Friday, August 21, 2015

[aaykarbhavan] Judgment and Infomration [4 Attachments]




Thomas George Muthoot vs. CIT (Kerala High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: July 3, 2015 (Date of pronouncement)
DATE: August 21, 2015 (Date of publication)
AY: 2005-06 to 2007-08
FILE: Click here to download the file in pdf format
CITATION:
S. 40(a)(ia): (a) The second provisio inserted by FA 2012 cannot be treated as retrospective in operation (b) The fact that the payees have already paid tax on the amounts paid does not mean that a disalliowance for failure to deduct TDS cannot be made, (c) S. 40(a)(ia) cannot be interpreted to mean that it applies only to amounts "paid" and not to those "payable"
The contention that the second proviso to Section 40(a)(ia) of the Act, introduced by the Finance Act 2012, is retrospective in operation, based on the verdicts in Allied Motor (P) Ltd. v. Commissioner of Income Tax [(1997) 224 ITR 677 (SC)] and Commissioner of Income Tax v. Alom Extrusions Ltd . [(2009) 319 ITR 306] and that disallowance could not have been ordered invoking Section 40 (a)(ia) of the Act is not acceptable. The proviso was inserted by Finance Act 2012 and came into force with effect from 01.04.2013. The fact the second proviso was introduced with effect from 01.04.2013 is expressly made clear by the provisions of the Finance Act 2012 itself. This legal position was clarified by this Court in Prudential Logistics And Transports v. Income Tax Officer [(2014) 364 ITR 689 (Ker)]. A statutory provision, unless otherwise expressly stated to be retrospective or by intendment shown to be retrospective, is always prospective in operation. Finance Act 2012 shows that the second proviso to Section 40 (a)(ia) has been introduced with effect from 01.04.2013. Reading of the second proviso does not show that it was meant or intended to be curative or remedial in nature, and even the appellants did not have such a case. Instead, by this proviso, an additional benefit was conferred on the assessees. Such a provision can only be prospective as held by this Court in Prudential Logistics and Transports (supra). Therefore, this contention raised cannot be accepted.
(ii) The contention, relying on the Apex Court judgment in Commissioner of Income Tax v. Hindustan Coca Cola Beverages Pvt. Ltd. [(2007) 293 ITR 226], that the recipients of the amounts paid by the appellants, the firms of which they are partners, have already paid tax and that therefore, it is illegal to disallow the interest paid is not acceptable. First of all, Section 40(a)(ia) is in very categoric terms and the provision is automatically attracted, on the failure of an assessee to deduct tax on the interest paid by him. Therefore, going by the language of Section 40(a)(ia), once it is found that there is failure to deduct tax at source, the fact that the recipient has subsequently paid tax, will not absolve the payee from the consequence of disallowance (Commissioner of Income Tax v. Hindustan Coca Cola Beverages Pvt. Ltd. [(2007) 293 ITR 226] distinguished).
(iii) The contention, relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) [(2013) 357 ITR 642 (All)] that the appellants had already paid the amount and therefore, the provisions of Section 40(a)(ia), applicable only in respect of the amount which remains to be payable on the last day of the financial year, is not attracted is not acceptable. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if the interest remains payable on the last day of the financial year. If this contention is to be accepted, this Court will have to alter the language of Section 40(a) (ia) and such an interpretation is not permissible. This view that we have taken is supported by judgments of the Calcutta High Court in Crescent Exports Syndicate and another [ITAT 20 of 2013] and the Gujarat High Court in the case of Commissioner of Income Tax v. Sikandadarkhan N Tunvar [ITA Nos.905 of 2012 & connected cases], which have been relied on by the Tribunal.

Related Judgements

  1. CIT vs. M/s Muthoot Financiers (Delhi High Court) 
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  2. CIT vs. PVS Memorial Hospital Ltd (Kerala High Court) 
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Thomas George Muthoot vs. CIT (Kerala High Court)

by editor
The fact the second proviso was introduced with effect from 01.04.2013 is expressly made clear by the provisions of the Finance Act 2012 itself. A statutory provision, unless otherwise expressly stated to be retrospective or by intendment shown to be retrospective, is always prospective in operation. Finance Act 2012 shows that the second proviso to Section 40 (a)(ia) has been introduced with effect from 01.04.2013. Reading of the second proviso does not show that it was meant or intended to be curative or remedial in nature, and even the appellants did not have such a case. Instead, by this proviso, an additional benefit was conferred on the assessees. Such a provision can only be prospective

CIT vs. Vaish Associates (Delhi High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: , ,
COUNSEL:
DATE: August 11, 2015 (Date of pronouncement)
DATE: August 21, 2015 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
CITATION:
S. 40(b)(v): Provision in partnership deed for payment of salary at percentage share of profits multiplied by "allocable profits" is valid and entitles claim for deduction. S. 37(1): Contribution by law firm to IFA to create awareness of its activities is business expenditure
The High Court had to consider two important issues:
(i) The Assessee firm was initially constituted with Smt. Manju Vaish, Smt. Kali Vohra and Mr. Vinay Vaish and was carrying on the profession of law in New Delhi and Mumbai. With effect from 1st April 2006, Smt. Manju Vaish and Smt. Kali Vohra retired from the partnership and Mr. Ajay Vohra and Mr. Bomi F. Daruwala joined the partnership. A fresh retirement-cum-partnership deed was executed on 22nd June 2008 and made effective from 1st April 2006. 4. Clause 6(a) of the said deed provided that each Partner shall be entitled to an annual salary equivalent to his percentage share of profits multiplied by "Allocable Profits". It was stated that "Allocable Profits shall be calculated as per the provisions of Section 40(b)(v)(1) of the Income-tax Act, 1961. The monthly salary of a Partner shall be equivalent to annual salary divided by 12. Such salary shall be deemed to accrue from day to day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained." Subsequently on 1st August 2009 a supplementary deed of partnership was executed between Mr. Ajay Vohra, Mr. Vinay Vaish and Mr. Bomi F. Daruwala whereby Clause 6 was substituted as follows: "AV, VV and BFD shall be paid with effect from 1st April, 2009 a monthly salary of Rs.26,50,000, Rs.10,00,000 and Rs.13,50,000 respectively. Such salary shall be deemed to accrue from day to day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained." The AO held that since the partnership deed "neither specified the amount of salary to be paid to each of the working partners nor has laid down a specific method of computation thereof" and has only mentioned "allocable profit" which has not been defined in the partnership deed, Section 40(b)(v) of the Act would not apply and the remuneration to the partners, not being in terms of Section 40(b)(v) of the Act, was disallowed. This was upheld by the CIT (A) but reversed by the ITAT. The ITAT came to the conclusion that the term "allocable profit" should be understood by applying the common meaning which would be "profits available for allocation". Explanation 3 to Section 40(b)(v) of the Act defines the term "book profit" as the "net profit before remuneration". The ITAT, therefore, concluded that "a plain reading of Clause 6(a) leads us to a conclusion that the term 'allocable profits' was used to mean 'book profits' as used in Section 40(b)(v) of the Act or otherwise the reference to the section in the Clause has no meaning. When the partners have understood and meant that the word "allocable profits" to mean surplus/book profits, prior to calculation of partners' remuneration, and when such an understanding is manifest in its actions, we do not see any reason why the Revenue authorities should not understand this term in the same sense."
(ii) The assessee agreed to contribute Rs. 50 lakhs to the Indian branch of the International Fiscal Association (IFA) on progressive basis towards the cost of constructing one of its meeting halls on the understanding that the hall would be named after the Assessee firm. The AO held the payment of Rs. 19 lakhs made by the Assessee as aforementioned was not for business purposes. The CIT (A) upheld the order of the AO. The ITAT accepted the explanation of the Assessee that the IFA was a professional body and a non-profit organisation engaged in the study of international tax laws and policies. It, inter alia, undertakes research, holds conferences and publishes materials for the use of its members. Mr. Ajay Vohra, one of the partners of the Assessee firm, was also a member of the executive body of the IFA. In the facts and circumstances, the contribution made by the Assessee to the IFA was held to be for inter alia creating greater awareness of the Assessee firm's activities and therefore expenditure incurred for the purposes of the profession of the Assessee. It was accordingly held to be allowable as a deduction under Section 37(1) of the Act. Further, since the Indian branch of IFA was a non-profit organisation registered under Section 12 AA of the Act, its income was not taxable and the question of deducting tax at source from the payment made to it in terms of Section 40 (a) (ia) did not arise.
On appeal by the department to the High Court HELD dismissing the appeal:
(1) Clause 6(a) of the partnership deed dated 20th June 2008 clearly indicates the methodology and the manner of computing the remuneration of partners. The remuneration of the partners has been computed in terms thereof. Under Section 28(v) of the Act, any salary or remuneration by whatever name called received by partners of a firm would be chargeable to tax under the head profits and gains of business or profession. The proviso to Section 28 (v) states that where such salary has been allowed to be deducted under Section 40(b)(v), the income shall be adjusted to the extent of the amount not so allowed to be deducted. Further Section 155 (1A) of the Act states that where in respect of a completed assessment of a partner in a firm, it is found on the assessment or reassessment of the firm that any remuneration to any partner is not deductible under Section 40(b), the AO may amend the order of the assessment of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible.
(2) The decision of the ITAT that the contribution made by the Assessee to the Indian branch of the IFA, in the manner and in the circumstances noted hereinbefore, would create greater awareness of the Assessee firm and therefore for its business purposes was a possible view to take. No substantial question of law arises as regards this issue as well.

Related Judgements

  1. Sood Brij & Associates vs. CIT (Delhi High Court) 
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CIT vs. Vaish Associates (Delhi High Court)

by editor
A plain reading of Clause 6(a) leads us to a conclusion that the term 'allocable profits' was used to mean 'book profits' as used in Section 40(b)(v) of the Act or otherwise the reference to the section in the Clause has no meaning. When the partners have understood and meant that the word "allocable profits" to mean surplus/book profits, prior to calculation of partners' remuneration, and when such an understanding is manifest in its actions, we do not see any reason why the Revenue authorities should not understand this term in the same sense

CIT vs. Deogiri Nagari Sahakari Bank Ltd (Bombay High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: , ,
COUNSEL:
DATE: January 22, 2015 (Date of pronouncement)
DATE: August 21, 2015 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
CITATION:
Interest on NPAs and Stick Loans, even if accrued as per the mercantile system of accounting, is not taxable as per prudential norms
The assessee, a cooperative bank, claimed that the interest on sticky advances was not chargeable to tax. This was rejected by the AO on the ground that Section 43D of The Income-tax Act applied only to scheduled Banks and not to cooperative banks. The Assessing officer has also held that CBDT circular No.F201/81/84 ITAII dated 09.10.1984 is applicable only to banking companies and not to non-scheduled banks and cooperative banks. This was reversed by the ITAT. On appeal by the department to the High Court HELD dismissing the appeal:
The assessee herein being a Cooperative Bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the Cooperative banks. The provisions of Section 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence, Section 45Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India directions 1998. In UCO Bank the Supreme Court considered the nature of CBDT circular and held that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circular in exercise of its statutory powers under section 119 of act which are binding on the authorities in the administration of the Act, it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Further a similar issue was raised about interest accrued on a 'sticky' loan which was not recovered by the assessee bank for the last three years and transferred to the suspense account, would or would not be included in the income of the assessee for the particular assessment year (Southern Technologies Ltd. Vs. Joint Commissioner of Income Tax, Coimbtore reported in 2010 (2) SCC 548, Mercantile Bank Ltd., Bombay Vs. The Commissioner of Income Tax, (2006) 5 SCC 221 and Vasisth Chay Vyapar Limited 330 ITR 440 (Delhi) followed).

Related Judgements

  1. CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd (Gujarat High Court) 
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CIT vs. Deogiri Nagari Sahakari Bank Ltd (Bombay High Court)

by editor
The assessee herein being a Cooperative Bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the Cooperative banks. The provisions of Section 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence, Section 45Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India directions 1998. In UCO Bank the Supreme Court considered the nature of CBDT circular and held that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circular in exercise of its statutory powers under section 119 of act which are binding on the authorities in the administration of the Act, it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied




CCI : Stockist's complaint against Cadbury alleging forceful supplies, a business feud; Closes case

CCI dismisses super stockist's complaint against Mondelez India Foods Private Limited ('Mondelez', formerly Cadbury India Ltd) alleging unfair "Dealership Agreement", forcing super stockist to supply to defaulting parties, manipulating damage settlement policy and entering into the market of instant fruit flavoured drinks & biscuits by leveraging its dominant position in the market for non-premium chocolates etc; CCI defines the relevant market as "market for chocolate in Karnataka", rejecting super stockist's definition whereby he differentiated premium and non-premium chocolates constituting separate relevant product markets; Mondelez\'s 55% market share, 'Cadbury Dairy Milk' being a household name/ preferred choice of consumers because of its taste & brand loyalty, makes it a  dominant player in relevant market; Observing the allegations like forcing supply to defaulting parties, compelling to maintain excess supply over & above the agreed terms, "it is the case of business feud and breach of contract between them... appears more to be a business dispute between the manufacturer and distributor", raising no competition concern; With respect to allegation of tie-in arrangement that super stockist was offered additional commission for supply of instant fruit flavoured drinks & biscuits, holds it is "not in the nature of tying-in arrangement but only a business strategy which seems to be aimed at triggering the growth of new range of products" :CCI

CCI : Dismisses complaint against Govt's selective advertisement placements: Print media survival not Govt. dependent

CCI dismisses complaint against Department of Information & Public Relations under Govt of Punjab, Uttar Pradesh, Tamil Nadu & West Bengal, alleging that such department in aforementioned states abused their dominance by withholding publication of advertisements in prevalent newspapers; It was alleged that publication of advertisements was withheld in The Times Group in Punjab, The Hindu and Times Group in Tamil Nadu, The Times Group in Uttar Pradesh & The Anandabazar Patrika in West Bengal, as they had published articles critical of their respective state govt policies & practices, which adversely affected revenue of such publishing houses; CCI delineates relevant market as "market for procurement of advertisement space in print media in the state of Punjab/ Tamil Nadu/ Uttar Pradesh and West Bengal"; Observes that an advertisement proposed to be made by govt for certain purpose which is to be communicated through a certain mode only like print, audio, video, digital etc. is not substitutable; Examining the dominance of state departments, notes that government advertising at central or state level, did not feature in top 6 spenders on advertising, states "It contributes only Rs.24 billion (Rs.4 billion at the central and Rs.20 billion at the state level) out of Rs.163 billion of print media advertisement revenues"; Also holds that, "It would be farfetched to say that the survival of print media is dependent on the advertisement of the government. Furthermore, there is no dearth of source of advertisement from the private sphere also"; Thus, denying dominance of Department of Information & Public Relations under specified states, CCI rejected the complaint :CCI

CCI : Approves Alcatel-Lucent's acquisition by Nokia;Its Indian telecommunication-activities complementary, not anti-competitive

CCI approves the proposed combination relating to acquisition of Alcatel-Lucent S.A. ('Alcatel') by Nokia Corporation ('Nokia') through public exchange offers in France & USA; Observes that proposed combination relates to telecommunication infrastructure equipment sector and notes that there are overlaps between parties in mobile infrastructure segment; However, states that activities of parties in India are complementary in nature, as Nokia is present in mobile infrastructure segment and Alcatel's India operations mainly relate to fixed line services and some operations in mobile infrastructure segment in India; Thus, observes that proposed combination is unlikely to cause an appreciable adverse effect in any segment & accordingly CCI decides to leave exact delineation of 'relevant market'; Further assessing competitiveness of the market & countervailing buyer power, states that telecom infrastructure equipment is a bidding market, thus, considering the bidding data & number of overlapping tenders participated by the parties, concludes that Nokia and Alcatel do not appear to be close competitors in India; Also notes that in presence of three major competitors - Ericsson, Huawei, and ZTE, they would enjoy countervailing buyer power :CCI

CCI : Approves Jubiliant's retail stores acquisition in Bengaluru by Aditya Birla's 'More'

CCI approves acquisition of four retail hypermarket stores of Jubilant Agri And Consumer Products Limited ('JACPL') by a Aditya Birla Group co. ABRL, along with certain specified assets and liabilities on a slump sale basis; Notes that ABRL is engaged inter alia, in retail business under brand 'More' dealing in grocery, consumer durables etc & JACPL is engaged in businesses of agri-products, performance polymers, consumer products etc under the brand name 'Total' only in city of Bengaluru; Observes that  retail industry is generally divided into modern brick and mortar stores ('MBMS') and traditional brick and mortar stores ('TBMS'), and in instant acquisition, parties fall in the category of MBMS; Observes that leading Indian organized retail business players such as, Bharti's Easyday, TATA's Star Bazaar, Future's Big Bazaar, D-Mart, etc are present in Bengaluru as well as combined market share of parties is less than 5 % in retail market in Bengaluru; Also notes that online retail stores such as Zopnow, Bigbasket, Flipkart, Jiffstore etc. are also engaged in retail services in Bengaluru, "Therefore, the consumers have ample choice in terms of number of options available to them in all the overlapping product categories"; Further observes that even unorganised retail business exerts competitive constraint on organised retail businesses in Bengaluru and notes that, "there are no vertical arrangements between ABRL and JACPL"; However, CCI leaves exact delineation of relevant market open, observes that the proposed combination is not likely to raise competition concerns in any of the alternative relevant markets in India:CCI

CCI : Approves TVS Logistics' expansion in provision of logistic services in India

CCI approves proposed combination comprising of two interrelated transactions –i) acquisition of entire share capital of Drive India Enterprise Solutions Limited ('DIESL') by TVS Logistics Services Limited ('TVS LSL'), and ii) acquisition of 13.03% share capital of TVS LSL by subsidiaries of Tata Opportunities Fund LP & Tata Capital Ltd - Omega TC Holdings Pte Ltd. ('Omega') and Tata Capital Financial Services Limited ('TCFSL') respectively; Notes that DIESL is engaged in provision  of logistic services in India, while Omega is a Singapore based investment holding co. & TCFSL is an NBFC; Notes that with the acquisition of DIESL, TVS LSL intends to expand the variety of its offering in provision of logistics services; Observes that in first transaction, there is a horizontal overlap between activities of DIESL and TVS LSL as both are engaged in provision of logistics services in India, however, notes that respective market shares of TVS LSL & DIESL are insignificant; Further observes existing of vertical relationship between parties in second transaction as some of the entities of TVS group have provided logistics services to the entities belonging to Tata Sons group, however, holds that vertical arrangements are insignificant and unlikely to raise any competition concern; Thus, holds that proposed combination is not likely to have an appreciable adverse effect on competition in India:CCI

CCI : Approves Mphasis' domestic BPO business acquisition by Karvy Data Management

CCI approves acquisition of Mphasis Ltd's domestic business process management or outsourcing ("BPM/BPO") business by Karvy Data Management Services Limited ('Acquirer'); Notes that Mphasis, a public limited co, is engaged in information technology solutions globally and acquirer, an unlisted public co. is engaged in business of providing business and knowledge process outsourcing in India; Observes that since acquirer and seller provide similar services in BPM/BPO segment across different industries in India, relevant market in instant case would be "market for provision of BPM/BPO services to customers in India; Observes presence of large number of domestic BPM/BPO sector in relevant market, like Concentrix, Aegis Limited, Firstsource Solutions Limited, etc., which will act as competitive constraint; Also notes that post combination, market share of Acquirer will not be significant; Thus holds that the proposed combination is not likely to have any adverse effect on competition in India:CCI


Madhukar Khosla vs. ACIT (2014) 367 ITR 165 (Del) held as follows :- S. 147: If "reasons to believe" art not based on new, "tangible materials", the reopening amounts to an impermissible review. In AY 2006-07 the AO passed an assessment order u/s 143(3). Thereafter, after the expiry of four years from the end of the AY, he issued a notice u/s 148 reopening the assessment on the ground that the records showed that an amount of Rs. 25L had to been added to the capital account for which the assessee had offered no explanation and that the same constituted undisclosed income u/s 68. The assessee challenged the reopening on the ground that there was no failure 011 its part to make a disclosure or material facts and the reopening was based on change of opinion. The department relied Oil the Full Bench verdict in Usha International 348 ITR 485 and argued that as the AO did not apply his mind at all to the question regarding the said capital contribution, it could not be said that there was a "change of opinion". HELD by the High Court allowing the Petition: (i) In the recorded reasons. no details are provided as to what such information is which excited the AO's notice and attention. The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s 148. This reassessment is clearly not on the basis of new (or "tangible") information or facts that which the Revenue came by. It is in effect a re-appreciation or review of the facts that were provided along with the original return filed by the assessee; ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO 12 (ii) The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are the "reasons to believe". Now this should have a relation or a link with an objective fact in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question. whether the re- opening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment - no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd 320 ITR 561 (SC) and Orient Craft Ltd 354 ITR 536 (Delhi) followed, Usha International 348 ITR 485 (Del) (FB) referred) 4. CIT vs. Insecticides (India) Ltd. (2013) 357 ITR 330 (DEL) held as follows :- Dismissing the appeals, that the reasons recorded for the notice of reassessment for the assessment years 2002-03 and 2003-04 showed that they were based on the information received by the Assessing Officer from the Director of Income-tax (Investigation) that the assessee was involved in giving and taking bogus entries/transactions during the relevant year which actually represented unexplained income of the assessee. The Tribunal had found that the Assessing Officer did not mention the details of the transactions that represented unexplained income of the assessee. The information on the basis of which the Assessing Officer had initiated proceedings under section 147 of the Income-tax Act, 1961, was vague and uncertain and could not be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. The notice of reassessment was not valid and was liable to be quashed.  




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