Supreme Court of India in case of
Totgars' Co-operative Sale Society Ltd v/s ITO , Karnataka , 322 ITR 283
Section 80P, read with section 56, of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment years 1991-92 to 1999-2000 - Assessee was a co-operative credit society - Its business was to provide credit facilities to its members and to market their agricultural produce - In many cases, assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purpose, it invested same in specified securities and earned interest thereon - Whether, on facts, interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) - Held, yes
Words and Phrases : "The whole of the amount of profits and gains of business", as occurring in section 80P(2)(a), of the Income-tax Act, 1961
Mantola Co-Operative Thrift & Credit Society Ltd.v/s Commissioner of Income-tax* [2014] 50 taxmann.com 278 (Delhi High court)
Section 56, read with section 80P, of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Credit society) - Assessment year 2008-09 - Whether where assessee, a co-operative society, engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be assessable as 'income from other sources' and, thus, not eligible for deduction under section 80P(2)(a)(i) - Held, yes [In favour of revenue]
Mutholy Service Co-Operative Bank Ltd Vs The Income Tax Officer, ITA No.11/Coch/2014- (Asst Year 2010-11), Date of pronouncement- 24th, Sept 2014
In the present case, we find that the assessee has earned interest income on fixed deposits made by the assessee with sub-treasury, Meenachili, Kadappattoor and SBI Pala totaling Rs. 20,21,909/- and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80p(2)(a)(i) of the I.T. Act. Further, we came across the decision of the coordinate Bench of this Tribunal in the case of Aryad Block Small Scale Coir Fibre Mats Manufacturers Co-operative Society Ltd., in I.T.A. No.787/Coch/2013 vide order dated 14.8.2014 wherein it has been held that interest income on fixed deposits made by the assessee in a Co-operative Bank and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80P(2)(a)(i) of the I.T. Act. Accordingly, the ground raised by the assessee is dismissed.
· Deduction u/s 80P will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the society. Interest income on deposits made with banks is not attributable to income of co-operative society and outside realm of section80P- [Sri Basaveshwara Credit Co-operative Society Ltd. v. CIT [2014] 47 taxmann.com 189 (Bangalore – Trib.)]
· The Hon'ble Supreme Court of India in the case of Totgars' Co-operative Sale Society Ltd. Vs Income-tax Officer [2010] 188 Taxman 282 (SC), held that fund not required immediately for business of providing credit facilities and interest earned on such fund would come under the category of 'Income from Other Sources' taxable u/s 56 of the Income-tax Act, 1961 and the same would not qualify for deduction as business income u/s 80P(2)(a)(i) of the Income-tax Act, 1961. In view of the decision of the Hon'ble Supreme Court (supra) Interest income on Fixed Deposit- General amounting to Rs.30,00,659/- ; Interest of Rs. 1,48,752/- on M. S.S.S., Interest on Reserve Fund of Rs.1,54,781/-, Interest on Bad Debt Fund of Rs.1,99,593/- and interest on SBF Loan of Rs. 988/- Totalling Rs.35,04,773/- is treated as 'Income from Other Sources' without allowing deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961. [National coal development corporation staff co-operative credit Soc. Ltd. vs. DCIT –A.Y. 08-09- ITA No.1564/Kol/2011]S. 41(1): Payment of Net Present Value of sales-tax deferral loan does not constitute a taxable "benefit"
The High Court had to consider whether the judgement of the Special Bench of the Tribunal in Sulzer India Ltd vs. JCIT 138 ITD 1 (SB)(Mum) that the difference between the Net Present Value of sales-tax liability and its future liability is not chargeable to tax u/s 41(1) is correct or not. HELD by the High Court affirming the judgement of the Special Bench:
Premature payment of Sales Tax already collected but not remitted to the Government is not covered by S. 43B. because otherwise the provision would have been worded accordingly. The applicability of s. 41(1)(a) has to be considered in the light of whether the liability is a loss, expenditure or trading liability. In this case, the scheme under which the Sales Tax liability was deferred enables the Assessee to remit the Sales Tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme, then, we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the Assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by finding out its NPV. If that is the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years, then, we do not see how ingredients of sub section (1) of section 41 can be said to be fulfilled. The obligation to remit to the Government the Sales Tax amount already recovered and collected from the customers is in no way wiped out or diluted. The obligation remains. All that has happened is an option is given to the Assessee to approach the SICOM and request it to consider the application of the Assessee of premature payment and discharge of the liability by finding out its NPV. If that was a permissible exercise and in terms of the settled law, then, we do not see how the Assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the Assessee having paid Rs.3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs.4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the Assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the Assessee and the other requirement is the Assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the Sales Tax collected by the Assessee during the relevant year amounting to Rs.7,52,01,378/was treated by the State Government as loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to the amendment made to the 4th proviso to section 38 of the Bombay Sales Tax Act, 1959, the Assessee accepted the offer of SICOM, the implementing agency of the State Government, paid an amount of Rs.3,37,13,393 to SICOM, which, according to the Assessee, represented the NPV of the future sum as determined and prescribed by the SICOM. In other words, what the Assessee was required to pay after 12 years in 6 equal instalments was paid by the Assessee prematurely in terms of the NPV of the same. That the State may have received a higher sum after the period of 12 years and in installments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the Assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case (CIT vs. McDowell (Kar) referred).
Tribunal can initiate contempt proceedings for non-issue of refund despite its order
Tribunal can initiate contempt proceedings against the Department in case of failure to sanction refund long pending to the Assessee consequent to favourable Tribunal order
LCL Logistics (India) Pvt. Ltd Vs. Commissioner Of Customs (Export), Nhava Sheva [2014-TIOL-2330-CESTAT-MUM]
LCL Logistics (India) Pvt. Ltd. (the Appellant) filed a Miscellaneous Application before the Hon'ble CESTAT, Mumbai, in respect of Order of the Hon'ble Tribunal vide which the penalty on the Appellant was reduced from Rs. 5,00,000/- to Rs. 1,00,000/-. The Appellant contended that more than three years have passed and the Department has not refunded balance amount of Rs. 4,00,000/- despite of many letters dated August 23, 2011, November 7, 2011, January 25, 2012, June 18, 2012 and March 13, 2013 addressed to the Department. It was further submitted that no reply has been received from the Department's side in response to the stated letters, which was even admitted by the Department.
The Appellant further submitted that under Rules 40 and 41 of the CESTAT (Procedure) Rules, 1982, the Hon'ble Tribunal can invoke its authority to give effect to the Order of the Tribunal passed on August 1, 2011.
The Hon'ble CESTAT, Mumbai while deciding the Miscellaneous Application, held that it is most unfortunate that the Department has not even cared to reply to any letter of the Appellant seeking refund consequent to the Order of this Tribunal and accordingly, ordered the Department to sanction the refund within 45 days of the receipt of this Order.
It was further held by the Hon'ble Tribunal that in case of any further failure on part of the Department, the Tribunal may have to consider contempt proceedings against the Sanctioning Authority.
Impermissible deposits by trust would lead to denial of sec. 11 relief only on income from deposits; SLP dismissed
December 5, 2014[2014] 51 taxmann.com 378 (SC)
IT: In case of a charitable trust, it is only income from investment or deposit which has been made in violation of section 11(5) that is liable to be taxed and violation under section 13(1)(d) does not tantamount to denial of exemption under section 11 of total income of assessee-trust
HC sets aside CBDT's order u/s 119 refusing to admit belated refund claim filed by a habitual late filer of ITR
December 5, 2014[2014] 52 taxmann.com 152 (Bombay)
IT : CBDT could not refute admitting belated refund claim filed by an assessee on the ground that assessee was a habitual late filer of return of income and wanted to avoid scrutiny by late filing, especially when there was no malafide intension of assessee behind late filing of return
Facts
| (a) | Assessee filed return of income beyond the period specified for belated return in section 139(4) and claimed refund of the TDS. | |
| (b) | Assessing Officer did not act on the same and, consequently, assessee approached CBDT u/s 119(2)(b) and sought condonation of delay in filing return of income. | |
| (c) | It was stated by the assessee in the application that, at the relevant time, its office was shifted and certain records including TDS certificates got misplaced and it took considerable time to retrieve them which caused delay in filing of return. | |
| (d) | CBDT declined to condone the delay, inter alia, on the following grounds: (a) that audited accounts were prepared well before the due date of filing of return of income. However, there was no proper explanation was furnished by assessee as to why the return was not filed within due date. All this, led to the inference that delayed return was filed only to avoid scrutiny; (b) that no documentary evidence in support of misplacement of TDS Certificate by postal authorities on account of change in address of the assessee's company or evidencing delay in receipt of duplicate TDS Certificate was produced. | |
| (e) | (e) Assessee challenged CBDT's order by filing a writ petition in the High Court. |
The High Court held in favour of assessee as under-
| (1) | It may be true that the returns might not have been filed within the period specified under Section 139(1) of the Income-tax Act, nevertheless, the returns were filed in respect of all assessment years (except assessment year in question) within the time allowable under Section 139(4) of the said Act. Further, in almost all cases return was accepted with only some minor disallowances. In light of such facts, the CBDT was obviously not right in condemning the assessee as a 'habitual late filer' | |
| (2) | It could not be said that intension behind late filing of return was to avoid scrutiny since assessee had already made it clear that it had no objection to scrutiny assessment for the purposes of determining refund for the relevant Assessment Year. | |
| (3) | The circumstance that the accounts were duly audited within due date of filing of return was not a circumstance that could be held against the assessee. This circumstance, on the contrary added force to the explanation furnished by the assessee that the delay in filing of returns was only on account of misplacement of the TDS Certificates. | |
| (4) | For condonation of delay, what was really important was the acceptability of the explanation offered by the assessee rather than length of delay. Explanation offered by assessee that TDS certificates got misplaced due to shifting of office was not bogus. Hence, it could be said that the assessee had obtained any undue advantage out of delay in filing of Income Tax Returns. | |
| (5) | In every case of delay, there might be some lapse on the part of the party concerned. That by itself was not ordinarily sufficient to turn down the plea or to shut the doors against him. If the explanation offered did not smack of mala fides or it was not put forth as a part of dilatory strategy, the Court was expected to show utmost consideration to the applicant. | |
| (6) | An acceptable explanation was offered by the assessee and a case of genuine hardship was made out. Accordingly, the impugned order made by the CBDT was to be set aside. The delay in filing the Return of Income for the relevant Assessment Year was to be condoned and Return of Income was directed to be admitted for consideration. | |
| (7) | The jurisdictional Assessing Officer was to be directed to scrutinize the Return of Income and to examine the claim for refund on merits in accordance with law. |
CAs/ CMAs can conduct Service tax audits
CA Sumit Grover
CBEC has empowered CAs & CMAs (nominated u/s 72A) to conduct service tax audits on behalf of service tax department.
Statutory provisions- Rule 5A(2) of Service Tax Rules, 1994 authorises department to conduct audit by CAG or any audit party deputed by Commissioner & the assessee was bound to produce the specified documents within 15 days from date of demand( of the prescribed documents) the said auditor.
Legal History: Various judicial pronouncements have been made recently in the context of service tax audits. Reliance in this regard may be placed on :
- ACL Education Centre Pvt. Ltd. & Ors. Vs. Union of India [2014-TIOL-120-HC-ALL-ST] – Hon'ble Allahabad High Court held that audit under service tax is to be conducted by Chartered Accountants/ Cost Accountants only and not by officers of the Department
- SKP Securities Ltd. Vs. DD (RA-IDT) & Ors. [2013-TIOL-38-HC-KOL-ST] - Hon'ble Kolkata High Court held that audit of private assessee can't be undertaken by CAG .
- Travelite (India) Vs. Union of India & Ors.- Hon'ble Delhi High Court held that rule 5A(2) is bad in law.
Amendment:
Vide Notification No. 23/2014- ST dated- 05.12.2014, CBEC has amended rule 5A(2) and the pronouncement of Allahabad High Court has been followed principally & CAs/CMAs have been made empowered to conduct service tax audits.
Furthermore, earlier limit of 15 days for production of specified documents has now been replaced with the time limit specified by the concerned audit party/CAG/CAs/CMAs, as the case may be.
The said notification is as follows :-
NOTIFICATION No. 23/2014-SERVICE TAX
Dated- 5th December, 2014
G.S.R. (E).- In exercise of the powers conferred by clause (k) of sub-section (2), read with sub-section (1) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Service Tax Rules, 1994, namely:-
1. (1) These rules may be called the Service Tax (Third Amendment) Rules, 2014.
(2) They shall come into force on the date of their publication in the Official Gazette.
- In the Service Tax Rules, 1994, in rule 5A, for sub-rule (2), the following sub-rule shall be substituted, namely:-
"(2) Every assessee, shall, on demand make available to the officer empowered under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India, or a cost accountant or chartered accountant nominated under section 72A of the Finance Act, 1994,-
(i) the records maintained or prepared by him in terms of sub-rule (2) of rule 5;
(ii) the cost audit reports, if any, under section 148 of the Companies Act, 2013 (18 of 2013); and
(iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 (43 of 1961),
for the scrutiny of the officer or the audit party, or the cost accountant or chartered accountant, within the time limit specified by the said officer or the audit party or the cost accountant or chartered accountant, as the case may be."
(Himani Bhayana)
Under Secretary to the Government of India
[F.No 137/46/2014-Service Tax]
Note:- The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide notification No. 2/94-SERVICE TAX, dated the 28th June, 1994 vide number G.S.R. 546 (E), dated the 28th June, 1994 and last amended vide notification No.19/2014-SERVICE TAX, dated the 25th August, 2014 vide number G.S.R. 614 (E), dated the 25th August, 2014.
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