyance deed executed on
5-7-2007 for Rs. 29.11 crores and therefore, additional consideration of Rs. 13 crores has been offered to tax in Assessment year 2008-09. This
explanation was rejected by the Assessing Officer because according to
him it was a case of transfer u/s 2(47)(v) and total consideration has
to be charged in the year of transfer. The Tribunal after considering
the provisions of sections 45 & 48 posed a question to itself that
what should be the consideration in the case before the Bench. The case
law relied on by the Department was rejected because same was relevant
to accrual of interest. The Bench followed the decision of Kalptaru
Construction Oversees Pvt Ltd. 13 SOT 194. In that case the assessee had agreed to sell to its subsidiary equity shares for a consideration of
Rs. 1.25 crores which was finally settled at Rs. 1.00 crore and the
Tribunal held that the consideration of Rs. 1.00 crore has to be
accepted.
102. From the above decision it is not clear whether in case of Kalaptaru
Construction Oversees Pvt Ltd. (supra) which has been followed in above
case, was concerning capital gain or not? Secondly it is not clear that
whether the amended consideration i.e. settlement for Rs. 1.00 crore was made in the same year or not? As observed earlier while discussing the
issue of notional income that provisions of section 45 r.w.s. 48, are
absolutely clear and there is no ambiguity that once a capital asset is
transferred then whole of the consideration received or accruing has to
be considered for the purpose of taxation in the year in which the
transfer has taken place. We further find that in the JDA there is a
clause for termination of the agreement. Relevant clause 14 reads as
under:
"Termination
"14(i) Save and except the provision of
clause 26, THDC shall at all times have the right to terminate this
Agreement in the event there is any material breach of the
representations, warranties, undertakings, declarations, covenants
and/or obligations given by the Owner under this Agreement after giving
thirty (30) days written notice for rectification of such breach. In the event the Agreement is termination by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of
the termination shall remain with THDC and the balance lands to be
transferred to THDC as per the terms of this Agreement shall not be
transferred by the Owner in favour of THDC. Upon the termination, the
Owner shall refund to THDC the Adjustable Advance/Earnest Money
mentioned in clause 4.1(i) above within one month of such termination.
In the event of failure of the Owner to refund the said amount, the
Owner hereby agrees to execute a registered sale deed for land of
equivalent value in favour of THDC.
(ii) In the event all the requisite Government and statutory approvals,
authorizations, consents, licenses, approvals of all the plans/designs
and Drawings as may be required for the development of this Property in
relation to the Project and to undertake the Project are not granted
within nine (9) months of the submission of the final plans/Designs and
Drawings to the Competent Authority for approval then THDC may as its
sole discretion either decide that it does not desire to undertake and
complete the Project and hence terminate this Agreement after giving
thirty (30) days written notice in this regard or decide to wait for any further times deemed fit by THDC for the grant of the aforesaid
approvals and licenses. In the event the Agreement is terminated by
THDC, all the lands registered in the name of THDC as per the terms of
this Agreement upto the date of the termination shall remain with THDC
and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable
Advance/Earnest Money mentioned in clause 4.1(i) above within one month
of such termination. In the event of failure of the Owner to refund the
said amount, the Owner hereby agrees to execute a registered sale deed
for land of equivalent value in favour of THDC.
(iii) In the event THDC is unable to develop the Property due to
refusal/non- grant of approvals, consents, permission, licenses or
revocation of the same by the appropriate statutory authority, then THDC may at its sale discretion terminate this Agreement. In the event the
Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the
termination shall remain with THDC and the balance lands to be
transferred to THDC as per the terms of this Agreement shall not be
transferred by the Owner in favour of THDC. Upon the termination, the
Owner shall refund to THDC the Adjustable Advance/Earnest Money
mentioned in clause 4.1(i) above within one month of such termination.
In the event of failure of the Owner to refund the said amount, the
Owner hereby agrees to execute a registered sale deed for land of
equivalent value in favour of THDC.
(iv) The owner shall have the right to terminate the Agreement only in the
event of default by the Developers for making the Payment in accordance
with the terms of this Agreement and the allotment of Flats within the
time period as mentioned in this Agreement after giving Thirty (30) days written notice for rectification of such breach or any further time as
may be desired by the Owner. In the event the Agreement is terminated by Owner, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC
and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall forfeit the Adjustable Advance/Earnest Money mentioned in clause 4(i)."
103. The reading of the above clause would show that power of termination
has been given in many circumstances to THDC vide clauses 14(i), (ii)
and (iii). The power for termination by the owner has been mentioned in
clause 14(iv) only. Reading of this clause would show that right to
terminate with the owner i.e. the Society was available only in case of
default in making the payment. The issue regarding default for making
payment has already been discussed by us in Paras 84 to 86 above while
discussing the issue of willingness on the part of the transferee to
perform its part of the contract We have already held that there was no
default on the part of developer i.e. THDC/HASH in making the payment,
therefore, the assessee had no right to terminate the contract. In any
case we further find that clause 20 of the JDA refers to Arbitration and it is clearly provided that all the disputes under it should be
referred to the arbitration. Therefore, if the Society had some
grievance it was duty bound to give a notice for appointment of an
Arbitrator to the developer. In the absence of such notice the
termination will not stand scrutiny of law. Here it is also pertinent to note that though it was stated that irrevocable Power of Attorney has
been revoked and some documents have been filed before us for revocation but clause 6.7 of the JDA which we have reproduced earlier clearly
provides that such Power of Attorney cannot be revoked. We reproduce
clause 6.7 again which is as under:
"6.7 The Owner shall execute an irrevocable special Power of Attorney
granting its complete Development Rights in the Property in favour of
THDC interalia including the right to raise finance by mortgaging the
property and register the charge with the Competent Authority and
execute registered sale deeds) as set out in Clause 4.1 (ii), (iii),
(iv) and (v) and the Owner confirms, undertakes, declares and binds
itself not to revoke the same for any reason whatsoever out of its own
will and discretion without obtaining a specific prior written consent
of THDC or any of its duly constituted attorneys."
104. The above clearly shows that this Power of Attorney could not be
revoked for any reason without obtaining specific prior written consent
of THDC/HASH. No document showing the consent of THDC for revocation of
this irrevocable Power of Attorney has been produced before us. We fail
to understand that in the absence of such document how the assessee can
claim that this Power of Attorney has been revoked. As discussed earlier while considering the legal position, we would again recall the words
of Hon'ble Authority for Advance Ruling in case of Jasbir Singh Sarkaria (supra) wherein at para 33 of the decision while discussing the issue in
respect of Power of Attorney, it was highlighted that execution of
irrevocable Power of Attorney is of significant nature and the words "
irrevocable" are very important. The expression "irrevocable&q uot; itself
shows that normally such attorney cannot be revoked. Therefore, no
cognizance can be taken in respect of revocation of the irrevocable
Power of Attorney. In the absence of specific consent as provided in
clause 6.7 of the JDA from THDC.
105. We may also note that CIT D.R has pointed out that total consideration was to be determined as under:
(i) Consideration in cash
(Rs. 82,50,000 x 129 plots) Rs. 106,42,50,000/ -
(ii) Consideration in kind
(Rs. 101,25,000/- x 129 plots) Rs. 130,61,25,000/ -
Total Rs. 237,03,75,000/ -
Average cost of consideration Rs. 11.18 crores per acre
(Total consideration of Rs. 237.03 crores divided by 21.2 acres of land)
It is claimed on behalf of the assessee that JDA has been cancelled and
the developer has been allowed to retain the property which has also
been conveyed to developer through two sale deeds. If that is so then
what would happen to the balance consideration because in such situation the assessee has received consideration of only about Rs. 5 crores per
acre because the assessee has registered land measuring 3.08 acres for
Rs. 15.48 crores through first conveyance deed, whereas consideration as per original agreement was Rs. 11.18 crores per acre as shown above.
The difference is because of non-receipt of consideration in kind and
the assessee has not shown any evidence that it has made the claim for
receipt of balance consideration. This leads to the conclusion that
there was no cancellation of the JDA.
106. Some arguments were made by both the parties that if the contract is
finally stand abandoned then what would happen. The contention on behalf of the assessee is that if the contract is abandoned then the assessee
would have paid tax in the year of transfer and would be left with no
recourse for relief. The contention on behalf of the Department was that the assessee could always file revised return or make a petition u/s
264 and some relief was possible in case of the assessee. However, if
revenue fails to tax the total consideration in the year of transfer
then same cannot be subjected to tax in any other year. We find that
this question was seriously considered by the Ld. Authority for Advance
Ruling in case of Jasbir Singh Kataria (supra) which has been relied on by both the parties for various aspects. In that case it was observed at para 39 as under:
"We have to advert to one aspect which has caused some concern to us. What
will happen if during the year following the one in which the deemed
transfer took place, the proposed venture collapses for reasons such as
refusal of permissions, the developer facing financial crunch etc. By
that time, the owner would have received only a part of the agreed
consideration, but he is obliged to file the return showing the entire
capital gain based on the full sale price whether or not received during the year of deemed transfer. In such an eventuality, hardship may be
caused to the owner who would have paid full tax. No doubt, such a
situation could be avoided if the contention of the applicant is
accepted. On deep consideration, however, we find that the construction
of the relevant provision should not be controlled by giving undue
importance to such hypothetical situations. Normally, the owner executes a Power of Attorney or does similar act to left the transferee take
possession only after the basic permissions are granted and he is
satisfied about the ability of transferee/develope r to fulfil the
contract. In spite of that, if such rate situations take place, the
owner/transferor will not be without remedy. He can file a revised
return and make out a case for exclusion or reduction of income.
However, if the time-limit for filing a revised return expires, the
difficulty will arise. It is for Parliament or the Central Government to provide a remedy to the assessee in such cases. Moreover, the other
side of the picture as depicted in paragraph 27 (supra) should also be
kept in view."
Here the comments of Shri Rajaratnam quoted at para 5164 above are also relevant again:
"" It is hard on the owners when required to pay tax, when handing over the
possession for purposes of construction without being able to enjoy the
construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory
clarification in such cases. In view of the increasing scale of such
development agreements to solve the housing problem in the cities, a
statutory clarification or circular is overdue."
We may mention here that no doubt sometimes an assessee may be put in a
difficult situation and as mentioned by Hon'ble Authority in case of Jasbir Singh Sarkaria (supra) as well as Ld. Author Shri Rajaratnam it is for the Legislature to take corrective steps. However, it may not be out of place that if
considering the difficulty the interpretation given by the ld. counsel
of the assessee is accepted then the Revenue may not be able to tax such assessees when these difficulties are removed. For example in the
present case if tomorrow when all permissions are obtained and
construction is completed and if no taxes are held to be payable then
later on also the assessee may not be subjected to any tax under the
head "capital gain" because then it can be easily contended on behalf of the assessee that the transfer has already taken place on the date when irrevocable Power of Attorney was executed. In that situation the
Revenue will have no remedy.
107. The above clearly shows that such hypothetical consideration cannot be
considered for giving true meaning to a particular provision. It has
also been observed that in some genuine cases the difficulties may arise but it was for the Parliament or the Government to provide remedy in
such cases and judicial forums cannot do anything. Therefore, in view of the provisions of Section 45 r.w.s. 48 we are of the opinion that
subsequent events, if at all any will not make any difference because
total consideration received or accrued has to be assessed in the year
of transfer. We may also note that it was stated that irrevocable Power
of Attorney has been revoked but the word "irrevocable&q uot; itself shows
that in the eyes of law special Power of Attorney could not have been
revoked. In view of this analysis, we are of the opinion that either the JDA has not been cancelled or in any case the same cannot be considered for determining the taxation of capital gain. Accordingly this
contention is rejected.
108. The next contention of the assessee is that even if the whole
consideration has to be taxed then value of the flats cannot be taken at Rs . 4,500/- per sq. feet. It is also pointed out that in view of the
agreement between the HASH & THDC consideration has been shown at
Rs. 2,000/- per sq. feet for 126 flats whereas it is Rs . 4,500/- per
sq. feet for three flats. We find no force in these submissions. The
assessee has filed along with the written submissions copy of the
addendum of agreement between THDC and HASH by Joint Developer (at pages 265 & 266) and this issue is discussed in clause 5 which is as
under:-
"5. Clauses 4.1, 4.2, 4.3 and 4.4 on the page Nos. 18 and 19 of the
Agreement shall stand amended, modified and substituted by the
following:-
4.1 It is expressly agreed and understood by and between the Par ties hereto
(a) in the ratio of 72,28 between THDC and HASH in case Gross Sales Proceeds does not exceed Rs. 1272 crores;
(b) in the ratio of 70: 30 between THDC and HASH in case Gross Sales Proceeds is equal to Rs. 1272 crores;
(c) in addition (b), in the ratio of 60: 40 between THDC and HASH in respect of gross sales Proceeds in excess of Rs. 1272 crores.
"It is agreed that the minimum guaranteed amount from the Gross Sales
Proceeds for THDC and HASH is Rs. 890.40 crores and Rs. 225.76 crores
respectively. The minimum guaranteed amount of Rs. 225.76 crores to HASH includes Rs. 58.88 crores that shall be expended by THDC towards
construction of 126 flats equivalent to 2,83,500 sq. ft,, which flats
are to be allotted in the names of the members of the Society or
otherwise, as the case may be, calculated as Rs . 2000 per s q. ft. for
the area 2,83,500 sq. ft. and the 72% share of 3 flats of 2250 Sq. ft.
to be purchased by HASH @ R s, 4500/- per sq. ft. Should the application of the ratio stipulated in (a) above result in HASH being entitled to a sum greater than the minimum guaranteed amount and THDC being entitled
to a sum less than the minimum guaranteed amount, THDC shall-be entitled to the entitlement of HASH which is in excess of its minimum,
guaranteed amount until THDC achieves its minimum guaranteed amount.-The same is illustrated in Annexure I hereto."
109. The above clearly shows that HASH was entitled to total proceeds of Rs. 225.76 crores out of total proceeds of the project which were agreed to be shared by THDC and HASH but the portion of HASH includes a sum of
Rs. 58.88 crores which was required to be spent towards construction of
126 flats equivalent to 283500 square feet area which were to be
allotted to the members of the society. Thus, it is clear that figure of Rs. 2,000/- per s q. feet represents only the cost of constructions to
be incurred by THDC which was debited to the account of HASH. Further,
HASH has agreed to purchase three Flats @ 4,500/- per square feet. Some
news reports were quoted before us in one of the cases to show that
various brokers had issued various advertisements for sale of these
flats and these flats were ultimately to be sold at Rs. 7,000/- to Rs.
10,000/- per square feet. This also becomes clear from the addendum of
agreement in terms of total proceeds of 1272 crores. In any case if the
cost of construction is Rs. 2,000/-, then cost of land which has been
paid to the society is also to be added to the cost of the flat because
this portion of consideration in any case was received or to be received later by the society in cash. Considering the present market value of
the flats in and around Chandigarh area which is Rs. 4,000/- to 12,000/- per square feet we are of the opinion that value of the flat at R s.
4,500/- per s quare feet is absolutely fair. In any case M/s HASH has
agreed to purchase the flats at this rate from M/s THDC. It may be noted as pointed out by the ld. DR for the revenue some of the News report
clippings filed by various assessees clearly shows that flats were
booked in the "Tata Camleot" (this was the name which was given to the
Project which was to be developed on the land of two societies) in the
Pre Launch offer in the range of Rs. 7500 to 8000 per sqft. It is a
common knowledge that rates in Pre Launch offer are lower than the rates when bookings open for the Public. Considering these facts we are of
the opinion that Assessing Officer has estimated the value of the flats
on most reasonable basis. In view of these observations this contention
is rejected.
110. The Ld. Counsel for the assessee had made some submissions on the issue of deduction u/s 54F. He has pointed out that this issue has been
rejected wrongly by CIT(A). However, carefully perusal of the grounds of appeal show that no ground in respect of deduction u/s 54F has been
raised before us and, therefore, we decline to adjudicate this issue and all the arguments made in this behalf are rejected. Though reference
was made to ground No. 2.3 in this regard. The perusal of grounds No.
2.3 would show that reference has been made only to Section 54 and
Section 54EC. Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house and in case
before us, the assessee has transferred the plot. Therefore, it cannot
be said that deduction u/s 54F and 54 is same. Since no ground has been
raised for deduction u/s 54F, we reject this contention.&# 39;
Following the above, we decide this issue against the assessee. However, at the same time we find that in case of Shri Charanjit Singh Atwal(supra) as well as other plot holders in Punjabi Co-op Housing Building Society Ltd. the flat has been valued at Rs. 4500 per sqft and since nature and specification of the flat remains same, we do not find any
justification in valuing the flat Rs. 5000 per sqft. Accordingly we
decide the principle issue of tax on capital gain against the assessee.
however, the Assessing Officer is directed to value the flat Rs. 4500
per sqft.
7. Ground No. 4 - After hearing the ld. DR for the revenue and relevant material
we find this issue has been adjudicated by Ld. CIT (Appeals) vide para
6.13 to 6.14, which are as under:—
'6.13 The Ld. Counsel for the appellant has also argued that the appellant is entitled to deduction u/s 54F to the extent of investment in the new
asset, as reinvestment in flat. For the sake of convenience, provisions
of section 54 F of the Act are reproduced below:
"54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
(1) Subject to the provisions of sub-section (4), where, in the case of an
appellant being an individual or a Hindu undivided family, the capital
gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the
original asset), and the appellant has, within a period of one year
before or two years after the date on which the transfer took place
purchased, or has within a period of three years after that date
constructed, a residential house (hereafter in this section referred to
as the new asset), the capital gain shall be dealt with in accordance
with the following provisions of this section, that is to say,—
(a) if the cost of the asset is not less than the net consideration in
respect of the original asset, the whole of such capital gain shall not
be charged under section 45;
(b) if the cost of the new asset is less than the net consideration in
respect of the original asset, so much of the capital gain as bears to
the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under
section 45;
Provided that nothing contained in this sub-section shall apply where—
(a) the appellant—
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of
three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential
house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property" .
Explanation - For the purposes of this section, "net consideration" , in relation to
the transfer of a capital asset, means the full value of the
consideration received or accruing as a result of the transfer of the
capital asset as reduced by any expenditure incurred wholly and
exclusively in connection with such transfer.
6.14 Sub-section (1) of section 54 Fallows exemption of long term capital
gains from tax, if the net consideration on transfer of long term
capital asset is invested in the purchase of a new residential house
within a period of one year before or two years after or in construction of a new residential house within a period of 3 years from the date of
the transfer of the long term capital asset. In the instant case, the
construction of the flat, which the appellant is to be given, has not
yet started and so it cannot be said that the amount has been invested
in a new residential house for allowing benefit u/s 54F of the Act.
Hence, the appellant is not eligible for deduction u/s 54F.'
8. After considering the submissions of Ld. DR for the revenue and relevant
material on record, we find Ld. CIT(A) has adjudicated the issue
correctly and has given the reason for rejection of deduction under
section 54/54 F. Therefore, we find nothing wrong with the order of Ld.
CIT(A) and confirm the same. Hence this ground is rejected.
9. In the result, appeal of the assessee is partly allowed.
Profit from eligible unit to be computed without setting off losses of other eligible units for sec. 80-IB relief
F
IT: Profit from a particular industrial undertaking is qualified for
80-IB deduction, without reduction of loss suffered by any other
eligible undertaking
IT: Claim of assessee regarding expenditure for earning exempt income
could not be rejected without recording any reason for it being
unsatisfactory
■■■
[2013] 36 taxmann.com 398 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'D'
Shriram Properties (P.) Ltd.
v.
Assistant Commissioner of Income-tax, Company Circle - VI(2)*
N.S. SAINI, ACCOUNTANT MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT APPEAL NO. 1414 (MDS.) OF 2012
[ASSESSMENT YEAR 2008-09]
JULY 8, 2013
I. Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and
gains from industrial undertakings other than infrastructure development undertaking [Computation of deduction] - Assessment year 2008-09 -
Assessing Officer disallowed claim of deduction under section 80-IB in
respect of two eligible projects, as loss on two other eligible projects was more than such profit - Whether, profit derived from a particular
eligible industrial undertaking is qualified for deduction under section 80-IB without reduction of loss suffered by any other eligible
industrial undertaking, subject to gross total income of assessee -
Held, yes - Whether, therefore, where gross total income of assessee,
after adjusting losses suffered by assessee in other projects was more
than claim of deduction under section 80-IB, deduction could not be
disallowed - Held, yes [Para 17] [In favour of assessee]
II. Section 14A of the Income-tax Act, 1961, read with rule 8D of the
Income-tax Rules, 1962 - Expenditure incurred in relation to income not
includible in total income [Burden of proof] - Assessment year 2008-09 - Whether, where claim of assessee that only Rs. 15000 was incurred for
earning exempt income of Rs. 1.58 crores, was rejected by Assessing
Officer without recording any reason as to why same was not found
satisfactory, excess disallowance was not justified - Held, yes [Para
27] [In favour of assessee]
FACTS-I
■ The assessee-company was engaged in the business of real estate
development. During the relevant year, it claimed deduction under
section 80-IB on the profits of its two completed projects. The assessee had also shown business loss in respect of its two other projects as
well as interest income. The Assessing Officer disallowed claim of
deduction as aggregate income from all four projects was a loss. The
Commissioner (Appeals) confirmed the order of the Assessing Officer.
■ On assessee' s appeal:
HELD-I
■ In the instant case, it is not in dispute that the assessee has satisfied
all other requisite conditions making the assessee eligible for
deduction. On a cursory look at section 80-IB(4), it is apparently borne out that the amount of deduction is available in respect of the profits and gains derived from an industrial undertaking. If there is no profit from an industrial undertaking, there cannot be any question of
allowing deduction under this section. Equally if there is a loss in an
industrial undertaking, there will not be any point in claiming
deduction under this section. As this sub-section provides for granting
deduction on the profits and gains derived from 'such industrial
undertaking&# 39;, it is a clear pointer for granting deduction in respect of profit earned by each of such eligible industrial undertakings
separately. If there is a profit derived from such industrial
undertaking, the deduction under section 80-IB will follow. The loss
from such eligible industrial undertaking will go out of reckoning.
There is no warrant for reducing the loss of one eligible undertaking
from the profit of the other eligible undertaking. Such an
interpretation will lead to violence to the unambiguous language of
section, which otherwise talks of granting deduction in respect of the
profits and loss derived from such industrial undertaking. [Para 13]
■ If one was to read the section in a way that has been read by the
authorities below, then instead of the phrase extracted in the preceding line, it should have been 'aggregate of profits and gains derived from
such industrial undertakings&# 39;. It is, therefore, abundantly clear that
there is no reference to the aggregate of profits from all the eligible
industrial undertakings. Therefore, if there is profit derived from a
particular industrial undertaking, that will qualify for deduction
without reduction of loss suffered by any other eligible industrial
undertakings( s). [Para 13]
■ A reading of section 80-IA(5) shows, that for determining the amount
which qualifies for deduction under section 80-IB(1), one has to compute the income from eligible business as if the eligible business was the
only source of income of the assessee. In other words, the income or
loss from other business or other activities are to be ignored for the
purpose of determining the amount which is eligible for deduction under
section 80-IB(1). [Para 16]
■ A careful reading of all the above provisions shows that what is relevant for ascertaining the amount which is allowable deduction under section
80-IB are -
(i) Amount of profit derived from eligible business; and
(ii) The amount of gross total income of the assessee
■ The amount of profit derived from eligible business qualifies for deduction under section 80IB, subject to the amount of gross total income of the
assessee. There is absolutely no relevance for this purpose of the
amount which is arrived at by aggregating income from all the different
business of the assessee which is the amount assessable as business
income of the assessee. [Para 18]
■ In the instant case, the gross total income of the assessee is Rs. 2.56
crores after adjusting losses suffered by the assessee in the other two
projects. There are no brought forward losses or unabsorbed
depreciation. The claim of deduction under section 80-IB in respect of
the two eligible units of Rs. 2.23 crores is obviously less than the
gross total income. Therefore, the Assessing Officer as well as the
Commissioner (Appeals) erred in interpreting the relevant provisions
when they held that the losses suffered by the assessee from two
projects, were to be reduced from the profits of the other two units for granting deduction under section 80-IB. Accordingly, the impugned
orders of the lower authorities are set aside. The Assessing Officer is
directed to allow deduction under section 80-IB on the profits derived
by the assessee from the two projects. Thus, the grounds of appeal of
the assessee are allowed. [Para 21]
CASES REFERRED TO
Viswas Promoters (P.) Ltd. v. Asstt. CIT [2013] 214 Taxman 524/29 taxmann.com 19 (Mad.) (para 9), Jindal Aluminium Ltd. v. Asstt. CIT[2012] 54 SOT 283/26 taxmann.com 317 (Bang.) (para 10), CIT v. Canara Workshop (P.) Ltd. [1986] 27 Taxman 262/161 ITR 320 (SC) (para 19), CIT v. Visakha Industries Ltd. [2001] 251 ITR 471/118 Taxman 777 (AP) (para 20), Shriram Transport Finance Co. Ltd. v. Asstt. CIT [IT Appeal No. 701 (Mds.) of 2012] (para 25) and Shriram City Union Finance Ltd. v. Asstt. CIT [IT Appeal No. 702 (Mds.) of 2012, dated 28-6-2012] (para 25).
R. Sivaraman for the Appellant. Srinivasa Rao for the Respondent.
ORDER
N.S. Saini, Accountant Member - This is an appeal filed by the assessee against the order of the ld. CIT(A)-V, Chennai, dated 17.4.2012.
2. The assessee has taken the following grounds of appeal:
'The order of CIT(A) is against law and facts of the case.
2. The learned CIT(A) erred in confirming the action of the Assessing
officer in disallowing deduction u/s 80IB(10) of Rs. 2,23,22,237 .
3. The learned CIT(A) erred in confirming the disallowance of deduction
u/s 80IB(10) relying on the Hon'ble Income Tax Appellate Tribunal,
Lucknow "A" Bench decision in the case of Propene Products Limited v. JCIT (12 SOT 158)[Luck]. In that case the assessee' s gross total income was "Nil" . i.e., there
was loss to the assessee whereas in appellant' s case the gross total
income was Positive figure.
4. The CIT (A) ought to have held that deduction u/s.80IB(10) is allowable project wise.
5. The CIT(A) ought to have appreciated that the loss in eligible project
should not be set off against income from eligible project as held by
the Hon'ble Bombay High Court in the case of Hindustan Unilever Limited v. DCIT 325 ITR 102 (Bom.).
6. The learned CIT(A) erred in confirming the assessment of interest
income of Rs. 3,20,87,420/ -, being interest received from Shriram
Properties & Infrastructure Private Limited (Rs. 1,68,17,926) ,
Bengal Shriram Hitech City Private Limited Rs.(72,89,783) and from Bank
of Rs. 79,79,712/- under the head "Other Sources" .
7. The learned CIT (A) ought to have appreciated the fact that the
appellant held 50% shares in Shriram Properties & Infrastructure Pvt Ltd and that Bengal Shriram Hitech City Private Limited is also coming
within the purview of company under the same management of the appellant company and that the appellant has been assisting these companies which are also in real estate business in accordance with clause 11 of object clause of Memorandum of Association and hence the interest received
from these companies is assessable under the head "Profits and gains
from Business" .
8. The learned CIT (A) erred in relying on the Supreme Court judgment in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd v. CIT(227 ITR 172) to hold that the bank interest is assessable under the head "other
sources" . In the case of Tuticorin Alkali Chemical and Fertilisers
Limited, the company had not commenced its business and the interest
income was earned on short term Investment of funds borrowed for setting up of a factory and during construction of the factory, whereas in the
appellant' s case the company is doing business and the interest received from bank was on deposits made out of share capital.
9. The CIT (A) ought to have appreciated that the interest income from the bank is assessable under the head business in the light of the Calcutta High Court judgment in the case of Eveready Industries India Limited v. CIT (323 ITR 312).
10. The learned CIT (A) ought to have appreciated that interest income was
earned by the appellant in the course of its business activities and
hence the interest income is assessable under the head "Profits and
gains of business" .
11. The learned CIT (A) erred in confirming the Assessing Officer' s action
of disallowing Rs. 9,27,875/- u/s.14A of the IT Act 1961 r. w. Rule 80
of IT Rules 1962.
12. The learned CIT (A) ought to have appreciated that the Assessing
Officer has not given any reason as to why he is not satisfied with the
amount offered for disallowance u/s.14A(1) of Rs. 15000/-. Only if the
Assessing Officer having regard to the accounts of the assessee is not
satisfied with the correctness of the claim of the assessee, Rule 8D can be applied. The appellant rely on the Delhi High Court decision in the
case of Maxopp Investment Ltd. v. CIT (Delhi) (203 ITR 364).
13. For these grounds and other grounds that may be adduced before or
during the course of appeal hearing, it is prayed that the appellant' s
claim
i. for deduction u/s.80 IB (10) of Rs. 2,23,22,237/ -
ii. for treating the interest income of Rs. 3,20,87,420/ - as business income
iii. and for deleting the disallowance u/s.14A of IT Act r.w. Rule 8D of Income tax Rules of Rs. 9, 12,875/-
may be allowed by the Hon'ble Appellate Tribunal.'
3. Ground No.1 of the appeal is general in nature and hence, requires no separate adjudication by us.
4. At the time of hearing, the ld. A.R of the assessee submitted that he is
not pressing Ground Nos. 6 to 10 raised in the grounds of appeal filed
before the Tribunal and has also made an endorsement to this effect in
the grounds of appeal filed before us. Therefore, these grounds of
appeal of the assessee are dismissed for want of prosecution.
5. In Ground Nos. 2 to 5 of the appeal, the grievance of the assessee is that the ld. CIT(A) erred in confirming the action of the Assessing Officer
in disallowing deduction u/s 80IB(10) of Rs. 2,23,22,237/ -.
6. The brief facts of the case are that the assessee is in the business of
real estate development. During the year under consideration the
assessee fully completed two projects viz. 'Samruddhi&# 39; and 'Shreyas&# 39; and continued to carry out existing housing projects of 'Spandhana&# 39; and
'Coimbatore&# 39;. The assessee has shown income from these projects on
percentage completion method. The assessee, in the return of income
filed, claimed deduction u/s 80IB for an amount of Rs. 2,23,22,237/ -.
Since the assessee had shown a business loss, the Assessing Officer held that the assessee-company is not eligible to claim deduction un 80IB
and hence, disallowed the same.
7. The assessee, being aggrieved by the said order of the Assessing Officer,
filed appeal before the ld. CIT(A) and made the following submissions as quoted in the order of the ld. CIT(A):
"(i) The reason given by the Assessing Officer to deny deduction claimed
under section 80IB(10) is not correct. If the appellant' s claim to
assess the interest income under the head 'business&# 39; is allowed there
will be positive income under the head 'business&# 39; and hence the
appellant is entitled to the deduction under section 80IB(10).
(ii) As per section 80A(1), deductions specified in sections 80C to 80U shall
be allowed from the gross total income. The gross total income of the
appellant included income derived from two housing projects, which are
entitled for deduction under section 80IB(10). Hence, the appellant is
entitled to the deduction claimed under section 80IB(10).
(iii) Even if the appellant' s claim for treating the interest income as Business
income is not allowed, the appellant is entitled for the deduction under section 80IB(10), as the gross total income is a positive figure, and
it includes income which is eligible for deduction under section
80IB(10)."
8. The ld. CIT(A), after considering the above submissions, dismissed the ground of appeal of the assessee by observing as under:
'I have carefully considered the appellant' s submissions. I have already
held above that that the interest. income was correctly returned by the
appellant as 'income from other sources' and the same is assessable
under the head 'other sources' and the said income 'derived&# 39; from the
housing project eligible for deduction under section 80 IB(10). Further
the decision of the ITAT Lucknow 'A' Bench and in the case ofPropene Products Ltd. v. Joint Commissioner of Income-tax, Special Range, Kanpur (12 SOT 158) is quite apt on the facts of the present case. In the said case the ITAT has held as under:
"11. On going through the cases cited by the Ld. authorized representative
of the assessee, we find substance in the submission of the Ld. D.R.
that the cases cited by the Ld. authorized representative of the
assessee are not relevant to the facts of the case under consideration.
It is relevant to state that the said cases cited by the Ld. authorized
representative of the assessee, the issue was as to whether income from
business eligible for deduction under Chapter VI-A could be set off
against income/loss of non-eligible business and in that context it was
held that deduction under Chapter VI-A is to be allowed on income from
eligible business without being adjusted/ set off relating to
non-eligible business. However, there is a decision of the Hyderabad
Bench of I.T.A.T, in the case of Jt. CIT v. Dr. Reddy's Laboratories Ltd.[2005] 272 ITR (AT) 38 which was also cited by the Ld. authorized
representative of the assessee, wherein it was held that even if the
assessee was having two units and both are entitled for deduction under
Chapter VI-A, but one of the units was having profit and the other was
incurring loss, it was held that the unit having profit will be entitled to claim deduction under section 80HH of the Act without adjusting
losses of other unit. We are of the considered view that the said
decision is not relevant after the decision of the Apex Court in the
case of IPCA Laboratory Ltd. ( supra) wherein it has been held that for
giving deduction under section 80HHC of the Act, the profits earned from export of both self-manufacturing goods and trading goods are to be
considered and if after such adjustments there is a profit the assessee
would be entitled to deduction under section 80HHC of the Act. It was
"held that if there is a loss, the assessee would not be entitled to
deduction. Their Lordships of the Apex Court while deciding the above
case of IPCA Laboratory Ltd. (supra) also considered provisions of
sections 80AB and 80B(5) of the Act. We also observe on going through
the provisions of sections 80A, 80AB and 80B(5) of the Act that
computation of income of eligible business is to be made in accordance
with provisions of the Act as if such eligible business was the only
source of income of the assessee during the relevant assessment year for which determination of quantum deduction under Chapter VI-A is to be
given. In the case before us, the assessee is entitled for deduction
under section 80-IA of the Act and accordingly the assessee will be
entitled to claim deduction under section 80-IA of the Act only if there is a gross total income .in respect of eligible business to which
section 80-IA of the Act applies. In the case before us, there is no
dispute to the fact that after taking into account the gross income of
both the units which are eligible for deduction under section 80-lA of
the Act i.e., Polymer Division and Dairy Division of the assessee, the
assessee has Nil income i.e., there are losses in both the assessment
years under consideration. The Apex Court has held in the case of
Motilal Pesticides (I) (P.) Ltd. (supra) that the special deduction
under Chapter VI-A of the Act is allowable on the net income and not on
the gross income. Further, the Apex Court has also held in the case of CIT v. Kotagiri Industrial Co- operative Tea Factory Ltd. [1997] 224 ITR 604 1 that in view of express provision defining expression "gross total
income" in clause (5) of section 80B of the Act, for the purpose of
Chapter VI-A, it is necessary for the purpose of making deduction, to
determine gross total income in accordance with other provisions of the
Act. This means that gross total income must be determined by setting
off against income, the business losses of earlier years as required
under section 72 of the Act, before allowing deduction under the
relevant section of Chapter VI-A. We observe that the Hyderabad Bench of ITAT while deciding the case of case of Dr. Reddy's Laboratories Ltd.
(supra) has not considered the above decision of the Apex Court and/ or
the decision of the Apex Court in the case of IPCA Laboratory Ltd.
(supra) was not available. There is no dispute to the fact that gross
total income has to be computed for the purpose of Chapter VI-A in
accordance with provisions of the Act i.e., inter alia intra head and/or inter head losses have to be adjusted. If it is so, the loss incurred
by the assessee in the eligible unit of Dairy Division are adjusted with profits of the eligible unit of Polymer Division, the gross total
income of the assessee for both the assessment years comes to Nil i.e.,
there is a loss to the assessee. In view of the above, we are of the
considered, view that the authorities below have rightly held that the
assessee is not entitled for deduction under section 80-lA of the Act
for both the assessment years under consideration, as the assessee has
disclosed gross loss after considering the results of its both Polymer
Division and Dairy Division, which are entitled for deduction under
section 80-IA of the Act. Hence, we uphold the orders of the authorities below by rejecting grounds of appeal taken by the assessee." [Emphasis
supplied].
The ratio of the above said decision of the ITAT in the case of Propene
Products Ltd. (supra) scarcely applies to the appellant' s case. The
appellant' s business income, admittedly, is a negative figure and hence
the appellant is not entitled to deduction under section 80IB(10). The
grounds of appeal numbering 1 to 5 are, therefore, dismissed.&# 39;
9. The ld. A.R of the assessee pointed out from the computation of income, a
copy of which has been placed on record, that the assessee had computed
the loss under the head 'profits and gains from business' at Rs.
64,49,445/-. The assessee, in the computation of income has shown
interest income of Rs. 3,20,87,421/ -under the head 'income from other
sources. Thereafter, the gross total income of the assessee was computed at Rs. 2,56,37,975/ -. It was the contention of the ld. A.R of the
assessee that as the gross total income computed by the assessee in the
computation of income was higher than the deduction of Rs. 2,23,22,237/ - claimed u/s 80IB of the Act, the Assessing Officer was not justified in disallowing the deduction u/s 80IB to the assessee. Further elaborating his arguments, he submitted by pointing out from page 2 of the
computation of income wherein project-wise profit and loss has been
arrived, that the assessee during the year had carried out four projects namely, 'Samruddhi&# 39;, 'Shreyas, 'Spandhana&# 39; and 'Coimbatore&# 39;. He
submitted that the assessee claimed deduction u/s 80IB from two projects i.e. 'Samruddhi&# 39; where the assessee earned profit before tax of Rs.
60,38,290/- and project 'Spandhana&# 39; where the assessee earned profit
before tax of Rs. 1,62,83,947/ -. He pointed out that the total of the
profits of these two projects works out to Rs. 2,23,22,237/ - for which
the assessee claimed deduction u/s 80IB of the Act in the computation of income filed alongwith the return of income. He further pointed out
that in the 'Shreyas&# 39; and 'Coimbatore&# 39; projects, the assessee had
incurred loss of Rs. 37,47,795/- and Rs. 59,03,089/-respecti vely and
therefore, did not claim any deduction u/s 80IB of the Act. Further
elaborating his submissions, he pointed out that the Assessing Officer
has erred in not allowing deduction u/s 80IB as the assessee has
computed business loss of Rs. 64,49,445/- from all its projects. It is
his contention that according to section 80IB profit of each eligible
unit has to be determined separately and deduction allowed on that u/s
80IB of the Act. His submission is that loss from other projects should
not be adjusted against the profits of the eligible projects while
determining deduction allowable u/s 80IB of the Act to the assessee. In
support of his submission, the ld. A.R of the assessee relied on the
decision of the Hon'ble Madras High Court in the case of Viswas Promoters (P.) Ltd. v. Asstt. CIT [2013] 214 Taxman 524/29 taxmann.com 19, and submitted that the Hon'ble High Court has held that in that case
the assessee had claimed deduction u/s 80IB in respect of flats
measuring less than 1500 sq ft of built-up area and did not claim
deduction in respect of flat exceeding an extent of 1500 sq ft. The
Assessing Officer rejected the assessee' s claim on the ground that
deduction was for the project as a whole and all residential units in a
project must satisfy conditions of having built up area of less than
1500 sq ft. The ld. CIT(A) held that within composite building project,
if there were both eligible and ineligible units, assessee would be
eligible to claim deduction in respect of eligible units. However, the
Tribunal held that a project could not be approved in piecemeal and
blocks of residential units were parts of a project and not project by
itself and thereby denied assessee' s claim of deduction u/s 80IB(10).
The Hon'ble High Court, on appeal by the assessee, held that housing
projects u/s 80IB refers to any building other than road, bridge or
other super structure. Each block in the larger project by name 'Agrini&# 39; and 'Vajra&# 39; has to be taken as an independent building and hence a
housing project, for the purpose of considering a claim of deduction.
Within a composite housing project, where there are eligible and
ineligible units, the assessee can claim deduction in respect of
eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the
extent of the built-up area. The assessee is entitled to claim deduction in respect of all blocks forming part of projects called 'Agrini&# 39; and
'Vajra&# 39;, but to the extent of each of the blocks satisfying the
conditions u/s 80IB(10), the assessee would be entitled to the relief on a proportionate basis and allowed the appeal of the assessee.
10. The ld. A.R of the assessee further placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of Jindal Aluminium Ltd. v. Asstt. CIT [2012] 54 SOT 283/26 taxmann.com 317 and submitted that in that case the assessee was engaged in manufacture and sale of aluminium extrusion and generation of wind energy. The business of generation of wind energy through windmills was situated at several
places. Commercial generation at the first windmill started in the
financial year 1997-98, the second started commercial generation in the
financial year 2002-03 and the third in the financial year 2003-04. The
assessee claimed and was allowed deduction u/s 80IA of the Act in
respect of its first windmill unit, since assessment year 2000-01. In
the assessment year 2004-05 also the assessee claimed and was allowed
deduction u/s 80IA being the fifth year of claim in respect of that
unit. The ld. CIT in revision directed the Assessing Officer to make a
fresh assessment allowing the deduction claimed u/s 80IA in accordance
with law in the light of the observations. Pursuant to the order of the
CIT u/s 263 of the Act the Assessing Officer passed an order adjusting
the depreciation of the second and third windmill units with the profit
of the first, and as a result wholly disallowing the deduction claimed
u/s 80IA. The ld. CIT(A) confirmed the action of the Assessing Officer.
On further appeal, the Tribunal held allowing the appeal of the assessee that at the stage of aggregation of income under the same head of
income as well as under different heads of income, the losses intra-head as well as inter-head have to be adjusted. The primary step for
considering the grant of deductions under Chapter VI-A is to determine
the gross total income, which, in turn, is computed by aggregating the
income from all the sources in the year after adjusting the losses of
the current year under any head. The brought forward loss or unabsorbed
depreciation are also reduced. The resultant figure is determined as
gross total income. At the stage of aggregation of income there is no
question of adjusting loss of any other business against the business
income of the undertaking eligible for deduction under Chapter VI-A of
the Act. The gross total income of the assessee was at Rs. 8,03,26,598/ - after adjusting the losses suffered by it in the eligible as well as
profits of the non-eligible units. There were no brought forward losses
or unabsorbed depreciation. The claim of deduction under section 80IA
was in respect of eligible unit wind energy division at Rs.
4,72,28,143/ - and the deduction u/s 80HHC of the Act was claimed in
respect of other units at Rs. 15,51,440/-. Even if both the deductions
were added the sum total was obviously less than the gross total income. The ld. CIT(A) was wrong in holding that losses suffered by the
assessee in the two eligible units be reduced from the income of the
other eligible unit before granting the deduction u/s 80IA.
11. On the other hand, the ld. CIT/DR vehemently argued in support of the
orders of the lower authorities. He submitted that the assessee has
shown business loss of Rs. 64,49,445/- and interest income of Rs.
3,20,87,421/ - under the head 'income from other sources' . Thus, if
deduction u/s 80IB is allowed then it would be allowed from interest
income which is not the income from eligible undertaking of the
assessee. He further argued that the decision of the Hon'ble Madras High Court in the case of Viswas Promoters (P.) Ltd. (supra) was not applicable to the facts of the assessee' s case. According to
him in that case the assessee was doing a housing project wherein it had constructed flats of 1500 sq ft area and flats of more than 1500 sq ft
area and in that circumstances, the Hon'ble High Court held that the
assessee was eligible for deduction u/s 80IB proportionately in respect
of flats constructed having built-up area upto 1500 sq ft. In the case
of the assessee, the assessee is having four different projects and
therefore, the facts are entirely different than that were before the
Hon'ble Madras High Court. Further for the same reasons, he submitted
that the decision of the Bangalore Bench of the Tribunal in the case of Jindal Aluminum Ltd. (supra) was also not applicable in the case of the assessee.
12. We have considered the rival submissions, perused the orders of the lower
authorities and materials available on record. The undisputed facts of
the case are that the assessee is eligible for deduction u/s 80IB in
respect of profits derived by it from its 'Samruddhi&# 39; and 'Spandhana&# 39;
projects. Further the gross taxable income of the assessee was comprised of the following elements:
(i) Profit from 'Samruddhi&# 39; and 'Spandhana&# 39; : Rs. 2,23,22,237/ -
(ii) Loss from two Projects viz. 'Shreyas&# 39; and 'Coimbatore&# 39; : Rs. 2,87,71,682/ -
(iii) Interest income : Rs. 3,20,87,421/ -
Gross total income : Rs. 2,56,37,975/ -
On the above facts, the issue before us is whether the assessee is
entitled for deduction u/s 80IB of Rs. 2,23,22,237/ - or not in view of
the fact that though there is gross total income of higher amount of Rs. 2,56,37,975/ -, but in view of the fact that amount computed under the
head 'business income' by aggregating profits and losses of all business is loss of Rs. 64,49,445/-.
13. Sub-section (1) of section 80-IB provides that where the gross total income of an
assessee includes any profits and gains derived from any business
referred to in sub-sections (3) to (11B), there shall be allowed, in
computing the total income of the assessee a deduction from such profits and gains of an amount equal to such percentage and for such number of
assessment years as specified in this section. Sub-section (2) states
that this section applies to any industrial undertaking which fulfills
all the conditions stipulated in this sub-section. Sub-section (4) of
section 80-IB states that "the amount of deduction in the case of an
industrial undertaking in an industrially backward State specified in
the Eighth Schedule shall be hundred per cent of the profits and gains
derived from such industrial undertaking for five assessment years
beginning with the initial assessment year and thereafter ……. ". In the
instant case, it is not in dispute that the assessee has satisfied all
other requisite conditions making the assessee eligible for deduction.
On a cursory look at sub-section (4), it is apparently borne out that
the amount of deduction is available in respect of the profits and gains derived from an industrial undertaking. If there is no profit from an
industrial undertaking obviously there cannot be any question of
allowing deduction under this section. Equally if there is a loss in an
industrial undertaking in that case again there will not be any point in claiming deduction under this section. As this sub-section provides for granting deduction on the profits and gains derived from "such
industrial undertaking" , it is clear pointer for granting deduction in
respect of profit earned by each of such eligible industrial
undertakings separately. If there is a profit derived from such
industrial undertaking, the deduction under section 80-IB will follow.
The loss from such eligible industrial undertaking will go out of
reckoning. There is no warrant for reducing the loss of one eligible
undertaking from the profit of the other eligible undertaking. Such an
interpretation will lead to violence to the unambiguous language of
section, which otherwise talks of granting deduction in respect of the
'profits and gains derived from such industrial undertaking&# 39;. If we were to read the section in a way that has been read by the authorities
below, then instead of the phrase extracted in the preceding line, it
should have been 'aggregate of profits and gains derived from such
industrial undertakings&# 39;. It is, therefore, abundantly clear that there
is no reference to the aggregate of profits from all the eligible
industrial undertakings. We are, therefore, of the considered opinion
that if there is profit derived from a particular industrial
undertaking, that will qualify for deduction without reduction of loss
suffered by any other eligible industrial undertaking( s).
14. Section 80IB(13) reads as under:
(13) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible
business under this section."
15. Sub-section( 5) of section 80IA reads as under:
"(5) Notwithstanding anything contained in any other provision of this
Act, the profits and gains of an eligible business to which the
provisions of sub-section (1) apply shall, for the purposes of
determining the quantum of deduction under that sub-section for the
assessment year immediately succeeding the initial assessment year or
any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent
assessment year up to and including the assessment year for which the
determination is to be made."
16. Thus, a reading of the above provisions shows that for determining the amount which qualifies for deduction u/s 80IB(1), one has to compute the
income from eligible business as if the eligible business was the only
source of income of the assessee. In other words, the income or loss
from other business or other activities are to be ignored for the
purpose of determining the amount which is eligible for deduction u/s
80IB(1) of the Act.
17. Section 80A(1) provides that in computing total income of the assessee, there
shall be allowed from the gross total income the deductions specified in sections 80-C to 80-U. Sub-section (2) further provides that the
aggregate amount of deductions under this Chapter shall not in any case
exceed the gross total income of the assessee. The gross total income
has been defined under section 80B (5) to mean 'the total income
computed in accordance with the provisions of this Act, before making
any deduction under this Chapter.' It therefore follows that the primary step for considering the grant of deductions under Chapter VI-A is to
determine the gross total income, which, in turn, is computed by
aggregating the income from all the sources in this year after adjusting the losses of the current year under any head. The brought forward loss or unabsorbed depreciation etc., are also reduced. The resultant figure is determined as gross total income. To put it simply gross total
income is the income available at the disposal of the assessee
immediately before allowing deductions under Chapter VI-A. If the gross
total income is say Rs. 100 and the assessee is entitled to deduction
under section 80-IB at Rs. 150, then the amount of deduction under
section 80-IB will be restricted to Rs. 100 as per the mandate of
section 80A which provides that the deductions shall be allowed from the gross total income and the aggregate amount of all the deductions shall not in any case exceed the gross total income of the assessee. If
however the amount of eligible relief under section 80-IB is say Rs. 90, then full amount will be eligible for deduction because the amount of
the eligible relief does not exceed the gross total income. Therefore it is mandatory to work out the eligible amount of deduction under various sections of Chapter VI-A individually and then such aggregate amount
has to be restricted to the amount of gross total income as computed
under section 80B(5), which means the income available after adjusting
all the brought forward losses and unabsorbed depreciation etc.
18. Thus, a careful reading of all the above provisions shows that what is
relevant for ascertaining the amount which is allowable deduction u/s
80IB are—
(i) Amount of profit derived from eligible business; and
(ii) The amount of gross total income of the assessee
The amount of profit derived from eligible business qualifies for deduction u/s 80IB subject to the amount of gross total income of the assessee.
There is absolutely no relevance for this purpose of the amount which is arrived at by aggregating income from all the different business of the assessee which is the amount assessable as business income of the
assessee.
19. We are reminded of the celebrated judgment rendered by the Hon'ble Supreme Court in the case of CIT v. Canara Workshop (P.) Ltd. [1986] 27 Taxman 262/161 ITR 320 in which the assessee was engaged in the manufacture of automobile spares. The products manufactured by it were covered by the list in the Fifth
Schedule to the Income-tax Act. During the relevant period, the assessee commenced another activity, that is the manufacture of alloy steels,
which was also an industry covered in the Fifth Schedule. The assessee
sustained loss in the alloy steel industry but profit in the other
industry. It claimed deduction in respect of the profit without reducing the loss from the alloy steel industry. The ITO held that the assessee
will be entitled to deduction under section 80E on the profits from the
manufacture of automobile parts only after setting off the loss in alloy steel manufacture. The High court decided the point in assessee' s
favour. The revenue assailed the judgment of the Hon'ble High Court
before the Hon'ble Supreme Court. While affirming the view taken by the
Hon'ble High Court, it was held that in computing the profits for the
purpose of deduction under section 80E, the loss incurred by the
assessee in the manufacture of alloy steels (a priority industry) could
not be set off against the profits of the manufacture of automobile
ancillaries (another priority industry) and hence the assessee was
entitled to deduction at the specified rate on the entire profits of the automobile parts industry included in the total income without
deducting there from the loss in the alloy steel manufacture. Facts
involved in the instant appeal are mutatis mutandis similar.
20. The Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakha Industries Ltd. [2001] 251 ITR 471/118 Taxman 777 has also taken the similar view by holding that the deductions contemplated under section 80HH and 80-I are to be allowed with reference to the
profits of the particular industrial undertaking and not with reference
to the total income of the assessee and therefore loss in an other unit
cannot be set off against the profits of eligible unit.
21. In the instant case, we observe that gross total income of the assessee is Rs. 2,56,37,975/ - after adjusting losses suffered by the assessee in
the other two 'projects viz. 'Shreyas&# 39; and 'Coimbatore&# 39;. There are no
brought forward losses or unabsorbed depreciation. The claim of
deduction u/s 80IB in respect of the two eligible units viz. 'Spandhana&# 39; and 'Samruddhi&# 39; of Rs. 2,23,22,237/ - is obviously less than the gross
total income. In our considered opinion, the Assessing Officer as well
as the ld. CIT(A) erred in interpreting the relevant provisions when
they held that the losses suffered by the assessee from two projects,
viz. 'Shreyas&# 39; and 'Coimbatore&# 39; be reduced from the profits of the other two units viz. 'Spandhana&# 39; and 'Samruddhi&# 39; for granting deduction u/s
80IB. Accordingly, the impugned orders of the lower authorities are set
aside. The Assessing Officer is directed to allow deduction u/s 80IB on
the profits derived by the assessee from two projects viz. 'Spandhana&# 39;
and 'Samruddhi&# 39; of Rs. 2,23,22,237/ -. Thus, the grounds of appeal of the assessee are allowed.
22. Ground Nos. 11 & 12 of the appeal are directed against the order of the
ld. CIT(A) in confirming the action of the Assessing Officer in
disallowing Rs. 9,27,875/- u/s 14A of the Act r.w. Rule 8D of the IT
Rules.
23. The brief facts of the case are that the assessee received dividend income
of Rs. 1,58,45,280/ - and claimed the same as exempt. In the return of
income filed, the assessee did not disallow any amount u/s 14A towards
expenditure incurred to earn the exempt income. During the course of
assessment, the Assessing Officer required the assessee to give the
actual calculation of expenses incurred for earning the dividend income
as per Rule 8D of the IT Rules. The assessee submitted that Rs. 15,000/- was the expenditure incurred to earn the exempt income. The Assessing
Officer, however, disallowed Rs. 9,27,875/- u/s 14A of the Act.
24. On appeal, the ld. CIT(A) confirmed the disallowance observing that the
amount offered for disallowance of Rs. 15,000/- in the course of
assessment proceedings was substantially low when compared to the
transactions of the assessee and also has no basis whereas the Assessing Officer has worked out the disallowance in accordance with the
provisions of law. The applicability of Rule 8D to the present
assessment year is also not under dispute. The assessee has also not
challenged the working of disallowance made by the Assessing Officer
under Rule 8D.
25. The ld. A.R of the assessee relied on the order of the Chennai 'A' Bench of the Tribunal in the case of the assessee' s group concerns namely,Shriram Transport Finance Co. Ltd. v. Asstt. CIT in I.T.A. No. 701/Mds/2012 and Shriram City Union Finance Ltd. v. Asstt CIT in I.T.A. No. 702/Mds/2012, consolidated order dated 28.6.2012 passed in
assessment year 2008-09 and submitted that the Tribunal in that case had deleted the disallowance on the ground that the Assessing Officer has
not given any finding to the effect that the claim of the assessee that
it had not incurred any expenditure or it had incurred only so much of
expenditure was incorrect which was a must for invoking the provisions
of section 14A of the Act. He submitted that in the case of the assessee also no such finding has been given by the Assessing Officer and
therefore, following the above quoted order of the Tribunal, the grounds of appeal of the assessee should be allowed.
26. On the other hand, the ld. CIT/DR fully justified the orders of the lower authorities.
27. We have considered the rival submissions, perused the orders of the lower
authorities and materials available on record. The undisputed facts of
the case are that the assessee has received dividend income during the
year of Rs. 1,58,45,280/ - which was claimed as exempt. The assessee,
during the course of assessment proceedings, submitted that Rs. 15,000/- was incurred towards earning of this dividend income and hence, this
expenditure should be reduced from the dividend income while allowing
exemption of dividend income. The Assessing Officer, however, applying
Rule 8D and section 14A of the Act computed the disallowance of Rs.
9,27,875/- and disallowed the same while computing the income of the
assessee.
28. On appeal the same was confirmed by the ld. CIT(A).
29. The ld. A.R has relied upon the decision of the Chennai 'A' Bench of the
Tribunal in the case of assessee' s group concerns i.e. Shriram Transport Finance Co. Ltd. (supra) and Shriram City Union Finance Ltd. (supra) wherein the Tribunal, in the consolidated order passed in the case of
these concerns, while deleting the disallowance made on similar facts
and circumstances, held as under:
'12. We have heard both sides, perused the materials available on record and the decisions relied on by both counsels. In the case of ACIT v.SIL Investment Ltd. (supra), the Delhi Bench of the Tribunal in its order in para 27 held as under:
"27. In the present case, the AO did not bring any evidence on record to
establish that any expenditure had been incurred by the assessee company for earning the exempt income. In the absence of such evidence, it was
wrong on the part of the AO to proceed to compute disallowance of the
expenses u/s 14A of the Act by merely applying Rule 8D(2)(iii) of the
Rules."
The above view was taken by the Tribunal taking into consideration various
decisions of the Tribunal including the decision of the Delhi Bench in
the case of DCIT v. Jindal Photo Ltd. and the High Courts.
13. The Delhi Bench of the Tribunal in the case of DCIT v. Jindal Photo Limited in I.T.A. No. 814 (Del) 2011 by order dated 23.09.2011 for the assessment
year 2008-09 also considered this issue and held that satisfaction of
the Assessing Officer is a pre-requisite to invoke the provision of Rule 8D of the Income Tax Rules. While holding so, the Tribunal observed as
under:
"10. Now. Coming to ground No. 3, the Department alleges that the CIT(A) has erred in restricting the addition u/s 14A of the Act to Rs. 19,43,022,
as against that of Rs. 31,01,542/- made by the AO. This issue was also
there before the Tribunal in the assessee' s case for assessment year
2007-08. On behalf of the assessee, it has been contended that Rule 8D
of the I.T. Rules was not applicable for that year; that however, in the year under consideration, no satisfaction has been recorded by the AO
as to how the assessee' s calculation is not correct; that however, the
AO still went on to apply Rule 8D to the case; that the ld. CIT(A) also
applied Rule 8D but gave only part relief to the assessee by reducing
the interest, whereas regarding 0.5% of exempt investments, he approved
the action of the AO; and that once Rule 8D cannot be applied, the
assessee' s working is to be accepted.
11. The ld. DR, on the other hand, has strongly supported the impugned
order in this regard also, contending that the ld. CIT(A) has excluded
security taken from customers .
12. The ld. CIT(A), it is seen, restricted the disallowance u/s 14A to Rs.
19,43,022/-, calculating the disallowance of expenditure in terms of
section 14A read with Rule 8D of the Rules as follows:-
(a) Direct expenses attributable to earning of exempt income: NIL
(b) Average exempt investments 37,82,57,180/ -
(c) Average assets 157,64,90,333/ -
(d) Interest payments made by the assessee 2,15,625/-
(e) Interest disallowed: (d) x (b)/(c) = 51,736/-
(f) 0.5% of exempt investments = 18,91,286/-
Total disallowance u/s 14A [ (e) + (f) ] = 19,43,022/-.
13. The Tribunal (supra), for assessment year 2007-08, had held as follows:-
"17. We have heard the parties on this issue and have perused the
material on record. During the year, the assessee had earned exempt
dividend income of Rs. 17,97,010/- in respect of investment made in
mutual funds. In the return of income filed, a suo moto disallowance of
expenses to the tune of Rs. 1,73,038/- had been made by the assessee u/s 14A of the Act. In the assessment order, the AO made a disallowance of
Rs. 32,18,475/- by applying the method provided in Rule 8D of the I.T.
Rules, 1962. This was done without pointing out any inaccuracy in the
method of apportionment or allocation of expenses, as adopted by the
assessee. All through, the assessee was maintained that the assessee was during the year, carrying on manufacturing activities at its
manufacturing units at several places. Its head office was at Delhi. The assessee had maintained separate books of account for each unit. Common expenses incurred at the head office and the branches were attributed
to all the units including the head office. Investment in mutual funds,
which gave rise to exempt dividend income, was done through the head
office. It was the case of the assessee that to earn such dividend
income, no direct expenditure was required and no expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto
disallowance had, however, been made by the assessee keeping in
consideration, the provisions of section 14A of the Act.
18. Now, as per section 14A(2) of the Act, if the AO, having regard to the
accounts of the assessee, is not satisfied with the correctness of the
claim of the assessee in respect of expenditure incurred in relation to
income which does not form part of the assessee' s total income under the Act, the AO shall determine the amount incurred in relation to such
income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the
correctness of the claim of the assessee. As such, Rule 8D of the Rules
was not appropriately applied by the AO as correctly held by the CIT(A). It has not been shown by the AO that any expenditure had been incurred
by the assessee for earning its dividend income. Merely, an ad hoc
disallowance was made. The onus was on the AO to establish any such
expenditure. This onus has not been discharged. In "CIT v. Hero Cycles" (P&H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A
of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions in "ACIT v. Eicher Ltd." 101 TTJ (Del) 369, that it was held that the burden is on the AO to establish nexus of
expenses incurred with the earning of exempt income before making any
disallowance u/s 14A of the Act. In "Maruti Udyog v. DCIT" 92 ITD 119 (Del), it has been held that before making any disallowance u/s 14A of the
Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In "Wimco Seedlings Limited v. DCIT" 107 ITD 267 (Del) (TM), it has been held that there can be no presumption that the assessee
must have incurred expenditure to earn tax free income. Similar are the
decisions in:
1. Punjab National Bank v. DCIT, 103 TTJ 908 (Del);
2. Vidyut Investment Ltd., 10 SOT 284 (Del); and
3. D.J. Mehta v. ITO, 290 ITR 238 (Mum.)(AT).
19. In view of the above, finding no error with the order of the CIT(A) on
the point at issue, the same is hereby confirmed. Ground No.3 is thus
rejected."
14. In the year under consideration, it is seen that it is not incorrect
when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee' s calculation being incorrect. Even so, Rule
8D of the Rules has been applied. This, in our opinion, is not correct.
Such satisfaction of the AO is a pre-requisite to invoke the provisions
of Rule 8D of the Rules. The ld. CIT(A), therefore, erred in partially
approving the action of the AO."
14. The Hon'ble Delhi High Court in a batch of appeals in the case of
MAXOPP Investment Ltd. vs. CIT & Others (supra) elaborately dealt
the issue of applicability of provisions of section 14A read with Rule
8D for the assessment years prior to the assessment year 2008-09 and
also the applicability of the said provision for the assessment years
subsequent to assessment years 2008-09. The Hon'ble High Court in paras
29 to 31 and 36 to 40 held as under:
29. Sub-section (2) of Section 14A of the said Act provides the manner in
which the Assessing Officer is to determine the amount of expenditure
incurred in relation to income which does not form part of the total
income. However, if we examine the provision carefully, we would find
that the Assessing Officer is required to determine the amount of such
expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of
the assessee in respect of such expenditure in relation to income which
does not form part of the total income under the said Act. In other
words, the requirement of the Assessing Officer embarking upon a
determination of the amount of expenditure incurred in relation to
exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of
the assessee in respect of such expenditure. Therefore, the condition
precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the
correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of
Section 14A. Sub-section (3) applies to cases where the assessee claims
that no expenditure has been incurred in relation to income which does
not form part of the total income under the said Act. In other words,
sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to
cases where the assessee asserts that no expenditure had been incurred
in relation to exempt income. In both cases, the Assessing Officer, if
satisfied with the correctness of the claim of the assessee in respect
of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with
any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the
Assessing Officer gets jurisdiction to determine the amount of
expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the
prescribed method. The prescribed method being the method stipulated in
Rule 8D of the said Rules. While rejecting the claim of the assessee
with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Rule 8D
30. As we have already noticed, sub-section (2) of Section 14A of the said
Act refers to the method of determination of the amount of expenditure
incurred in relation to exempt income. The expression used is - "such
method as may be prescribed" . We have already mentioned above that by
virtue of Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D
also makes it clear that where the Assessing Officer, having regard to
the accounts of the assessee of a previous year, is not satisfied with
(a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been
incurred in relation to income which does not form part of the total
income under the said Act for such previous year, the Assessing Officer
shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may
observe that Rule 8D(1) places the provisions of Section 14A(2) and (3)
in the correct perspective. As we have already seen, while discussing
the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of
expenditure is that he must record his dissatisfaction with the
correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has
been incurred. It is only when this condition precedent is satisfied
that the Assessing Officer is required to determine the amount of
expenditure in relation to income not includable in total income in the
manner indicated in sub-rule (2) of Rule 8D of the said Rules.
31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play
when the Assessing Officer rejects the claim of the assessee in this
regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three
components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The
second component being computed on the basis of the formula given
therein in a case where the assessee incurs expenditure by way of
interest which is not directly attributable to any particular income or
receipt. The formula essentially apportions the amount of expenditure by way of interest [other than the amount of interest included in clause
(i)] incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The
third component is an artificial figure - one half percent of the
average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of
the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the
expenditure in relation to exempt income and it is this amount of
expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of
expenditure in relation to exempt income has two aspects - (a) direct
and (b) indirect. The direct expenditure is straightaway taken into
account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the
principle of apportionment, as indicated above. And, in cases where the
indirect expenditure is not by way of interest, a rule of thumb figure
of one half percent of the average value of the investment, income from
which does not or shall not form part of the total income, is taken. Do
sub-sections (2) and (3) of Section 14A and Rule 8D apply
retrospectively ?
32 to 35** ** **
36. Insofar as sub-sections (2) and (3) of Section 14A are concerned, they
have also been introduced by virtue of the Finance Act, 2006 with effect from 01.04.2007. This is apparent, first of all, from the Notes on
Clauses of the Finance Bill, 2006 [Reported in 281 ITR (ST) at pages
139-140]. The said Notes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically
mentioned in the said Notes on Clauses that:-
"This amendment will take effect from 1st April, 2007 and will, accordingly,
apply in relation to the assessment year 2007-08 and subsequent years."
37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated
with reference to clause 7 which pertains to the amendment to Section
14A of the said Act that:-
"This amendment will take effect from 1st April, 2007 and will, accordingly,
apply in relation to the assessment year 2007-08 and subsequent years."
38. We may also refer to the CBDT Circular No.14/2006 dated 28.12.2006 and
to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and logic behind the introduction of
sub-section (2) of Section 14A of the said Act. Paragraph 11.3
specifically provided for applicability of the provisions of sub-section (2) and it clearly indicated that it would be applicable "from the
assessment year 2007-08 onwards" .
39. It is, therefore, clear that sub-sections (2) and (3) of Section 14A
were introduced with prospective effect from the assessment year 2007-08 onwards. However, sub-section (2) of Section 14A remained an empty
shell until the introduction of Rule 8D on 24.03.2008 which gave content to the expression "such method as may be prescribed" appearing in
Section 14A(2) of the said Act.
40. From the above discussion, it is clear that, in effect, the provisions
of sub- sections (2) and (3) of Section 14A would be workable only with
effect from the date of introduction of Rule 8D. This is so because
prior to that date, there was no prescribed method and sub-sections (2)
and (3) of Section 14A remained unworkable."
15. The Hon'ble High Court held that it is a condition precedent for the
Assessing Officer while determine the amount of expenditure incurred in
relation to exempt income that he must record that his dissatisfaction
with the correctness of the claim of the assessee in respect of the
expenditure incurred in relation to exempt income. The Hon'ble High
Court held that sub-section (3) of section 14A is an offshoot of
sub-section (2) of section 14A and therefore, sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred
in relation to income, which does not form part of total income. The
Hon'ble High Court held that sub-section (2) deals with cases, where the assessee specifies that expenditure had been incurred in relation to
income, which does not form part of total income. The Hon'ble High Court held that if the Assessing Officer is not satisfied with the
correctness of the claim of the assessee in both cases, the Assessing
Officer gets jurisdiction to determine the amount of expenditure
incurred in relation to such income, which does not form part of total
income under a prescribed method, which is Rule 8D of the Income Tax
Rules. The Hon'ble High Court further held that sub-sections (2) and (3) of section 14A are workable only with effect from the date of
introduction of Rule 8D i.e. 24.03.2008 because prior to that date,
there was no prescribed method and sub-sections (2) and (3) of section
14A remain unworkable.
16. Therefore, finding of the Assessing Officer that the claim of the
assessee that it had not incurred any expenditure or it had incurred
only so much expenditure is incorrect is a must for invoking the
provision of sub-section (2) of section 14A of the Act.'
30. We find that in the course of assessment proceedings, the assessee filed a letter stating as under:
"...With regard to expenses in connection earning dividend income we wish to
submit that only 5 transactions were made during the year In connection
with Investments in Mutual Fund (MF) and 8 transactions were made for
redeeming the MF investments. Therefore, the expenses viz. salary and
conveyance charges that could have Incurred would be about Rs. 15,000/-
Only. Hence, we request you to kindly treat this amount of Rs. 15,000/-
as expenses incurred In earning the exempt income. We therefore request
you to appreciate that rule 8D of IT Rules 1962 does not apply".
Further, we find that the relevant observation of the Assessing Officer in the assessment order reads as under:
"The submission made by the assessee is not considered satisfactory. The
expense incurred for earning the above income as per rule 8D of IT Rules 1982 is calculated as below:"
31. Thus it is observed that the claim of the assessee that only Rs. 15,000/-
was incurred for earning exempt income was rejected by the Assessing
Officer without recording any reason as to why the same was found as not satisfactory. In our considered view, unless the Assessing Officer
reaches a satisfaction after examination of accounts on the basis of
reasons recorded in the assessment order that the claim of quantum
expenditure of the assessee as incurred in relation to the exempt income is not acceptable then, the Assessing Officer has no jurisdiction to
invoke the provisions of Rule 8D of the IT Rules. In the instant case,
in the absence of any reason for considering the claim of the assessee
as unsatisfactory, in our considered view, the invocation of Rule 8D by
the Assessing Officer was without jurisdiction and consequently
unsustainable. We, therefore, delete the disallowance of Rs. 9,12,875/-
and direct the Assessing Officer to restrict the disallowance u/s 14A to Rs. 15,000/- only. Thus, the grounds of appeal of the assessee are
allowed.
32. In the result, the appeal of the assessee is allowed.P. SEN
IT: Where superior forum decides an issue in one way, it was not
permissible for lower authorities to sit in judgment over decision of a
superior forum by interpreting same in other manner
■■■
[2013] 36 taxmann.com 397 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Sushee Infra (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle -3(2), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NOS. 269 & 1165 (HYD.) OF 2009 AND 1171 (HYD.) OF 2010
MISC. APPLN NOS. 102 TO 104 (HYD.) OF 2013
[ASSESSMENT YEARS 2005-06 TO 2007-08]
JULY 4, 2013
Section 254, read with section 80-IA, of the Income-tax Act, 1961 - Appellate
Tribunal - Order of [Binding precedent] - Assessment years 2005-06 to
2007-08 - Tribunal held that assessee was entitled for deduction under
section 80-IA in respect of its infrastructure projects and remitted
matter back to Assessing Officer to quantify deduction - On application, assessee submitted that inspite of clear cut finding of Tribunal,
Assessing Officer passed a consequential order again declining to grant
deduction - Whether once Tribunal decided an issue, it was not
permissible for Assessing Officer to sit in judgment over order of
Tribunal by interpreting same in other manner - Held, yes - Whether
where consequential order passed by Assessing Officer de hors direction
of Tribunal, remedy for assessee lies in fresh proceeding - Held, yes -
Whether in instant case, since assessee had not pointed out any mistake
in order of Tribunal, same did not warrant any rectification - Held, yes [Paras 22, 26 & 27] [Matter remanded]
FACTS
■ The assessee came in appeal before the Tribunal, challenging the action of
revenue authorities in denying the deduction claimed under section
80-IA(4).
■ The Tribunal concluded that the assessee was a developer of infrastructure
projects and was entitled for deduction under section 80-IA(4). The
Tribunal considered 28 infrastructure projects carried out by the
assessee for the assessment year 2005-06 and held 21 of them as project
eligible for deduction under section 80-IA(4). Similarly, for the
assessment year 2006-07, the Tribunal held that seven out of eighteen
projects and for assessment year 2007-08, five out of twenty projects
executed by the assessee are eligible for deduction under section
80-IA(4) and to quantify the deduction, the issue was remitted back to
the file of the Assessing Officer.
■ On miscellaneous application filed by assessee seeking rectification in
order of Tribunal, the assessee submitted that inspite of clear cut
direction of the Tribunal, the Assessing Officer proceeded to pass a
orders again declining to grant deduction under section 80-IA(4), which
amounts to his sitting in judgment over the order of the Tribunal.
HELD
■ The decision of the Tribunal is binding on the Assessing Officer and he
cannot pick up a word or sentence from the order of the Tribunal de hors the context of the question under consideration and construe it to be
complete law declared by the Tribunal. A judgment must be read as a
whole. Being so, the Assessing Officer cannot sit in judgment over the
order of the Tribunal, and he is required to give just effect to the
order of the Tribunal. If he has any grievance, he is at liberty to
appeal against that order of the Tribunal before higher forum. [Para 21]
■ The income-tax authorities are required to exercise their powers in
accordance with law, as per the power given to them in specific
sections. If the powers conferred on a particular authority are
exercised by another authority without mandate of law, it would create
chaos in the administration of law and hierarchy of administration would mean nothing. Judgment of a higher forum cannot be substituted by the
decisions of the lower authorities. Judicial discipline requires that
there cannot be any amount of disregard to the superior authority in the hierarchy by the Assessing Officer. When once the Tribunal decides an
issue in one way, the only course available to the Assessing Officer is
to follow the order of the Tribunal in true spirits, and it is not
permissible for the Assessing Officer to take a different view, or to
sit in judgment over the order of the Tribunal by interpreting the same
in the manner he wanted. [Para 22]
■ When a statute requires an act to be done in a specific manner, it has to be done in that manner only. The Assessing Officer could not expect it
being done in some other manner. It is also trite principle of law that
if a particular authority has been designated to do particular act, just it is that authority alone would could apply his/her independent mind
to discharge his duties and further, a lower authority cannot sit in
judgment over the decision of a superior forum. Being so, when the
Tribunal on earlier occasion in its order, has given direction to
segregate projects into two classes as analysed by it, the duty of the
Assessing Officer is just limited to segregate contracts into two
categories and to allow deduction on the projects which are not in the
nature of works contracts. It has also given a categorical finding that
as the contracts involve development, operating, maintenance, financial
involvement and defection correction and liability period, such
contracts should be treated as eligible for deduction under section
80-IA(4). [Para 24]
■ The Tribunal has not rejected the claim of the assessee under section 80-IA and on the other hand, it was held that the assessee is entitled for
deduction under section 80-IA of the Act in respect of projects listed
in pages 16 to 20 of its order, as the assessee has carried on
infrastructure projects, and it is for the purpose of considering other
projects, if any, and to quantify the deduction, the issue was remitted
back to the file of the Assessing Officer. If the Assessing Officer
fails to properly understand or appreciate the directions of the
Tribunal, all that can be done at this stage is to mention that the
assessee has liberty to explore and pursue the remedies available under
law, as the Assessing Officer is duty bound to pass the consequential
orders in conformity with the order of the Tribunal and he has no
discretion or choice to overlook the order of the Tribunal. [Para 25]
■ In these elaborate miscellaneous applications or the written submissions
in support thereof, the assessee has not pointed out any mistake in the
order of this Tribunal, which warrants rectification in terms of section 254(2). All that the assessee speaks of is about the grievance that it
has suffered on account of the consequential orders passed by the
Assessing Officer for the years under consideration, while giving effect to the order of this Tribunal. Those consequential orders passed by the Assessing Officer constitute independent proceedings, and no part of
the proceedings which led to the passing of the order of the Tribunal on the second appeals of the assessee, and they, if the assessee is
aggrieved, may give rise to first appellate proceedings thereagainst or
further appellate proceedings by the assessee. However, the grievance of the assessee on account of alleged mistakes in such consequential
orders, either on account of interpretational differences or even on
account of disrespect/disregar d to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee
the correctness of the consequential orders passed, much less, to give
directions to revise or rectify the same, even if there is any mistake
in the same. If the consequential orders passed by the Assessing Officer are de hors the directions of the
Tribunal, or if there is any grievance to the assessee on account of
such consequential orders, as already noted above, the remedy for the
assessee lies elsewhere, viz. in the fresh
proceedings commencing with such consequential orders and not in the
proceedings that culminated with the order of this Tribunal. [Para 26]
■ In the absence of any specific mistake which warrants any rectification
within the scope of the provisions of section 254(2), in the order of
the Tribunal dated 16-3-2012, there is no reason to rectify earlier
order and, accordingly, the Miscellaneous Applications of the assessee
are disposed of. [Para 27]
CASES REFERRED TO
Valliama Champaka Pillai v. Sivathanu Pillai AIR 1979 SC 1937 (para 13), East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893 (para 14), Mahadeolal Kanodia v. Administra tor General of West Bengal AIR 1960 SC 936 (para 15), Baradakanta Mishra v.Bhimsen Dixit AIR 1972 SC 2466 (para 16), S.P. Gupta v. President of India AIR 1982 SC 149 (para 17), Amar Nath Om Prakash v. State of Punjab [1985] 1 SCC 345 (para 17), Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455 (para 17), Addl. District Magistrate v. Shivakant Shukla AIR 1976 SC 1207 (para 18), Privy Council in Baker v. The Queen [1975] 3 All ER 55 (para 18), CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC) (para 18), H.H. Maharajadhiraja Madhav Rao Jiwaji Rooscindia Bahadur v. Union of India AIR 1971 SC 530 (para 19), Food Corpn. of India v. Yadav Engineer and Contractor AIR 1982 SC 1302 (para
20),Winter Misra Diamond Tools Ltd. v. Collector of Central Excise 1996 (83) ELT 670 (Tri-Delhi) (para 23), Union of India v. Kamalakshi Finance Corpn. Ltd. 1991 (55) ELT 433 (para 23), State of Andhra Pradesh v. CTO [1988] 169 ITR 564 (AP) (para 25) and K. Subramanianv. Siemens India Ltd. [1985] 156 ITR 11/[1983] 15 Taxman 594 (Bom.) (para 25).
S. Rama Rao for the Appellant. Rajiv Benjwal for the Respondent.
ORDER
Chandra Poojari, Accountant Member - These
three Miscellaneous Applications have been filed by the assessee seeking rectification in the common order of the Tribunal dated 16.3.2012 in
ITA Nos.269/Hyd/ 2009, 1165/Hyd/2009 and 1171/Hyd/2010, on the ground
that certain mistakes apparent from record have crept into the same.
2. The learned counsel for the assessee reiterating the averments made in the
present applications submitted that the assessee came on appeal before
the Tribunal on the issue relating to allowability of deduction under
S.80IA(4) of the Income-tax Act. The Tribunal after considering the
entire facts and circumstances of the case observed that the assessee is a developer of infrastructure projects and is entitled for deduction
under S.80IA(4) of the Act. While giving such findings, the Tribunal
considered 28 infrastructure projects carried out by the assessee for
the assessment year 2005-06, and held 21 of them as projects eligible
for deduction under S.80IA(4). Further, learned counsel submitted that
the Tribunal has given a clear factual finding that the deduction under
S.80IA(4) would be allowable proportionately based on the total turnover of the projects. Thus, for assessment year 2005-06, since as against 28 projects, 21 only are eligible for deduction under S.80 IA(4), and
deduction is not allowable on seven projects, it was held that allowable deduction should be computed in proportionate manner. For the
assessment year 2006-07, the Tribunal noted that there are 18 projects,
out of which seven are eligible for deduction, and similarly, for
assessment year 2007-08, the Tribunal held that five out of twenty
projects executed by the assessee are eligible for deduction under
S.80IA(4).
3. The learned Authorised Representative submitted that in spite of the
clear-cut direction of the Tribunal in para 35 of its order, the
Assessing Officer issued fresh show-cause notice to make further
enquiries and proceeded to pass a consequential orders thereafter again
declining to grant deduction under S.80IA(4) of the Act, which action of the Assessing Officer amounts to his sitting in judgment over the order of the Tribunal.
4. The Learned Departmental Representative relied on the order of the Tribunal and submitted that the Tribunal has remitted the issue back to the file of the Assessing Officer for fresh consideration. Being so, the
Assessing Officer correctly proceeded to enquire about each project, so
as to determine the projects which are entitled for deduction under
S.80IA(4) of the Act, while giving effect to the order of the Tribunal.
5. We heard both the parties and perused the material available on record.
For the assessment years under appeal, the assessee came in appeal
before the Tribunal, challenging the action of the Revenue authorities
in denying the deduction under S.80IA(4) of the Act. The Tribunal after
considering the submissions of the learned counsel in the light of the
grounds raised before the Tribunal, and appraising the various data
furnished before the Tribunal in the paper-book, came to the conclusion
that the assessee is a developer and is entitled for deduction under
S.80IA(4) of the Act. For clarity, we reproduce the relevant paragraphs
of the order of the Tribunal—
'31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have
also gone through all the case laws cited by both the parties. We find
that the provisions of Section 80IA (4) of the Act when introduced
afresh by the Finance Act, 1999, the provisions under section 80IA (4A)
of the Act were deleted from the Act. The deduction available for any
enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself. Further, the very fact that the legislature
mentioned the words (i) "developing&qu ot; or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would
become eligible for deduction. Therefore, there is no ambiguity in the
Income-Tax Act. We find that where an assessee incurred expenditure for
purchase of materials himself and executes the development work i.e.,
carries out the civil construction work, he will be eligible for tax
benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or
an undertaking or enterprise referred to in Section 80 IA of the Act,
for executing works contract, will not be eligible for the tax benefit
under section 80 IA of the Act. We find that the word "owned" in
sub-clause (a) of clause (1) of sub section (4) of Section 80IA of the
Act refer to the enterprise. By reading of the section, it is clears
that the enterprises carrying on development of infrastructure
development should be owned by the company and not that the
infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is
explained in sub-clause (a). Therefore, the word "ownership&quo t; is
attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA
(4) and not any other person like individual, HUF, Firm etc.
32. We also find that according to sub-clause (a), clause (i) of sub
section (4) of Section 80-IA the word "it" denotes the enterprise
carrying on the business. The word "it" cannot be related to the
infrastructure facility, particularly in view of the fact that
infrastructure facility includes Rail system, Highway project, Water
treatment system, Irrigation project, a Port, an Airport or an Inland
port which cannot be owned by any one. Even otherwise, the word "it" is
used to denote an enterprise. Therefore, there is no requirement that
the assessee should have been the owner of the infrastructure facility.
33. The next question is to be answered is whether the assessee is a
developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the
activity undertaken by the assessee is akin to works contract and he is
not eligible for deduction under section 80IA (4) of the Act. Whether
the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work
undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered
into with the Government or the Government body may be a mere works
contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find
that the Government handed over the possession of the premises of
projects to the assessee for the development of infrastructure facility. It is the assessee' s responsibility to do all acts till the possession
of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing
the same into infrastructure facility. Secondly, the assessee shall
facilitate the people to use the available existing facility even while
the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The
assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a
drainage system; may be construction of a project; provision of way for
the cattle and bullock carts in the village; provision for traffic
without any hindrance, the assessee' s duty is to develop infrastructure
whether it involves construction of a particular item as agreed to in
the agreement or not. The agreement is not for a specific work, it is
for development of facility as a whole. The assessee is not entrusted
with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and
quantity irrespective of the cost of such material. The Government does
not provide any material to the assessee. It provides the works in
packages and not as a works contract. The assessee utilizes its funds,
its expertise, its employees and takes the responsibility of developing
the infrastructure facility. The losses suffered either by the Govt. or
the people in the process of such development would be that of the
assessee. The assessee hands over the developed infrastructure facility
to the Government on completion of the development. Thereafter, the
assessee has to undertake maintenance of the said infrastructure for a
period of 12 to 24 months. During this period, if any damages are
occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by
the assessee alone without hindrance to the regular traffic. Therefore,
it is clear that from an un-developed area, infrastructure is developed
and handed over to the Government and as explained by the CBDT vide its
Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works
contract but has to be considered as a development of infrastructure
facility. Therefore, the assessee is a developer and not a works
contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that
the assessee is eligible for deduction under section 80IA (4) of the
Act. The department is not correct in holding that the assessee is a
mere contractor of the work and not a developer.
34. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the
Government or Government undertakings. Such an agreement is a contract
and for the purpose of the agreement a person may be called as a
contractor as he entered into a contract. But the word "contractor&qu ot; is
used to denote a person entering into an agreement for undertaking the
development of infrastructure facility. Every agreement entered into is a contract. The word "contractor&qu ot; is used to denote the person who enters into such contract. Even a person who enters into a contract for
development of infrastructure facility is a contractor. Therefore, the
contractor and the developer cannot be viewed differently. Every
contractor may not be a developer but every developer developing
infrastructure facility on behalf of the Government is a contractor.
35. We find that the decision relied on by the learned counsel for the assessee in the case of CIT v. Laxmi Civil Engineering works (supra) squarely applicable to the issue under dispute which is in favour of
the assessee wherein it was held that mere development of a
infrastructure facility is an eligible activity for claiming deduction
under section 80IA of the Act after considering the Judgement of the
Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the
assessee is the pure developer. We also find that Section 80IA of the
Act, intended to cover the entities carrying out developing, operating
and maintaining the infrastructure facility keeping in mind the present
business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also
be eligible to claim deduction under section 80IA of the Act, which
ultimately culminated into Amendment under section 80IA of the Act, in
the Finance Act 2001, to give effect to the aforesaid circulars issued
by the CBDT. We also find that, to avoid misuse of the aforesaid
amendment, an Explanation was inserted in Section 80IA of the Act, in
the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But,
certainly, the Explanation cannot be read to do away with the
eligibility of the developer; otherwise, the parliament would have
simply reversed the Amendment made in the Finance Act, 2001. Thus, the
aforesaid Explanation was inserted, certainly, to deny the tax holiday
to the entities who does only mere works contact or sub-contract as
distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory
memorandum to Finance Act 2007 states that the purpose of the tax
benefit has all along been to encourage investment in development of
infrastructure sector and not for the persons who merely execute the
civil construction work. It categorically states that the deduction
under section 80IA of the Act is available to developers who undertakes
entrepreneurial and investment risk and not for the contractors, who
undertakes only business risk. Without any doubt, the learned counsel
for the assessee clearly demonstrated before us that the assessee at
present has undertaken huge risks in terms of deployment of technical
personnel, plant and machinery, technical know-how, expertise and
financial resources. Further, the order of Tribunal in the case of B.T.
Patil cited supra is prior to amendment to sec 80IA(4), after the
amendment the section 80IA(4) read as (i) developing or (ii) operating
and maintaining or (iii) developing, operating and maintaining any
infrastructure facility, prior to amendment the "or" between three
activities was not there, after the amendment "or" has been inserted
w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view,
the assessee should not be denied the deduction under section 80IA of
the Act as the contracts involves, development, operating, maintenance,
financial involvement, and defect correction and liability period, then
such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which
are pure works contracts hit by the explanation section 80IA(13), those
work are not entitle for deduction u/s 80IA of the Act. The profit from
such contracts which involves development, operating, maintenance,
financial involvement, and defect correction and liability period is to
be computed by assessing officer on pro-rata basis of turnover. The
assessing officer is directed to examine and grant deduction on eligible turnover as directed above. It is needless to say that in similar
circumstances, similar view has been taken by the Chennai Bench of the
Tribunal and deduction u/s. 80IA was granted in the case of M/s.
Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06
order dated 27th July, 2007 for the assessment year 2004-05. Later in
ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal
has taken the same view by inter-alia holding as follows:
"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive
expansion and qualitative improvement in infrastructures like
expressways, highways, airports, ports and rapid urban rail transport
systems. For that purpose, private sector participation by way of
investment in development of the infrastructure sector and not for the
persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the
provisions of section 80IA shall not apply to a person who executes a
works contract entered into with the undertaking or enterprise referred
to in the section but where a person makes the investment and himself
executes the development work, he carries out the civil construction
work, he will be eligible for the tax benefit under section 80IA."
36. The above order was followed in subsequent assessment years 2007-2008
& 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated
18.11.2011 in the case of the same assessee. Further, in similar
circumstances, this Tribunal in the case of M/s. GVPR Engineers Ltd.
Hyderabad in ITA No. 347/H/08 & others vide order dated 29th
February 2012 has taken similar view and granted deduction under section 80IA of the act.
37. Further, we make it clear that where the assessee has carried out the
development of infrastructure work in Consortium and not as a
sub-contractor, then also the assessee is entitled for deduction u/s
80IA of the Act. The same is applicable in case of work allotted by
Government Corporation/ Government Bodies.'
6. Once the Tribunal has set aside the orders impugned in the appeals before it on the above issue and restored the matter to the file of the Assessing Officer with the above findings, the duty of Assessing Officer is to
pass orders giving effect to the order of the Tribunal. The findings of
the Tribunal, extracted above, are unambiguous, clear and categorical in as much as it has specifically directed that 'the assessee should not
be denied deduction under S.80IA of the Act as the contracts involves,
development, operating, maintenance, financial involvement, and defect
correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain the
above features to be segregated and on this deduction u/s. 80IA has to
be granted and the other agreements which are pure works contracts hit
by the explanation section 80IA(13), those work are not entitled for
deduction u/s. 80IA of the Act."
7. According to the learned Authorised Representative, the Assessing Officer has not properly understood the order of the Tribunal and the same has been too widely interpreted and there appears to be misconceptions about the
nature thereof and the binding effect of the order of the Tribunal. In
this regard, it may be appropriate to point out the well settled legal
position that an Assessing Officer is bound to follow the order of the
Tribunal.
8. It is necessary to first decide the last submission of learned counsel
that this Tribunal, while interpreting of an all-India statute like the
Income-tax Act, is bound to follow the decision of any other High Court
and to decide accordingly even if its own view is contrary thereto, in
view of the practice followed by this court in such matters. Because, if we are to accept this submission, it will be an exercise in futility to examine the real controversy before us with a view to decide the issue.
9. At the outset, it may be appropriate to point out the well settled legal
position that what is binding on the courts is the ratio of a decision.
There is a clear distinction between on the courts is the ratio of the
decision, obiter dicta and observations from the point of view of
precedent value or their binding effect. It will be necessary in this
case to explain this distinction. But before we do so, we may discuss
the principle of binding precedent. This will take us to the question
whose decision binds whom.
10. For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the courts. In India, the Supreme Court is the highest
court of the country. That being so, so far as the decisions of the
Supreme Court are concerned, it has been stated in article 141 of the
Constitution itself that :
"The law declared by the Supreme Court shall be binding on all courts within the territory of India."
11. In that view of the matter, all courts in India are bound to follow the decisions of the Supreme Court.
12. Though there is no provision like Article 141 which specifically lays downs
the binding nature of the decisions of the High Courts, it is a well
accepted legal position that a single judge of a High Court is
ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well settled is the position
that when a Division Bench of the High Court gives a decision on a
question of law, it should generally be followed by a co-ordinate Bench
in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench.
13. It is equally well settled that the decision of one High Court is not a
binding precedent on another High Court. The Supreme Court inValliama Champaka Pillai v. Sivathanu Pillai AIR 1979 SC 1937, dealing with the controversy whether a decision of the
erstwhile Travancore High Court can be made a binding precedent on the
Madras High Court on the basis of the principle of stare decisis,
clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring
to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those
decisions to the status of a binding law nor could the ratio decidendi
of those decisions be perpetuated by invoking the doctrine of stare
decisis. The doctrine of stare decisis cannot be stretched that far as
to make the decision of one High Court a binding precedent for the
other. This doctrine is applicable only to different Benches of the same High Court.
14. It is also well-settled that though there is no specific provision making
the law declared by the High Court binding on subordinate courts, it is
implicit in the power of supervision conferred on a superior Tribunal
that the Tribunals subject to its supervision would confirm to the law
laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893:
"We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and
they cannot ignore it "
15. This position has been very aptly summed up by the Supreme Court in Mahadeolal Kanodia v. Administra tor General of West Bengal AIR 1960 SC 936:
"Judicial decorum no less than legal propriety forms the basis of judicial
procedure. If one thing is more necessary in law than any other thing,
it is the quality of certainty. That quality would totally disappear if
judges of co-ordinate jurisdiction in a High Court start overruling one
another' s decisions. If one Division Bench of a High Court is unable to
distinguish a previous decision of another Division Bench, and holding
the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be
equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter
to a larger Bench."
16. The above decision was followed by the Supreme Court in Baradakanta Mishra v. Bhimsen Dixit AIR 1972 SC 2466, wherein the legal position was reiterated in the following words (at page 2469):
"It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific
provision, just like in the case of Supreme Court, making the law
declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all
the Tribunal subject to its supervision should conform to the law laid
down by it. Such obedience would also be conducive to their smooth
working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer.
17. Having decided whose decision binds whom, we may next examine what is binding. It is well settled that it is only the ratio decidendi that has a
precedent value. As observed by the Supreme Court in S.P. Gupta v. President of India AIR 1982 SC 149: "It is elementary that what is binding on the court in a
subsequent case is not the conclusion arrived at in a previous decision, but the ratio of that decision, for it is the ratio which binds as a
precedent and not the conclusion." A case is only an authority for what
it actually decides and not what may come to follow logically from it.
Judgments of courts are not to be construed as statutes (see Amar Nath Om Prakash v. State of Punjab [1985] 1 SCC 345. While following precedents, the court should keep in mind the following observations in Mumbai Kamgar Sabha v. Abdulbhai FaizullabhaiAIR 1976 SC 1455 (at p.1467-68) :
"It is trite, going by Anglophonic principles, that a ruling of a superior
court is binding law. It is not of scriptural sanctity but is of
ratio-wise luminosity within the edifice of facts where the judicial
lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decision, exalting the
doctrine of precedents into a prison-house of bigotry, regardless of
varying circumstances and myriad developments. Realism dictates that a
judgment has to be read, subject to the facts directly presented for
consideration and not affecting those matters which may lurk in the
record. Whatever be the position of a subordinate court's casual
observations, generalisations and subsilentio determinations must be
judiciously read by courts of co-ordinate jurisdiction. "
18. Decision on a point not necessary for the purpose of the decision or which does
not fall to be determined in that decision becomes an obiter dictum. So
also, opinions on questions which are not necessary for determining or
resolving the actual controversy arising in the case partake of the
character of obiter. Obiter observations, as said by Bhagwati J. (as his Lordship then was) in Addl. District Magistrate v. Shivakant ShuklaAIR 1976 SC 1207, would undoubtedly be entitled to great weight, but "an
obiter cannot take the place of the ratio. Judges are not oracles." Such observations do not have any binding effect and they cannot be regarded as conclusive. As observed by the Privy Council in Baker v. The Queen[1975] 3 All ER 55, the court's authoritative opinion must be distinguished
from propositions assumed by the court to be correct for the purpose of
disposing of the particular case. This position has been made further
clear by the Supreme Court in a recent decision in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297/64 Taxman 442, at page 320, where it was observed :
"It is neither desirable nor permissible to pick out a word or a sentence
from the judgment of this court, divorced from the context of the
question under consideration and treat it to be the complete 'law'
declared by this court. The judgment must be read as a whole and the
observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes
its colour from the question involved in the case in which it is
rendered and, while applying the decision to a later case, the courts
must carefully try to ascertain the true principle laid down by the
decision of this court and not to pick out words or sentences from the
judgment, divorced from the context of the questions under consideration by this court, to support their reasoning."
19. In the above decision, the Supreme Court, also quoted with approval, the following note of caution given by it earlier in H.H. Maharajadhiraja Madhav Rao Jiwaji Rooscindia Bahadur v. Union of India AIR 1971 SC 530:
"It is not proper to regard a word, a clause or a sentence occurring in a
judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment."
It is thus clear that it is only the ratio decidendi of a case which can
be binding - not obiter dictum. Obiter, at best, may have some
persuasive efficacy.
20. From the foregoing discussion, the following propositions emerge:
"(a) The law declared by the Supreme Court being binding on all courts in
India, the decisions of the Supreme Court are binding on all courts,
except, however, the Supreme Court itself which is free to review the
same and depart from its earlier opinion if the situation so warrants.
What is binding is, of course, the ratio of the decision and not every
expression found therein.
(b) The decisions of the High Court are binding on the subordinate courts and
authorities or Tribunals under its superintendence throughout the
territories in relation to which it exercises jurisdiction. It does not
extend beyond its territorial jurisdiction.
(c) The position in regard to the binding nature of the decisions of a High
Court on different Benches of the same court may be summed up as follows :
(i) A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial
impropriety to ignore that decision. Judicial comity demands that a
binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with
the same, the proper procedure is to refer the binding decision and
direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question (see Food Corpn. of India v. Yadav Engineer and Contractor (AIR 1982 SC 1302).
(ii) A Division Bench of a High Court should follow the decision of another
Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same
High Court, it should refer the case to a larger Bench.
(iii) Where there are conflicting decisions of courts of co-ordinate jurisdiction,
the later decision is to be preferred it reached after full
consideration of the earlier decisions.
(d) The decision of one High Court is neither binding precedent for another
High Court nor for courts or Tribunals outside its own territorial
jurisdiction. It is well settled that the decision of a High Court will
have the force of binding precedent only in the State or territories on
which the court has jurisdiction. In other States or outside the
territorial jurisdiction of that High Court it may, at best, have only
persuasive effect. By no amount of stretching of the doctrine of stare
decisis, can judgments of one High Court be given the status of a
binding precedent so far as other High Courts or Tribunal within their
territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof.
The fact that there is only one decision of any one High Court on a
particular point or that a number of different High Courts have taken
identical views in that regard is not at all relevant for that purpose.
Whatever may be the conclusion, the decisions cannot have the force of
binding precedent on other High Courts or on any subordinate courts or
Tribunals within their jurisdiction. That status is reserved only for
the decisions of the Supreme Court which are binding on all courts in
the country by virtue of article 141 of the Constitution. "
21. In the light of the foregoing discussion, the decision of the tribunal is
binding on the Assessing Officer and he cannot pick up a word or
sentence from the order of the Tribunal de hors the context of the
question under consideration and construe it to be complete law declared by the Tribunal. A judgment must be read as a whole. Being so, the
Assessing Officer cannot sit in judgment over the order of the Tribunal, and he is required to give just effect to the order of the Tribunal. If he has any grievance, he is at liberty to appeal against that order of
the Tribunal before higher forum.
22. It is needless to say that the income-tax authorities are required to
exercise their powers in accordance with law, as per the power given to
them in specific sections. If the powers conferred on a particular
authority are exercised by another authority without mandate of law, it
would create chaos in the administration of law and hierarchy of
administration would mean nothing. Judgment of a higher forum cannot be
substituted by the decisions of the lower authorities. Judicial
discipline requires that there cannot be any amount of disregard to the
superior authority in the hierarchy by the Assessing Officer. When once
the Tribunal decides an issue in one way, the only course available to
the Assessing Officer is to follow the order of the Tribunal in true
spirits, and it is not permissible for the Assessing Officer to take a
different view, or to sit in judgment over the order of the Tribunal by
interpreting the same in the manner he wanted.
23. In the case of Winter Misra Diamond Tools Ltd. v. Collector of Central Excise 1996 (83) ELT 670 (Trib. - Delhi), considering the role of a subordinate
authority while implementing the orders of the superior
appellate/judicial authorities, following the decision of the Apex Court in the case of Union of India v. Kamalakshi Finance Corpn. Ltd. 1991 (55) ELT 433, it was held as follows-
"45. At the same time, the appellants are correct in pointing out that once
the Assistant Collector has passed an order and it is confirmed by the
Collector (Appeals) and no appeal is filed against the order of the
Collector (Appeals), the order attains finality. Therefore, the
Department was bound to follow the Assistant Collector' s order of
17/4/1989 as confirmed by the Collector (Appeals)' order dated 28-8-1991 and finalise all the pending matters in the light of these orders.
These will include cases in which the assessment was made provisional as well as those in which cases demand/show cause notices had been issued
but not disposed of till then as all the subordinate authorities were
bound by the orders of the superior appellate/judicial authorities in
view of the Hon'ble Supreme Court's decision in the case of Union of India v. Kamlakshi Finance Corporation Ltd. reported in 1991 (55) E.L.T. 433 (S.C.). However, we need not labour this point
any further in view of our findings on merits recorded above."
24. It is trite that when a statute requires an act to be done in a specific
manner, it has to be done in that manner only. The Assessing Officer
could not expect it being done in some other manner. It is also trite
principle of law that if a particular authority has been designated to
do particular act, just it is that authority alone would could apply
his/her independent mind to discharge his duties and further, a lower
authority cannot sit in judgment over the decision of a superior forum.
Being so, in our opinion, when the Tribunal on earlier occasion in its
order cited supra, has given direction to segregate projects into two
classes as analysed by it, the duty of the Assessing Officer is just
limited to segregate contracts into two categories and to allow
deduction on the projects which are not in the nature of works
contracts. It has also given a categorical finding that as the contracts involve development, operating, maintenance, financial involvement and
defection correction and liability period, such contracts should be
treated as eligible for deduction under S.80IA(4).
25. It is needless to mention here that the Tribunal has not rejected the
claim of the assessee under S.80IA and on the other hand, it was held
that the assessee is entitled for deduction under S.80IA of the Act in
respect of projects listed in pages 16 to 20 of its order, as the
assessee has carried on infrastructure projects, and it is for the
purpose of considering other projects, if any, and to quantify the
deduction, the issue was remitted back to the file of the Assessing
Officer. If the Assessing Officer fails to properly understand or
appreciate the directions of the Tribunal, all that can be done at this
stage is to mention that the assessee has liberty to explore and pursue
the remedies available under law, as the Assessing Officer is duty bound to pass the consequential orders in conformity with the order of the
Tribunal cited (supra) and he has no discretion or choice to overlook
the order of the Tribunal. For this, we place reliance on the decision
of the jurisdictional High Court in the case of State of Andhra Pradesh v. CTO [1988] 169 ITR 564 (AP), wherein it has been held as follows-
"The Tribunal' s functioning within the jurisdiction of a particular High
Court in respect of whom the High Court has the power of superintendence under article 227 are bound to follow the decisions of the High Court
unless, on an appeal to the Supreme Court, the operation of the judgment is suspended. It is not permissible for the authorities and the
Tribunals to ignore the decisions of the High Court or to refuse to
follow the decisions of the High Court on the pretext that an appeal has been filed in the Supreme Court which is pending or that steps are
being taken to file an appeal. If any authority or the Tribunal refuses
to follow any decision of the High Court on the above grounds, it would
be clearly guilty of committing contempt of the High Court and is liable to be proceeded against."
At this juncture, it is pertinent to mention the observations of the High
Court, by placing reliance on the judgment of the Bombay High Court in
the case of K. Subramanian v. Siemens India Ltd. [1985] 156 ITR 11/[1983] 15 Taxman 594, which are as follows-
"Reference may also be invited to the decision of the Bombay High Court in Subramanian, ITO v. Siemens India Ltd. [1985] 156 ITR 11. The question that arose for consideration in this case is whether the
Income-tax Officer is bound by the decision of a single Judge or a
Division Bench of the Court within whose jurisdiction he is operating
even if an appeal has been preferred against such decision and is
pending. The following observations of the Bombay High Court may be
extracted :
So far as the legal position is concerned, the ITO would be bound by a
decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is (functioning) , irrespective
of the pendency of any appeal or special leave application against that
judgment. He would equally be bound by a decision of another High Court
on the point, because not to follow that decision would be to cause
grave prejudice to the assessee. Where there is a conflict between
different High Courts, he must follow the decision of the High Court
within whose jurisdiction he is (functioning) , but if the conflict is
between decisions of other High Courts, he must take the view which is
in favour of the assessee and not against him. Similarly, if the Income-tax Appellate Tribunal has decided a point in favour of
the assessee, he cannot ignore that decision and take a contrary view,
because that would equally prejudice the assessee." (Emphasis supplied)
26. It is, however, pertinent to emphasise and mention here that having
decided the appeals of the assessee, viz. ITA Nos.269 &
1165/Hyd/2009 and 1175/Hyd/2010, before it, with its common order dated
16.3.2012, the Tribunal is ceased of its jurisdiction over those
appeals, except to the limited extent of rectifying any mistake therein
in terms of provisions of S.254(2) of the Act. In these elaborate
Miscellaneous Applications or the Written Submissions furnished before
us in support thereof, the assessee has not pointed out any mistake in
the order of this Tribunal dated 16.3.2012, which warrants rectification in terms S.254(2) of the Act. All that the assessee speaks of is about
the grievance that it has suffered on account of the consequential
orders passed by the Assessing Officer for the years under
consideration, while giving effect to the order of this Tribunal dated
16.3.2012. Those consequential orders passed by the Assessing Officer
constitute independent proceedings, and not part of the proceedings
which led to the passing of the order of the Tribunal dated 16.3.2012 on the second appeals of the assessee, and they, if the assessee is
aggrieved, may give rise to first appellate proceedings there against or further appellate proceedings by the assessee. However, the grievance
of the assessee on account of alleged mistakes in such consequential
orders, either on account of interpretational differences or even on
account of disrespect/disregar d to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee
the correctness of the correctness of the consequential orders passed,
much less, to give directions to revise or rectify the same, even if
there is any mistake in the same. If the consequential orders passed by
the Assessing Officer are de hors the directions of the Tribunal, or if
there is any grievance to the assessee on account of such consequential
orders, as already noted above, the remedy for the assessee lies
elsewhere, viz. in the fresh proceedings commencing with such
consequential orders and not in the proceedings that culminated with the order of this Tribunal dated 16.3.2012.
27. In the absence of any specific mistake which warrants any rectification
within the scope of the provisions of S.254(2) of the Act, in the order
of the Tribunal dated 16.3.2012, we do not find reason to rectify our
earlier order and accordingly, the Miscellaneous Applications of the
assessee are disposed of, with the observations as above.
28. In the result, all the three Miscellaneous Applications of the assessee are disposed of as above.
VERY USEFUL FOR THE CASES OF BANKS.
IT: Amount credited by bank to reserve for bad and doubtful debts towards
standard assets is not deductible under section 36(1)(viia), as it is
not a provision for bad and doubtful debts
■■■
[2013] 36 taxmann.com 517 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'A'
Bharuch Dist. Central Co-op. Bank Ltd.
v.
Income-tax Officer, Ward -1, Bharuch*
G.C. GUPTA, VICE-PRESIDENT
AND A. K. GARODIA, ACCOUNTANT MEMBER
IT APPEAL NO. 1252 (AHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
JULY 26, 2013
Section 36(1)(viia) of the Income-tax Act, 1961 - Bad debts
[Allowability of reserve for bad and doubtful debts by a bank] -
Assessment year 2008-09 - Whether amount credited by a bank to reserve
for bad and doubtful debts towards standard assets is not deductible
under section 36(1)(viia), as it is not akin to provision for bad and
doubtful debts, which is a liability, whereas reserve is assessee' s own
fund - Held, yes [Para 9] [In favour of revenue]
CASES REFERRED TO
Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/206 Taxman 182/18 taxmann.com 282 (SC) (para 4), Bank of Tokyo Ltd. v. Jt. CIT[2010] 36 SOT 8 (Delhi) (URO) (para 4), Asstt. CIT v. Alfa Lamination [IT Appeal No. 2234 (Ahd.) of 2010, dated 11-2-2011] (para 4),Jamnagar Distt. Co-Operative Bank Ltd. v. Asstt. CIT [IT Appeal No. 481(Rjt) of 2011 & 7 (Rjt) of 2012, dated 1-8-2012] (para 4), Syndicate Bank v. Dy. CIT [2001] 78 ITD 103 (Bang.) (para 4), Rural Electrification Corpn. Ltd. Inre [2009] 312 ITR 122/180 Taxman 55 (AAR - New Delhi) (para 4) and Escorts Ltd. v. UDI [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) (para 8).
S.N. Soparkar for the Appellant. Subhash Bains for the Respondent.
ORDER
A.K. Garodia, Accountant Member - This is assessee' s appeal directed against the order of the CIT(A)-V, Baroda dated 27-3-2012 for A.Y. 2008-2009.
2. The grounds raised by the assessee are as under:
"1. The ld.CIT(A) erred in law and on facts in confirming action of AO in
disallowing deduction of Rs.6,00,00,000/ -claimed by the appellant bank
u/s 36(l) (viia) of the Act. Ld. CIT (A) ought to have deleted
disallowance made by AO and ought to have allowed the claim of the
appellant.
2. Ld. CIT (A) erred
in law and on the facts in confirming action of AO in treating provision of Rs. 1,00,00,000/ - made against standard assets of the bank credited
to provision for Bad & doubtful debts not to be eligible for
deduction u/s 36(1)(viia)( a) of the Act. Both the lower authorities
erred in not appreciating the fact that the deduction under s.
36(l)(viia) is a statutory deduction with reference to the amount
provided as laid down in said section. The conditions of s. 36(l)(viia)
having been fulfilled, the entire deduction claimed ought to have been
allowed.
3. Ld. CIT (A) erred
in law and on facts in confirming disallowance made by AO of
Rs.5,000,000/ - of provision made for bad and doubtful debts holding the
appellant not eligible for deduction u/s 36(1)(viia) of the Act. Ld. CIT (A) erred in not appreciating the fact that by transferring excess
balance in 'Overdue Interest Reserve a/c' to Reserve for bad and
doubtful debts a/c there was no claim of double deduction made by the
appellant. The deduction under s. 36(lxviia) be held to be allowable in
view of conditions of s. 36(1) (viia) being fulfilled.
4. The ld. CIT(A) has erred in law and on facts in holding that for claiming deduction u/s
36(1)(viia) of the Act the appellant ought to make provision out of
income of the current year only. Both the lower authorities failed to
appreciate provisions of law in its proper perspective as well ratio of
the judgment relied upon by the appellant in Rural Electrification
Corporation Ltd. rendered by AAR in AAA No. 759 of 2007."
3. The brief facts till the assessment stage are noted by the learned CIT(A)
in para 3 & 4 of his order, which are reproduced below for the sake
of ready reference.
"3. Briefly stated the facts of the case are that the appellant is a
Co-operative bank. The return of income was filed on 30-9-2008 declaring total income at Rs.3,55,790/ -. The regular assessment was finalized on
31-12-2010 and the income was determined at Rs.6,03,55,790/ - wherein
certain additions were made.
4. The first ground of appeal is directed against the disallowance of
Rs.6,00,00,000/ - under clause (visa) of sub-section( 1) of section 36 of
the I.T. Act, 1961. The appellant had made a provision for bad and
doubtful debts amounting to Rs.7,34,77,495/ - during the year, however,
it had claimed deduction of Rs.7,21,42,428/ - only under sub-clause (a)
of clause (viia) of sub-section( 1) of section 36 of the I.T. Act, 1961
because that was the amount of profit available before claiming the
deduction.. Bifurcation of amount of Rs.7,34,77,495/ -was as under:
Rs.1,00,00,000/ - provided from P & L A/c and credited to Reserve for Bad and Doubtful Debts A/c.
Rs.1,00,00,000/ - provided from P & L A/c and credited to Provision for Bad Debts towards standard assets A/c.
Rs.5,00,00,000/ - Transferred from excess balance in Overdue Interest Reserve A/c and credited to Reserve for Bad and Doubtful Debts A/c.
Rs.34,77,495/ - Appropriated from Net Profit @ 15% thereof as per by-laws
Rs.7,34,77,495/ - Total amount provided and/or credited to Reserve for Bad and Doubtful Debts
The AO disallowed deduction under sub-clause (a) of clause (viia) of
sub-section( 1) of section 36 in respect of the provision of
Rs.1,00,00,000/ - which was credited to Provision for Bad Debts towards
standard assets A/c. and in respect of provision of Rs.5,00,00,000/ -
transferred from excess balance In Overdue Interest Reserve A/c and
debited to Reserve for Bad and Doubtful Debts A/c. In respect of
disallowance Rs.1,00,00,000/ - the AO held that this amount was not
eligible for deduction under sub-clause (a) of clause (viia) of
sub-section( 1) of section 36 because it was not a provision for Bad and
Doubtful Debts rather it was a provision against standard assets and The State and Central Co-op. Banks Guidelines on Prudential Norms say that
"provision made on standard assets may not be reckoned as erosion in
value of assets" . In respect of disallowance Rs.5,00,00,000/ - the AO
held that this amount was not eligible for deduction under sub-clause
(a) of clause (viia) of subsection(1) of section 36 because it amounted
to allowing deduction in respect of this amount twice."
4. Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A), but without success, and now the assessee is in further appeal
before us. At the very outset, it was submitted by the learned AR of the assessee that this issue is now squarely covered in favour of the
assessee by the judgment of the Hon'ble Apex Court rendered in the case
of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/206 Taxman 182/18 taxmann.com 282 (SC). He also placed reliance on the various other judicial pronouncements:
(i) Bank of Tokyo Ltd. v. Jt. CIT [2010] 36 SOT 8 (Delhi) (URO)
(ii) Asstt. CIT v. Alfa Lamination IT Appeal No. 2234/Ahd/2010, dated 11-2-2011;
(iii) Jamnagar Distt. Co-Operative Bank Ltd. v. Asstt. CIT IT Appeal Nos.7/Rjt/2011 & 481/Rjt/2012, dtd. 1-8-2012;
(iv) Syndicate Bank v. Dy. CIT [2001] 78 ITD 103 (Bang.);
(v) Rural Electrification Corpn. Ltd., In re [2009] 312 ITR 122/180 Taxman 55 (AAR - New Delhi);
As against this, the learned DR of the Revenue supported the order of the learned CIT(A).
5. We have considered rival submissions and perused the material on record and gone through the orders of the
authorities below. The relevant provisions, for the issue in dispute, in the present case are the provisions of section 36(1)(viia), which are reproduced below:
'36(1)** ** **
(viia) in respect of any provision for bad and doubtful debts made by—
(a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank 3or a co-operative bank
other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank, an amount not
exceeding seven and one-half per cent. of the total income (computed
before making any deduction under this clause and Chapter VI-A) and an
amount not exceeding ten per cent. of the aggregate average advances
made by the rural branches of such bank computed in the prescribed
manner:
Provided that a
scheduled bank or a non-scheduled bank referred to in this sub-clause
shall, at its option, be allowed in any of the relevant assessment
years, deduction in respect of any provision made by it for any assets
classified by the Reserve Bank of India as doubtful assets or loss
assets in accordance with the guidelines issued by it in this behalf,
for an amount not exceeding five per cent. of the amount of such assets
shown in the books of account of the bank on the last day of the
previous year :
Provided further
that for the relevant assessment years commencing on or after the 1st
day of April, 2003 and ending before the 1st day of April, 2005, the
provisions of the first proviso shall have effect as if for the words
"five per cent.", the words "ten per cent." had been substituted :
Provided also that a scheduled bank or a non-scheduled bank referred to in this
sub-clause shall, at its option, be allowed a further deduction in
excess of the limits specified in the foregoing provisions, for an
amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government :
Provided also that no deduction shall be allowed under the third proviso unless such
income has been disclosed in the return of income under the head
"Profits and gains of business or profession" :
Explanation. - For the purposes of this sub-clause, "relevant assessment years" means
the five consecutive assessment years commencing on or after the 1st day of April, 2000, and ending before the 1st day of April, 2005 ';
(b) a bank, being a
bank incorporated by or under the laws of a country outside India, an
amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) ;
(c) a public financial institution or a State financial corporation or a State industrial
investment corporation, an amount not exceeding five per cent. of the
total income (computed before making any deduction under this clause and Chapter VI-A) :
Provided that a
public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment
years commencing on or after the 1st day of April, 2003 and ending
before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as
doubtful assets or loss assets in accordance with the guidelines issued
by it in this behalf, of an amount not exceeding ten per cent. of the
amount of such assets shown in the books of account of such institution
or corporation, as the case may be, on the last day of the previous year :
Explanation. - For the purposes of this clause,—
(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is
not a scheduled bank ;
(ia) "rural branch" means a branch of a scheduled bank [or a non-scheduled
bank] situated in a place which has a population of not more than ten
thousand according to the last preceding census of which the relevant
figures have been published before the first day of the previous year ;
(ii) "scheduled bank"
means the State Bank of India constituted under the State Bank of India
Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank
of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new
bank constituted under section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3
of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the
Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) ;
(iii) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956) ;
(iv) "State financial
corporation" means a financial corporation established under section 3
or section 3A or an institution notified under section 46 of the State
Financial Corporations Act, 1951 (63 of 1951) ;
(v) "State industrial
investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the
business of providing long-term finance for industrial projects and
eligible for deduction under clause (viii) of this sub-section ;
4(vi) "co-operative
bank", "primary agricultural credit society" and "primary co-operative
agricultural and rural development bank" shall have the meanings
respectively assigned to them in the Explanation to sub-section (4) of
section 80P ;'
6. We also find that as per proviso to section 36(1)(vii), the provision for bad and doubtful debts, which is eligible for deduction under section 36(1)(viia), has to be considered for allowing deduction under section 36(1)(vii), and actual write off of bad debts is allowable as deduction under section 36(1)(vii), only to the extent of the amount of such write off, being in excess of
the credit balance in the provision for bad and doubtful debts made
under that clause i.e. clause (viia) of section 36(1) of the Act. In the light of these provisions, being the proviso to section 36(1)(vii), we have to consider and decide the claim of the assessee in the present case. A finding is given by the learned CIT(A) at page no.6 of his
order that for the amount of provision of Rs.1 crore made by the
assessee against the standard assets of the bank, the amount is credited to the reserve for bad and doubtful debts towards standard assets, and
not in the provision for bad and doubtful debts account. He has given a
finding that deduction under clause (viia)
of sub-section (1) of Section 36 can be allowed only in respect of those provisions, which are made for provision for bad and doubtful debts
account created by the assessee, and since, the assessee has not
credited any amount to this account, but has credited the amount in
question to reserve for bad and doubtful debts towards standard assets,
deduction is not allowable to the assessee under section 36(1)(viia) of the Act in respect of this amount of Rs.1 crore. Regarding this
decision of the learned CIT(A), this was the argument of the learned AR
of the assessee that mere nomenclature of book entry cannot determine
the allowability of deduction. We do not find any force in this
contention of the learned AR of the assessee, because as per the
provision of section 36(1)(viia) reproduced above, the deduction is allowable in respect of provision for bad and
doubtful debts, whereas in the present case, the assessee has made
reserve for bad and doubtful debts towards standard assets, and
therefore, the same cannot be said to be akin to the provision for bad
and doubtful debts, and therefore, in our considered opinion, no
interference is called for in the order of the learned CIT(A) regarding
this issue.
7. Now, we consider and decide the second aspect of the matter, i.e. regarding
claim of deduction by the assessee in respect of Rs.5 crores transferred from excess balance in overdue interest reserve account and credited to reserve for bad and doubtful debts account. Before proceeding further,
regarding second aspect, we would like to observe that from these facts, it is clear that the assessee is also maintaining an account under the
head "Reserve for bad and doubtful debts", but the account in question
referred to for the first aspect of Rs.1 crore was not credited to that
account, but was credited to reserve for bad and doubtful debts towards
standard assets accounts, and therefore, it is not a case of giving
wrong nomenclature to a particular account, but this is a case of
creating a separate reserve other than provision for bad and doubtful
debts. For these reasons also, the first aspect of the matter deserves
to be decided against the assessee.
8. Regarding second aspect of the matter, the objection of the learned CIT(A) is
this that transferring the amount from one reserve to another reserve is simply renaming of an existing reserve and it does not amount to making a provision in the ordinary sense, in which the term is used in various provisions of Act. The second objection of the learned CIT(A) is that
when the assessee has transferred the amount of Rs.5 crores from overdue interest account to reserve for bad and doubtful debts, the assessee is claiming deduction under clause (viia) of
sub-section (1) of section 36 for the second time in respect of the
income which have been given 100% deduction under section 80P of the Act in earlier year. The learned CIT(A) has placed reliance on the judgment of Hon'ble Apex Court rendered in the case of Escorts Ltd. v. UDI [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) in support of this contention that double deduction cannot be allowed in respect of an income unless the
Act is specifically providing the same.
9. This is an undisputed position that as per the provisions of section 36(1)(viia) as reproduced above, deduction is allowable in respect of provision for bad and doubtful debts to the extent of specified limit. We also find
that the audited accounts of the assessee (English version) is available at pages 35 to 55 of the paper book, and out of these, the balance
sheet is at page No.36 of the paper book. As per the same, the share
capital is Rs.854.21 lakhs, and reserve and other funds are of
Rs.6083.83 lakhs. No provision is appearing in the said balance sheet,
and therefore, we examine the annexures also. As per the annexure-7,
available at page No.43 of the paper book, we find that this annexure
includes other liabilities, and one of the items, in this annexure at
Sr.No.19 is provision for rent and taxes of Rs.103.09 lakhs. In that
said annexure, at Sr.No.14 is subsidy reserve fund of Rs.97.46 lakhs.
At. Sr.No.4 is contingency reserve against standard assets of Rs.156.50
lakhs of which opening balance was Rs.56.50 lakhs, which means, there is an addition of Rs.100 lakhs in the present year. The AO has already
allowed deduction to the assessee to the extent of Rs.100 lakhs. This is also an accepted position of the fact that the provision and reserves
are two separate items. The provision is a liability, whereas the
reserve is assessee' s own fund. In the Income-tax Act also, at some
places, for example, section 32A, it is provided as per sub-section (4)
that an amount equal to 75% of the investment allowance is required to
be debited to the Profit & Loss Account and credited to reserve
account for investment allowance reserve account. Hence, it cannot be
said that the terms "reserve" and "provision&quo t; are one and the same. The
Legislature has used two different terms at different places for some
purpose and not without reason and purpose, and therefore, as per whims
and fancies of the assessee, reserve account cannot be considered as
provision for the purpose of allowing deduction section 36(1)(viia). Since, there is no provision created by the assessee on account of
provision for bad and doubtful debts, the assessee does not deserve any
deduction under section 36(1)(viia) in
addition to the amount of Rs.1 crores already allowed by the AO,
because, to this extent, i.e. to the extent of Rs.1 crore, the assessee
has included the amount in annexure 7 i.e. Other Liabilities at Sr.No.4
i.e. contingency reserve against standard assets. Here also, although
the assessee has used that word "contingency reserve" , but action of the assessee of including the same in annexure-7 of other liabilities shows that this is in fact a provision, and therefore, included in liability, whereas other reserves are included in annexure-2 i.e. reserves fund
and other funds, and therefore, those reserves which are included in
annexure-2 cannot be equated with provision, which are included in
annexure-7 i.e. other liability. Our this view that reserve is part of
own funds and provision is part of liability is also supported by
Schedule-VI to Companies Act, 1956 where reserves are added in net worth but provision is included in liabilities. Hence, both cannot be
equated. Considering these facts, we feel that the AO has rightly
allowed deduction to the assessee at Rs.1 crores under section 36(1)(viia) of the Act, and the assessee is not eligible for any further deduction, in the absence of any extra provision for bad and doubtful debts,
having been created by the assessee as per the audited accounts
available in the paper book.
10. In view of our above discussion and findings that the assessee has not
created any provision for bad and doubtful debts in excess of amount of
Rs.1 crores, various decisions cited by the learned AR of the assessee
are of no relevance in the present case, and therefore, we do not
consider it necessary to discuss about those judgments.
11. In the result, the appeal of the assessee stands dismissed.--
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
www.cliofindia. cominfo@cliofind ia.com
____________ _________ _________ __
GOODS AND SERVICE TAX REPORTS (GSTR)
HIGHLIGHTS
>
>ISSUE DATED 16.9.2013
>Volume 22 Part 3
>
>
>SUPREME COURT
> HIGH COURTS
> ENGLISH CASES
> CESTAT ORDER
>
>STATUTES
> JOURNAL
> NEWS-BRIEFS
> AAR
>
>
>
>
>
>
>
>
>
>SUPREME COURT
>
> F Cream prescribed by dermatologist for
treating dry skin conditions classifiable as medicament and not as cosmetic
: CCE
v. Ciens Laboratories . . . 161
>
>
>
>
>HIGH COURT
>
> F Where authorities empowered to issue
show-cause notice in case of wrongful availment of exemption, writ of
prohibition cannot be issued against such authority : Nakoda Unique Gold P. Ltd.
v. Union Of India P. . . . 173
>
> F Right of appeal sacrosanct and not be
lightly taken away, court to take lenient view regarding belated compliance
with the requirement of pre-deposit : Messrs Priya Dyers v. CCE p. . . .
191
>
> F Finding by Settlement Commission that car
imported not used in United Kingdom but only registered to meet transit
requirement, finding of fact and not interfered with : Commissioner
of Customs (Import) v. Noshire Moody p. . . . 195 ; Commissioner
of Customs (Imports-Seaport) v. Customs and Central Excise Settlement
Commission p. . . . 199
>
> F Where all issues regarding validity of rule
12CC of 2002 Rules not considered by High Court in similar matter, petition
challenging its validity maintainable : Hiren Aluminium Ltd. v.
Union of India p. . . . 206
>
> F Where Chief Commissioner recommending that
assessee be restrained from utilising Cenvat credit for three months,
decision of Board to restrain assessee from utilising credit for six months
without assigning reason, arbitrary : Hiren Aluminium Ltd. v. Union of India p. . . 206
>
> F Delegated legislation : Rules framed prior
to vesting of rule-making power with Government, invalid : Aryan Ispat
and Power P. Ltd. v. Union of India p. . . . 215
>
> F Rules 12CC of the 2002 Rules and 12AA of
2004 Rules inserted in year 2006, ultra vires 1944 Act : Notification issued
pursuant to such rules and orders passed based on such notification not
sustainable : Aryan Ispat and Power P. Ltd. v. Union of India p. . . .
215
>
> F Where Tribunal taking plausible view on
appreciation of material on record, no substantial question of law arose and
demand of duty and penalty upheld : Super Tyres P. Ltd. v. Union of India p. . . 226
>
>
>
>
>CESTAT ORDERS
>
> F Welding electrodes used for repair and
maintenance of machinery but not used in manufacture of final product, not
eligible for Cenvat credit : Manikgarh Cement v. CCE p. . . .
234
>
> F Where two different entries in notification
granting exemption, assessee entitled to exemption in either of them : Mangalam
Alloys Ltd. v. Commissioner of Customs p. . . 239
>
>
>
>
>
>STATUTES AND NOTIFICATIONS
>
>
> F C. B. E. C. Circulars
:
>
> Circular No. 28/2013-Customs, dated 1st August,
2013-Classification of products-" Cockroach traps", and "mosquito repellent"
in the harmonised Customs Tariff-Regarding . . .
49
>
> Circular No. 30/2013-Customs, dated 5th August ,
2013-Provisional release of export goods detained for
investigation- Regarding . . . 51
>
> Circular No. 31/2013-Customs, dated 6th August , 2013 . . .
53
>
> Circular No. 33/2013-Customs, dated 23rd August ,
2013-Customs duty exemption for import of ash handling systems, water
treatment plant and coal transportation facilities, etc., required for
ultra-mega/mega power projects under Heading 9801 (Project
Imports)-Clarificat ion-Regarding . . . 54
>
> F Notifications :
>
> Finance Act, 1994 :
>
> Notification under section 93(1) :
>
> Exemption to services received by unit located in SEZ
or developer of SEZ for authorised operations : Supersession . . .
56
>
> Finance (No. 2) Act, 2004 :
>
> Notification under section 95(3) :
>
> Exemption to services received by unit located in SEZ
or developer of SEZ for authorised operations : Supersession . . .
56
>
> Finance Act, 2007 :
>
> Notification under section 140(3) :
>
> Exemption to services received by unit located in SEZ
or developer of SEZ for authorised operations : Supersession . . .
56
>
>
>
>
____________ _________ _________ __
COMPANY LAW INSTITUTE OF INDIA PVT. LTD.
No. 2, Vaithyaram Street,
T.Nagar, Chennai - 600017.
Phone: (044) 24350752 - 55
Fax: (044) 24322015
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Sun Sep 15, 2013 8:22 pm (PDT) . Posted by:
"Dipak Shah" cadjshah
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