CASE LAWS
2018-TIOL-127-SC-IT
CIT Vs LINCOLN PHARMACEUTICALS: SUPREME COURT OF INDIA (Dated: April 6, 2018)
Income tax - Sections 2(47) & 45(4)
Keywords - capital gains tax - transfer of assets
The Assessee company was a partnership firm engaged in the business of manufacturing of pharmaceutical formulations. The said firm came into existence on Jan 18, 1979 and carried on its business up to Jan 19, 1995 and thereafter it was incorporated as a company namely M/s. Lincoin Pharmaceuticals Ltd. w.e.f Jan 20, 1995. The said erstwhile firm revalued its fixed assets on April 01, 1994 to the tune of Rs.116.25 lakhs and it was credited to capital account of the partners in proportion to their profit sharing ratio. The AO therefore held the assessee firm to be liable for capital gain tax u/s 45(4) because of transfer of assets from the firm to the newly incorporated company within the meaning of Section 2(47). He worked out the fair market value of Rs.11,62,500 shares allotted to the partners without any monetory consideration at Rs.4,65,00,000/- and held the same as the taxable capital gain.
On appeal, the FAA directed to compute the long term and short term capital gains chargeable to tax. On further appeal, the ITAT held that the FAA was justified in coming to the conclusion that the market value of the assets transferred on incorporation of the company was Rs.116.25 lakhs and not Rs.465.00 lacks as determined by the AO. When the matter reached High Court, it was held that liability to capital gains tax arises when there is no transfer of capital assets on transformation of a Partnership Firm into a Limited Company with no change in the number of partners and the extent of property, in view of the decision in case of CADD Center v. Assistant Commissioner of Income tax, City Circle II (2), Chennai - 2015-TIOL-3027-HC-MAD-IT.
Having heard the parties, the Supreme Court condones the delay and granted leave to the Revenue Department to defend their case on the issue of chargeability of capital gains tax in the event of transformation of a Partnership Firm into a Limited Company without any transfer of capital assets.
Leave granted
2018-TIOL-126-SC-IT
CIT Vs SHEBA PROPERTIES LTD : SUPREME COURT OF INDIA (Dated: April 6, 2018)
Income tax - Section 40(a)(ia)
Keywords - credit notes - leased aircraft - variable cost - tax at source
The Revenue Department had preferred present SLP challenging the action of High Court, whereby it had upheld that order of ITAT in deleting the disallowance u/s 40(a)(ia) without appreciating the fact that amount of Rs.14,95,000/- represented variable cost portion of the lease of the aircraft payable by the assessee and tax at source had to be deducted on the same.
Having heard the parties, the Supreme Court condoned the delay and dismisses the SLP, thus concurring with the opinion of High Court on the issue of "TDS requirements on credit notes issued towards variable costs".
Revenue's SLP dismissed
2018-TIOL-125-SC-IT + Story
SKY LIGHT HOSPITALITY LLP VS ACIT : SUPREME COURT OF INDIA(Dated: April 6, 2018)
Income Tax - SLP - Sections 147, 148 & 292B
Keywords - Clerical error - Invalid entity - Limited Liability Partnership
THE assessee-company, a limited liability partnership firm, had taken over and acquired rights & liabilities of M/s Sky Light Hospitality Private Limited upon conversion. On assessment, the assessee was issued notice initiating proceedings u/s 147 & 148 of the Act. The assessee objected to such notice on the grounds that it had been issued to M/s Sky Light Hospitality Pvt. Ltd., a company which had ceased to exist and so was an invalid entity in the eyes of law. The assessee also claimed that Section 292B was inapplicable to it. This was because while it was a jurisdictional pre-condition to issue notice in the assessee's name, the AO had issued such notice to the erstwhile M/s Sky Light Hospitality Pvt. Ltd., after due application of mind. The assessee further claimed that such notice was intentionally issued to the erstwhile firm, and so involved no error, mistake or omission of part of the AO. The assessee further claimed that the AO failed to establish proper nexus proving that income had escaped assessment.
Subsequently, the High Court held that the reasons furnished by the AO sufficiently established nexus proving that income had indeed escaped assessment. Further it was held that while absolute certainty was not required when issuing notices, the reasons to believe in the present case were not based on suspicion alone. In light of the same, the High Court addressed the issue of the notice being issued to an invalid entity. It held that human errors and mistakes could not nullify proceedings which were otherwise valid and caused no prejudice. Hence it dismissed the assessee's appeal. Thus, the present leave to petition.
On hearing the SLP, the Apex Court was of the view that,
Whether a notice issued in the name of the wrong company due to clerical error is a mistake which can be corrected by the Revenue u/s 292B - YES: SC
++ in the peculiar facts of this case, this court is convinced that wrong name given in the notice was merely a clerical error which could be corrected under Section 292B of the Income Tax Act.
Assessee's SLP Dismissed
2018-TIOL-527-ITAT-DEL
ANUJAY HYCARE PRODUCTS PVT LTD Vs ITO : DELHI ITAT (Dated: April 06, 2018)
Income Tax & Companies Act- Sections 560(3), 560(5) & 560(6) ; 143(1) & (3)
Keywords - Companies Act - Dissolution of firm - Non existent company
THE assessee-company filed its return for the relevant AY, declaring loss. On assessment, the AO made certain additions to the assessee's income and calculated the net taxable income. Before the CIT(A), the assessee submitted an order from the Registrar of Companies, passed u/s 560(5) of the Companies Act, stating that the name of the assessee-company had been struck off the register and that the assessee-company had been dissolved. Hence the assessee claimed that assessment order passed against such non-existent company was void ab initio. The assessee also submitted copy of notice u/s 560(3) and endorsed a copy of such notice to the AO.
The CIT(A) obtained a remand report from the AO. Considering the same it was noted that on the date on filing appeal, the assessee-company was not in existence. Hence the CIT(A) held the assessee's appeal to be infractuous and inadmissible. The CIT(A) also held that a non-existent entity could not file appeal. It also noted that the conduct of the assessee-company prima facie established a case of fraud as neither the AO was informed of dissolution of the Company nor the ROC was apparently informed about the assessment proceedings. Hence the CIT(A) dismissed the assessee's appeal. Hence the present appeal by the assessee.
On hearing the matter, the Tribunal held that,
Whether an assessment order can be passed against a company which had been dissolved and is non-existent - NO: ITAT
++ the assessee-company placed on record the order of ROC, Delhi and Haryana, dated 30th May, 2011 whereby, pursuant to Section 560(5) of the Companies Act, 1956, the name of the assessee-company has been struckoff in the Register of Companies and the assessee-company is dissolved. Therefore, w.e.f. 30th May, 2011, the assessee-company became non-existent and stood dissolved. The A.O. however, passed the assessment order on 29th December, 2011 i.e., after dissolution of the assessee-company. Therefore, there could not have been any valid assessment order passed against the assessee-company which was not in existence as on the day of passing of the assessment order because it had already been dissolved. The assessment in the case of non-existing entity is thus nullity. Therefore, A.O. had no jurisdiction to pass the order against the non-existing company. All the decisions relied upon by the Counsel for the Assessee above, squarely apply to the facts and circumstances of the case. Even the judgment of the Delhi High Court in the case of Spice Infotainment Ltd., vs. CIT, has been confirmed by the Supreme Court vide order dated 02nd November, 2017. It may also be noted here that A.O. in the remand report has referred to certain correspondence between Revenue Department and the O/o. ROC through which certain information against the assessee-company has been obtained. Ultimately, the O/o. ROC intimated to the Income Tax Department that it is not within their powers to revive the assessee-company under section 560(6) of the Companies Act. The information have been taken by the Department and it is not intimated as to what action have been taken by the Department against the assessee-company in this regard. However, as on today, it is an established fact that assessee-company has already been dissolved and its name is struck-off from the Registrar of Companies. Therefore, it is a non-existing Company and as such, A.O. cannot pass the assessment order under section 143(3) of the I.T. Act, 1961 against the assessee-company. The issue is, therefore, covered in favour of the assessee-company by the above judgments of Delhi High Court, relied upon by the Counsel for the Assessee. The decisions relied upon by the D.R. are clearly distinguishable on facts. In view of the above discussion, this court sets aside and quashes the orders of the authorities below. Resultantly, all additions are deleted. Since, the orders of the authorities below have been quashed, therefore, additions on merit are not decided as the same are left with academic discussion only. However, the Revenue Department is at liberty to pursue the matter with the Registrar of Companies, if so advised, in accordance with law. In the result, appeal of the assessee-company is allowed.
Assessee's Appeal Allowed
2018-TIOL-660-HC-KERALA-CUS + Story
CC Vs NALIN CHOKSEY : KERALA HIGH COURT OF (Dated: April 3, 2018)
Cus - Section 125 of the Customs Act, 1962 - When an option is exercised for redemption in lieu of confiscation, person in ownership and custody of the imported goods opts not only to pay the redemption fine but also to make good the short levy of duty - Revenue appeal allowed: High Court [para 11 to 13]
Cus - Section 125 of the Customs Act, 1962 - Customs duty and redemption fine can be demanded from the person in ownership and custody of the imported goods on an option exercised for redemption, despite there being no liability to duty on any person other than the importer: High Court [para 11 to 13]
Cus - Section 125 of the Customs Act, 1962 - The imported goods, on there being a short levy of duty along with interest, would be liable for confiscation - On such confiscation, the Government could sell the goods and realize whatever value is fetched on such sale - For any duty or interest still remaining with respect to the goods, the Department would have to necessarily proceed against the original importer and not against any subsequent purchaser - With respect to liability to pay duty as also redemption fine, it is reiterated that it is for reason of the option exercised to redeem the goods: High Court [para 11 to 13]
Cus - Section 125 of the Customs Act, 1962 - Subsequent bona fide purchaser may not have any liability to duty - However, by confiscation, the State gets the authority to recover the entire market value of the goods, which would definitely be more than the duty - If redemption is not made then the person from whose possession the goods are seized merely loses the property in goods and there could be no further levy of duty on the bona fide purchaser - The Department, despite such confiscation could proceed for recovery of duty too, but only from the importer: High Court [para 10]
Revenue appeal allowed
2018-TIOL-654-HC-MAD-CUS
FERNANDEZ DAREL RIANO Vs INTELLIGENCE OFFICER: HIGH COURT MADRAS (Dated: March 16, 2018)
Narcotic Drugs and Psychotropic Substances Act, 1985 [NDPS Act] – Appellant was found guilty of offence under section 8(c) r/w 21(c) of the NDPS Act - appellant was accordingly convicted and sentenced to undergo rigorous imprisonment for a period of ten years with a fine of Rs.1 lakh, in default to undergo rigorous imprisonment for two months :
HELD – in the instant case, the prosecution has discharged its initial burden - whereas the appellant in this case has not rebutted the statutory presumption - therefore, the submission of the appellant that she was not in conscious possession of the same is liable to be rejected - the physical possession of the contraband which was admittedly recovered from the checked-in baggage of the appellant, the knowledge that this substance was not heroin has not been rebutted by the appellant - it is also not the case of the appellant that the said checked-in baggage did not belong to her – once the physical possession of the contraband by the appellant has been proved, section 35 of the NDPS Act would come into play and the onus shifts on the appellant to prove that she was not in conscious possession of the contraband - the burden of proof cast on the accused under section 35 of the NDPS Act can be discharged through different modes - the appellant has failed to discharge her burden in the manner known to law - in her statement submitted during the proceeding under section 313 of Cr.P.C. also no plea has been taken that she was not in conscious possession of the contraband - no justification found in the contention of the appellant that non examination of the person who was allegedly asked to bring suitcase for re-check would cause prejudice to the appellant - the prosecution has proved its case beyond all reasonable doubts and that the trial judge was right in holding that the appellant was guilty of charges and that this court does not find any illegally or irregularity in the judgment of conviction and sentence rendered by the trial court - insofar as the sentence is concerned, considering both the mitigating and aggravating circumstances of the case, the quantum of both physical and monetary sentence imposed on the appellant by the trial judge appear to be appropriate and thus, the same also do not require any interference at the hands of this Court – no merit found in the appeal - in the result, this Criminal Appeal is dismissed and the judgment of conviction and sentence dated 9.4.2013 against the appellant is hereby confirmed : HIGH COURT [para 21, 22, 23, 24, 25]
CARGO CARE INTERNATIONAL Vs CC: HIGH COURT KERALA (Dated: February 9, 2018)
Customs Brokers Licensing Regulations, 2013 [CBLR] – Petitioner seeking quashing of the orders passed by the respondent, whereby the licence of the petitioner as a Customs Broker was suspended and later affirmed :
HELD – Initiation of action under Regulation 19 of the CBLR is notwithstanding anything contained in Regulation 18 - by virtue of the non-obstante clause contained under Regulation 19, the proceedings under Regulations 18 and 19 will have to be treated separately and distinctly - the proceedings initiated and completed by respondent under Regulation 19 cannot be said to be bad or illegal - the allegation with respect to limitation to proceed under Regulation 20, is premature at this stage of the proceedings - the procedure contemplated under Regulation 20 makes it abundantly clear that, petitioner will get sufficient opportunity to raise such issues when further proceedings are initiated in contemplation of Regulation 20 - the continuing of suspension order was passed by the respondent, taking into account the contentions advanced by the petitioner, especially due to the fact that, sub-regulation (2) of Regulation 19 encompasses a hearing only, at the said stage of the proceedings, and the opportunity for the petitioner to adduce evidence, cross-examine witnesses etc. etc. will come into play only when the proceedings are initiated under Regulation 20 - petitioner could not establish any arbitrariness, illegality, unfairness or any other legal infirmities justifying interference of this Court under Article 226 of the Constitution of India -necessarily, the writ petition has to fail, accordingly, it is dismissed : HIGH COURT [para 12, 13]
STATE TRADING CORPORATION OF INDIA LTD Vs CC: HIGH COURT MADRAS (Dated: March 19, 2018)
Cus - Writ Appeal is directed against the order made in W.P.No.19308 of 2017 dated 30.10.2017, by which, the writ Court, while declining to entertain the writ petition, against the O-i-O No.54955 of 2017 dated 17.4.2017, granted liberty to the appellant to file statutory appeal under section 129 A(1) of the Customs Act, 1962 [Act] :
HELD –averments and decision rendered in W.P.No.5120 of 2011 dated 31.3.2011, relate to grant/retrieval of original licences –SCN dated 4.10.2013 has been issued for "Misuse of Tariff Rate Quota Scheme in the import of popcorn maize by M/s.Haji Sattar & Sons, Chennai" and on adjudication, the ADG, DRI, has held that the appellant herein is liable to pay penalty of Rs.2.73 crore under section 114A of the Act, jointly and severally on M/s.Haji Sattar & Sons and the appellant, during the course of investigation towards dues recoverable - as rightly observed by the writ Court, when there is an effective and alternative remedy under section 129A(1) of Act, it would not be appropriate to entertain a writ petition, on the disputed questions of facts -on more than one occasion, the Supreme Court, as well as this Court, held that, ordinarily, writ petitions should not be entertained when the statutes provide for an effective and alternative remedy, moreso, in revenue matters – no material illegality or irregularity found in the impugned order - writ appeal is dismissed : HIGH COURT [para 8, 9, 10]
Writ Appeal dismissed
