CIT Vs BENGAL INTELLIGENT PARKS PVT LTD : CALCUTTA HIGH COURT(Dated: May 10, 2018)

Income tax - Section 43A

Keywords - forex fluctuation gain - income from house property - letting out of property - rental income

The assessee company is engaged in construction of houses for the purpose of letting them out and hence derives rental income therefrom. In the context of how the assessee runs its business, the rental income was claimed as income from house property without the expenses for constructing the house being claimed by way of deduction or the individual items therefore being subjected to depreciation. In respect of a particular elevator imported by the assessee for installation at one of its buildings, the rise of the rupee compared to the relevant foreign currency resulted in the cost of the equipment being effectively lowered by a sum in excess of Rs. 6 lakh. The AO added this to the income. On appeal, the FAA disregarded the ground by holding that the assessee had accepted the addition. On further appeal, the ITAT observed that the provision of Section 43A was confined to assets acquired from a country outside India for the purpose of assessee's business or profession. The ITAT held in this case that since the construction of relevant house was not a part of the business of assessee, Section 43A would not apply to the apparent gain made by the assessee as a consequence of the foreign exchange fluctuation.

On appeal, the HC held that,

Whether the provision of Section 43A comes into picture in case of forex fluctuation gain, if no deduction or depreciation has been claimed in respect of imported assets - NO: HC

++ the provisions of Section 43A deals with the variation of expenses on account of change in the rate of exchange of currency. Such provision takes into account the additional expenses that may be incurred by an assessee as a result of the fluctuation of foreign exchange rates or the gain that may be made by an assessee on such account. However, such provision is confined to assets acquired from a country outside India for the purpose of the assessee's business or profession. The ITAT held in this case that since the construction of relevant house was not a part of the business of assessee, Section 43A would not apply to the apparent gain made by assessee as a consequence of the foreign exchange fluctuation. On a plain reading of Section 43A and the fact that the assessee had not claimed any deduction or depreciation on account of the lift or other construction material, it cannot be said that the ITAT committed any error.

Revenue's appeal dismissed

2018-TIOL-1064-HC-KOL-IT

PR.CIT Vs SALARPURIA SOFT ZONE: CALCUTTA HIGH COURT (Dated: May 8, 2018)

Income tax - Section 80IA

Keywords - loans advanced to sister concern - profit from industrial undertakings

The Revenue Department preferred present appeal challenging the action of ITAT in allowing the deduction u/s 80IA to the assessee company engaged in infrastructure development in respect of profits & gains from industrial undertakings. The Department had also challenged the action of ITAT in allowing the interest in respect of certain sister concerns to whom certain loans were made available by the assessee.

On appeal, the HC held that,

Whether factual findings rendered by the ITAT should be challenged in writ jurisdiction - NO: HC

Whether eligibility to deduction u/s 80IA on infrastructure development work carried out by an industrial undertaking, in absence of any notification regarding such scheme framed by the government, merits writ inference being a substantial question of law - YES: HC

++ the primary grievance of the Revenue is that the ITAT has failed to appreciate that the connection between the assessee and the so called sister concerns was not clearly established or was tenuous at the best. It is not necessary to go into the grievance since it is evident that no question of law is involved therein. As to whether an entity is associated with another or not is essentially a question of fact unless there is some legal provision which comes into operation. In the present case, there is no legal provision which is relied upon for such purpose. On the appreciation of facts, the Tribunal came to a conclusion that the other concerns were sister concerns of assessee and this aspect of the matter does not fall for any consideration in this limited jurisdiction;

++ the point that the Revenue makes is that there was no notification which had been issued for the industrial park or special economic zone to be regarded as such. The Revenue refers to Section 80IA(4) and the expression "any undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by that Government" in such regard. It is not in dispute that no such notification has been issued. Yet, it appears that not only was the relevant industrial park or special economic zone set up, but the assessee was also assigned the work of developing the infrastructure thereat and the assessee commenced or completed such work. Again, there are issues that are raised by the Revenue as to whether the work done by assessee was in terms of the scheme or the rules entitling the assessee to claim the benefit. Therefore, the matter needs consideration on the such substantial question of law.

Case deferred

PR.CIT Vs SARITA ARORA : CALCUTTA HIGH COURT(Dated: May 11, 2018)

Income tax - Sections 41(1) & 48

Keywords - brokerage expenses - cessation of liability - receipts from parents

The Revenue Department preferred the present appeal challenging an order passed by the ITAT in deleting the disallowance of brokerage expenses u/s 48 to the tune of Rs. 4 lakh. The Department had also challenged the action of ITAT in deleting the addition of Rs. 46 lakh on account of perceived cessation of liability u/s 41(1) of the Act.

Having heard the parties, the HC held that,

Whether deduction on account of brokerage expenses is permissible in case of transfer of asset, subject to substantiation of actual incurring of such expenses - YES: HC

++ as far as brokerage, the asssessee contended that since the property was in Bangalore, the brokerage was paid for the services rendered to the assessee. The ITAT noticed a judgment of the Pune Bench of the Tribunal which held that a deduction on account of such expenditure would be permissible for the transfer of an asset, but the burden was on the assesssee to demonstsrate that the expenses had been incurred. On facts, the ITAT was satisfied that an entity by the name of Sood Realtors and Developers had been paid the brokerage commission by way of a cheque and endorsed the view expressed by the FAA in directing the AO to allow the deduction. No question of law is therefore involved in such issue;

Whether amount received by an individual from her father during his life time, for purpose of purchasing a house property, does not amount to incriment of her income and consequent cessation of her liability - YES: HC

++ as far as trading liability u/s 41(1) is concerned, it appears that the assessee had been assessed under her individual capacity for the previous assessment years and an amount had been received by the assessee from her father during his life time for the purpose of purchasing a house property. The ITAT held that since Section 41 falls within Part C of Chapter IV of the Act relating to profits and gains of business or profession, there was no question of adding the amount received by the assessee from her father for purchasing a house property to her income as Section 41(1) (a) was clearly inapplicable on facts. The view taken by the Appellate Tribunal upon due consideration of the status of the assessee appears to be unexceptionable.

Revenue's appeal dismissed

CIT Vs LAL TRADERS AND AGENCIES PVT LTD : CALCUTTA HIGH COURT (Dated: May 11, 2018)

Income tax - Section 40A(3) & Rule 6DD

Keywords - cash payment - genuineness of payment - truck loading wages

During the course of assessment, the AO noticed that the assessee had incurred expenses of Rs.1,08,24,239/- as truck loading wages from the ledger submitted and the bills and vouchers produced. There did not appear to have been any doubt expressed as to the genuineness of the payment, but it was observed that cash payments had been made to single person in violation of Section 40A(3) which, during the relevant year, had a cap of Rs.20,000/- under such provision.

On appeal, the ITAT held that,

Whether a trader can claim benefit under Rule 6DD to dodge violation under Section 40A(3), without establishing the absence of banking facility and cash payment as the need of the hour - NO: HC

++ the assessee refers to Rule 6DD and particularly to Clause (g) thereof, which covers a situation where the payment is made in a village or town, which on the date of such payment, is not served by any bank. Thus, even if the ground urged by the assessee were to be accepted, it is a matter of evidence as to whether the benefit under Rule 6DD(g) could have been availed of by the assessee. It does not appear that such evidence was produced before the AO or before the FAA. Therefore, the order passed by the ITAT erred in law in presuming that all of the truck loading was made in a village which is not served by a bank or that the payments in respect thereof were made in such a village. The ITAT fell into error in interfering with the order passed by the FAA without it being evident that adequate evidence to invoke the benefit under Rule 6DD(g) had been presented by the assessee. Thus, the order passed by ITAT is set aside and matter is remanded to the FAA for a fresh consideration of the matter in accordance with law.

Case remanded

2018-TIOL-1739-CESTAT-BANG

BHARAT PETROLEUM CORPORATION LTD Vs CC: BANGALORE CESTAT (Dated: April 20, 2018)

Cus - Assessee is a public sector refinery and had filed various Bills of Entry for clearance of crude oil - Dispute arose about the duty of customs to be levied on liquid bulk cargo not received in shore tanks - The other dispute was whether the demurrage charges incurred by assessee should be included in assessable value - Both the issues are no longer res Integra and have been settled against the Department - The issue of whether assessment of liquid bulk cargo should be based on quantity received in the shore tanks has been decided in favour of assesses in case of Mangalore Refinery & Petrochemicals Ltd. 2015-TIOL-199-SC-CUS - By following the said judgment of Supreme Court, assessment is to be made on the basis of quantity of crude oil actually received in shore tanks in port of arrival in India - As for second issue, Supreme Court in case of Mangalore Refinery & Petrochemicals Ltd. 2015-TIOL-306-SC-CUS has held that demurrage charges are post-importation in nature and hence, not includable in the value - Following the said judgment, demurrage charges are not includable in transaction value of crude for the purposes of assessment - Orders of Commissioner (A) are not sustainable and the same are set aside: CESTAT

Appeals allowed

2018-TIOL-1738-CESTAT-MUM

TECHNOCRAFT INDUSTRIES INDIA LTD Vs CCE: MUMBAI CESTAT (Dated: March 16, 2018)

CX - Issue is regarding eligibility to avail CENVAT credit of service tax paid during the period May 2011 to March 2015 on the 'rent-a-cab service', 'insurance service' and 'waste management service' - As regards to 'rent-a-cab service', it is undisputed that the services were utilised for picking and dropping of employees from the nearest railway-station to the manufacturing factory - Identical issue has been in case of Nihilen Technologies Pvt Ltd 2017-TIOL-2696-CESTAT-MUM, Modern Petrofils 2017-TIOL-3896-CESTAT-AHM and Marvel Vinyls Ltd 2016-TIOL-3071-CESTAT-DEL - No reason found to deviate from such view already taken - As regards to 'insurance service', it is undisputed that insurance is in respect of factory premises and plant machinery - Similar issue came up before Tribunal in case of Jai Chemicals; Sarita Handa Exports (P) Ltd 2016-TIOL-2559-CESTAT-CHD and Suzuki Motorcycle India Pvt Ltd 2016-TIOL-2708-CESTAT-CHD wherein the bench has held that such credit of service tax is eligible to be availed by manufacturer - As regard to 'waste management/disposal service', services which were received by assessee were in respect of disposal of waste generated in factory premises during the manufacturing activity and such waste needs to be disposed off as per the guidelines of Maharashtra Pollution Control Board which mandates that the waste which is generated needs lo be treated and then only disposed off - For the purpose of such treatment, MPCB has appointed approved facilitators and the services rendered by such facilitators in treatment of waste management is taxed under the Finance Act, 1994 and no reason found to disallow such credit to assessee as provisions of Environment Act if not met then the factory would be closed down, this is the ratio in case of Tube Investment of India Ltd 2017-TIOL-4129-CESTAT-MAD and Pudamjee and Paper Mills Ltd 2017-TIOL-4542-CESTAT-MUM - No reason found to deviate from such view already taken: CESTAT

Appeal allowed

2018-TIOL-1737-CESTAT-MUM

GHODAWAT ENERGY PVT LTD Vs CCE: MUMBAI CESTAT (Dated: May 02, 2018)

ST - Case against assessee is that they were in receipt of 'intellectual property service' taxable under section 65(105)(zzr) of FA, 1994 for which consideration was paid to M/s Windtec Engineering GmbH between 26th April 2008 and 25th August 2008 as licence fee for using the technical information software to be deployed in manufacture, installation, sale, operation and maintenance of wind turbines - Assessee is the manufacture of such products and are in business of manufacture and sale of windmills; as the provider of service is based outside the country, service tax was held to be liable to be paid by assessee under section 66A of FA, 1994 - There is no doubt that assessee is a person and as supplier of technology related to software, their overseas provider is the holder of intellectual property right - It is clear that what is envisaged for taxation is utilisation of intellectual property which is recognised as such within the territory of India and such right over intellectual property should be enforceable by laws of the country - This, in essence, has been the ratio of decisions of Tribunal in Tata Consultancy Services Ltd 2015-TIOL-2370-CESTAT-MUM, Catapro Technologies 2017-TIOL-19-CESTAT-MUM, Chambal Fertilizers & Chemicals Ltd 2016-TIOL-2484-CESTAT-DEL and Munjal Showa Ltd 2017-TIOL-3119-CESTAT-CHD - In absence of any allegation or evidence that intellectual property right of supplier of these services to assessee is recognised under intellectual property laws of India, demand against assessee will not sustain, same is set aside: CESTAT

Appeal allowed

2018-TIOL-1736-CESTAT-HYD

UNITECH POWER TRANSMISSION LTD Vs CCE & ST: HYDERABAD CESTAT (Dated: May 01, 2018)

ST - During the period 01.07.2003 to 30.09.2006, assessee had rendered the services of erection, commissioning and installation work for Andhra Pradesh Transco and the broad scope of work - Lower Authorities held that these services rendered by assessee are taxable under category of erection, commissioning and installation services - It is seen from the Notfn 45/2010-ST, exemption is granted to all taxable services relating to transmission and distribution of electricity provided by a person to any other person - Thus, impugned order is unsustainable and same is set aside: CESTAT

Appeal allowed

2018-TIOL-1735-CESTAT-DEL

CUMMINS TECHNOLOGIES INDIA LTD Vs CCE & ST: DELHI CESTAT (Dated: May 4, 2018)

ST - the assessee company is engaged in manufacturing Turbo Chargers, parts, components & assemblies thereof - It was alloted Letter of Approval to function as an SEZ, whereupon it was permitted to procure goods & services without payment of duty - Later, a Notfn No 9/2009-ST granted exemption on services provided to SEZ or developer under SEZ - Such exemption was granted through refund claims - Thereupon, the assessee claimed refund of tax paid on some input services - However, the Department rejected a major portion of the amount claimed, citing certain irregularities - Such denial of refund was upheld by the Commr.(A).

Held - Section 26(2) of the SEZ Act & Rule 31 of the SEZ Rules do not prescribe any conditions for granting refund of tax paid on services for providing SEZ activities - Meanwhile, under the Finance Act, 1994, the Notfn No 09/2009-ST and its amending Notfn No 15/2009-ST lay down certain conditions for claiming refund - Since the SEZ Act & its rules do not lay down any conditions for granting exemption, the Govt cannot lay down such conditions under a different statute - Further, u/s 51 of the Act, the provisions of the SEZ Act would override provisions of other statutes - Hence the Department erroneously relied on Notfn No 09/2009-ST to deny refund - The order in question is set aside: CESTAT (Para 2,7,8)

Appeal Allowed