CASE STORIES
CX - Too late for Revenue to complain that there is non-compliance by Settlement Commission with mandatory provisions of law: High Court
I-T - Tax Recovery Officer cannot summarily assume powers under Indian Contract Act, 1872, to suo motu declare a transaction of sale to be void & without approaching civil court: HC
I-T - Expenses incurred for purely business purposes not being incurred on employees, would not attract Fringe Benefit Tax: HC
CASE LAWS
2018-TIOL-751-HC-MUM-CX + Story
ACCE Vs SETTLEMENT COMMISSION: BOMBAY HIGH COURT (Dated: April 17, 2018)
CX – Chapter V of CEA, 1944 – Sections 31, 32E, 32F of CEA, 1944 - Too late for the Revenue to complain that there is non-compliance by the Settlement Commission with the mandatory provisions of law - when the matter was taken up, the representative of the second respondent as also the petitioner was present - whole matter was allowed to be proceeded with and was brought to an end with the consent of the Revenue officials – argument that the impugned order contravenes the provisions of law or is in breach of the principles of natural justice is clearly an afterthought – Petition dismissed: High Court [para 13, 14]
Petition dismissed
2018-TIOL-750-HC-MUM-CUS
MONITO ENTERPRISE Vs UoI: BOMBAY HIGH COURT (Dated: April 16, 2018)
Cus - Remission/Waiver of Demurrage Charges - Opinion of the Commissioner of Customs is that this case involves classification of the goods and the petitioners/importers have got an order in their favour passed by the Tribunal and which order has been accepted by the Department – As petitioners/importers have succeeded before the Tribunal, Customs recommended that the sanction for remission/waiver in terms of the above policy should be granted by the Airports Authority of India - repeatedly the Airports Authority of India says that there is a delay and continued to deny the relief - matter is of the year 2004 – Petition before High Court.
Held: In the event, the Airports Authority of India does not communicate and convey its approval for grant of relief by 25-4-2018, High Court would be constrained to not only allow this petition, issue a mandamus but while doing so also impose heavy costs quantified at Rupees Five Lakhs, to be paid personally by those officials who were incharge at the relevant time; that it is for the Airports Authority of India to bear the costs and thereafter recover it from the erring officials: High Court [para 6]
Matter posted
2018-TIOL-749-HC-MUM-CX
CST Vs RELIANCE COMMUNICATION LTD: BOMBAY HIGH COURT (Dated: April 16, 2018)
CX - Question proposed as substantial question of law by Revenue is identical to Central Excise Appeal No.6 of 2017 and identical reasoning of the Tribunal was questioned therein also – That reasoning having been accepted by High Court in the case of this very assessee, it cannot now take a different view – Appeal dismissed: High Court [para 3 to 5]
Appeal dismissed
2018-TIOL-748-HC-KERALA-IT
HEERA CONSTRUCTION COMPANY PVT LTD Vs ACIT: KERALA HIGH COURT (Dated: April 10, 2018)
Income Tax - Writ - Sections 144 & 221(1).
Keywords: Interest due - Pending turnover & Tax liability.
The assessee company has preferred the Writ petition placing an objection towards the delay on the part of the CIT(A) in passing orders on the stay petitions and the appeals as preferred by the assessee. The assessee failed to file its return for the relevant AY and was also unsuccessful in depositing the admitted tax due for the previous year. And accordingly, the AO raised a demand and completed the assessment u/s 144. Aggrieved assessee, filed an appeal before the CIT(A), which remained pending. Again, the assessee had also preferred a stay petition towards the pending appeal before the CIT(A). Later, after issuing notice to the assessee, penalty u/s 221(1) was imposed upon it and thereon, passed the order. The same was also challenged by way of an appeal. Meanwhile, a stay petition was also preferred by the assessee.
In Writ, the High Court held that,
Whether assessee can challenge the action of the CIT(A) for delay in passing the stay petition even when the assessee fails to pay the pending tax liability towards the outstanding turnover - NO: HC
++ the assessee admits the liability to pay tax and interest due in respect of the remaining turnover. When this fact was brought to the notice of the Counsel for the assessee, the Counsel prayed for indulgence to pay the undisputed liability in six equal monthly installments. The assessee shall pay the undisputed liability under order with interest up to date, in six equal monthly installments, of which the first installment shall be paid within one month from the date of this judgment;
++ it is made clear that if the assessee commits default in remitting any one of the installments as directed, the Revenue will be free to realize the admitted liability in lump-sum. Therefore, the CIT(A) shall consider and pass orders on stay petitions preferred by the assessee in appeals, within two months from the date of receipt of a copy of this judgment.
Assessee's Writ petition disposed of
2018-TIOL-747-HC-MAD-IT + Story
SRI SIVALAYA ADVANCES Vs TAX RECOVERY OFFICER: MADRAS HIGH COURT (Dated: February 28, 2018)
Income Tax Act & Indian Contract Act - Writ - Sections 156, 281 & Rules 2, 11, 16, 51; Section 11
Keywords - Attachment of property - Civil Court - Indian Contract Act - Invalid transaction
DURING the relevant AYs, an individual was served demand notices u/s 156 of the Act, for defaulting in payment of tax. Subsequently, the property which was subject matter of the dispute, was purchased by certain entities. Subsequently, orders of attachment were issued for the property in question. Although these entities filed their objections to such attachment, the Tax Recovery Officer rejected them. Subsequently, the order of attachment was upheld and also declared the sale transaction to be null & void. Hence the purchaser-entities filed the present writs.
On hearing the writs, the High Court held that,
Whether the Tax Recovery Officer can summarily assume powers under the Indian Contract Act, 1872, to suo motu declare a transaction of sale to be void & without approaching a civil court - NO: HC
Whether attachment of immovable property would take effect from the date on which notice to pay tax arrears was served to the defaulter - YES: HC
++ two facts are not in dispute. The vendor of the purchasers herein is a defaulter-assessee and that he alienated the subject properties only after receipt of notice under Rule 2 of the Second Schedule to the Income Tax Act. Secondly, the orders of attachment were issued by the Respondent only after such purchase by the purchasers herein. There cannot be any doubt that a sale is a contractual transaction. For a contract to be valid, it must be made by the free consent of parties competent to contract. In this case, the property belonged to the defaulter-assessee. He had been served with notice under Rule 2. The moment such a notice was served on the defaulter-assessee, by virtue of Rule 16(1) of the second schedule, he became incompetent to deal with the property. In Rule 16(1), it is expressly stated that the defaulter assessee shall not be competent to deal with the property. If the vendor was not competent to deal with the property, he could not have passed any valid or legal title to the purchaser. Thus, the issue has to be approached through the prism of Section 11 of the Contract Act, 1872;
++ Rule 11(3) of the Second Schedule to the Income Tax Act deals with two categories. One is immovable property and the other is movable property. Rule 11(3)(a) pertains to immovable property while Rule 11(3)(b) relates to movable property. In the case of movable property, the claimant or objector must adduce evidence to show that on the date of attachment, he had some interest in or was possessed of the property in question. On the other hand, in the case of immovable property, the claimant or objector must adduce evidence to show that at the date of service of the notice issued under this schedule to pay the arrears, he had some interest in or was possessed of the property in question. Thus, there is a significant distinction between the language used in the case of immovable property on the one hand and movable property on the other. In the case of movable property, the relevant date is the date of attachment. But, in the case of immovable property, the material date is the date of service of Rule 2 Notice. This Court is of the view that failure to note this difference in the language has led to conceptual confusion vitiating the entire process of reasoning;
++ more than anything else, as rightly pointed out by the standing counsel for the Respondent, any attachment of an immovable property made under the second schedule would relate back to and take effect from the date on which the notice to pay the arrears issued under II schedule was served on the defaulter. This legal effect of Rule 51 of second schedule cannot be overcome. In this case, this Court, therefore, comes to the conclusion that the attachment made subsequent to the purchase by the purchasers herein would relate back to and take effect from 05.01.2013 onwards. It is true that as strongly contended by the counsel for the purchasers that if two interpretations are possible, the one that is beneficial to the assessee must be preferred. But in this case, this Court has absolutely no doubt that on a plain reading of the relevant provisions, only one interpretation is possible and that one is in favour of the Revenue;
++ yet the orders challenged in these writ petitions cannot sustained as such. The Supreme Court in (1998) 6 SCC 658 has held that it is the function of the civil Court to declare a transaction to be null and void and that the Tax Recovery Officer cannot exercise the said function. Therefore, the Respondent clearly erred in declaring the transactions to which the petitioners are parties as null and void. Therefore, the orders challenged in these writ petitions stand quashed to that extent. It would certainly be open to the purchasers herein to avail the remedy set out in Rule 11(6) of the second schedule of the Income Tax Act. If the Respondent authority wants to have the transactions nullified, it is the Respondent who must go to the civil Court to seek declaration to that effect. If the purchasers want the attachment to be lifted, it is for them to move the civil Court and obtain relief as provided in Rule 11(6) of the second schedule of the Income Tax Act;
++ the orders challenged in these writ petitions are quashed to the extent indicated above. The stand of the Respondent in declining to lift the attachment already made is sustained. The order of the Respondent declaring the transactions in question as null and void is quashed.
Writ Petitions Partly Allowed
2018-TIOL-746-HC-KAR-IT
BHARAT COOPERATIVE BANK LTD Vs CIT: KARNATAKA HIGH COURT (Dated: April 10, 2018)
Income Tax - Writ - Defective return - Form No. ITR-5 - Request letter.
The assessee is a co-operative bank, had filed its return for the relevant AY on 30.09.2009 claiming a refund towards advance excess tax amount paid by the assessee. Later, the assessee had filed a fresh return in the required format ITR-5 relating to the relevant AY. However, the said return was neither processed nor the assessee's claim for refund was adjudicated, despite of several request letters as submitted by the assessee. The assessee had also contended that the Revenue had failed to process its return without providing any proper reasons.
In Writ, the High Court held that,
Whether if the Revenue finds a return filed to be defective, the onus lies on the Department to intimate the assessee of such defect - YES: HC
++ it is apparent that there is serious dispute relating to the filing of the Form No. ITR-5 before the Authorities. However, it is not in dispute that the original return in ITR-7 was filed well in time on 30.09.2009. It was obligatory on the part of the Revenue Authorities to intimate the assessee if the same was defective, more particularly, when repeated requests/representations were made by the assessee to consider the return filed;
++ in the circumstances, without expressing any opinion on the merits or demerits of the case, this Court deems it appropriate to direct the Revenue Authorities to consider the representations dated 19.08.2011, 02.09.2011, 08.06.2012 and 13.09.2012 respectively, relating to the AY 2009-10 and pass appropriate orders in accordance with law, after hearing the petitioner as expeditiously as possible in any event not later than four weeks from the date of receipt of the certified copy of the order.
Assessee's Writ Petition disposed of
2018-TIOL-745-HC-MUM-IT + Story
CIT Vs LUPIN LTD: BOMBAY HIGH COURT (Dated: April 16, 2018)
Income Tax - Sections 115WA, 115WB(2) & 260A
Keywords - Business expenses - Expenditure on employees - Fringe Benefit Tax
THE assessee company is a leading manufacturer & trader of pharmaceutical products. During the relevant AY, it filed returns for Fringe Benefit Tax (FBT), declaring an income of about Rs 12.4 crores. On assessment the AO enhanced such income to about Rs 26.81 crores, having included expenses incurred for business purposes, as chargeable to FBT. The AO also held that the expenditure need not arise out of employee-employer relationship. The AO also relied on the provisions in Section 115WB(2) and held that once expenditure is incurred as specified herein, then the same would be subject to FBT u/s 115WA. On appeal, the CIT(A) upheld the view taken by the AO. Subsequently, the Tribunal allowed the assessee's appeal and held that the expenditure was incurred for business purposes & were not employee-related. It relied on the High Courts decision in TT Motors Ltd. v/s Assistant Commissioner of Income Tax wherein it was held that payments not being employee-related (made to third parties), they could not be subject to FBT u/s 115WA of the Act. Hence the Revenue's appeal.
On hearing the matter, the High Court held that,
Whether expenses incurred purely for business purposes & not being incurred on employees, would attract Fringe Benefit Tax - NO: HC
++ the Tribunal has rendered a finding of fact that the expenditure has been incurred to make payment to third parties. Inasmuch as, this payment nowhere arises out of the employee-employer relationship. It is a business expenditure, pure and simple as also accepted by the AO in the Assessment Order dated 20th December, 2008 (statement annexed thereto). It is not even the case of the Revenue that payments were made to the employees and not their parties. In view of the above as it is accepted by the Revenue that the issue in the context of the present facts, stands concluded by the decisions of this Court in Tata Consultancy Services and Lionbridge Technologies Pvt. Ltd., the question as framed does not give rise to any substantial question of law.
Revenue's Appeal Dismissed
