2018-TIOL-1371-HC-MAD-CUS

2018-TIOL-1370-HC-MAD-ST

INDIAN GUM INDUSTRIES LTD Vs JCIT : BOMBAY HIGH COURT (Dated: July 6, 2018)

Income Tax - Sections 80B(5), 80HHC & 80IA

Keywords - CBDT Circular dated 23.12.1998 - Exclusion of deduction - Profits - Retrospective effect

The assessee-company, engaged in manufacture of industrial gums, operates four factories in the city of Ahmedabad. Out of these four factories, two of them are new. During the AY preceding the relevant AY, the assessee filed returns claiming 100% deduction on profits earned by the two new factories from its exports u/s 80HHC. The assessee also claimed deduction u/s 80IA at 30% of the profits & gains derived from the two new factories. The aggregate of deductions claimed was less than its Gross Total Income as defined u/s 80B(5). In its returns, the assessee claimed benefits u/s 80HHC to the extent of its earning from exports. Thereafter it claimed deduction at 30% of its profits and gains u/s 80IA. This 30% deduction u/s 80IA was computed without deducting or excluding the deduction allowed u/s 80HHC on profits derived from exports by the two new units. However, the AO did not accept the same & opined that the assessee would be entitled to deduction u/s 80IA only on the profits and gains of the two units after deducting the amount availed of as deduction u/s 80HHC was claimed. Relying on the decision of the Apex Court in Escorts Ltd. v/s Union of India the AO restricted the assessee's claim to about Rs 87.96 lakhs as against the claim of Rs 104.88 lakhs claimed u/s 80IA.

On appeal, the CIT(A) relied on the same decision of the Apex Court to dismiss the assessee's appeal, holding that if there is any doubt on the issue of double deduction, then the Parliament must clarify the law. It was also held that on the above basis the Parliament amended Section 80IA by introducing Finance (No.2) Act w.e.f. April 01, 1999. Therefore, although the amendment was effective from April 01, 1999, it has to be read as clarificatory & declaratory of the law as it was always existed. This on the basis that the Finance (No.2) Bill, 1998 when introduced in the Parliament has clearly stated that the amendment was sought to be introduced into Section 80IA of the Act with retrospective effect from April 01, 1990. On further appeal, the Tribunal too dismissed the assessee's appeal & upheld the findings of the CIT(A). Hence the assessee's appeal.

On appeal, the High Court held that,

Whether benefit of deduction u/s 80IA on profits earned by the assessee can be availed without exclusion of deduction under other heads of Chapter VI A Part 'C' of the Act - YES: HC

++ in the present case, we are not dealing with the claim of deduction on expenditure being allowed but deduction on profits and gains of business under two sections – without any of the sections excluding the deduction obtained under the other section. The deductions provided under Chapter VIA Part C of the Act are in the nature of incentives to boost exports (under Section 80HHC of the Act) and to establish new units (under Section 80IA of the Act). Therefore, the incentive deduction have to be given a liberal interpretation. This is particularly so in the absence of the relevant sections itself restricting deduction to the extent of deduction under some other section of Chapter VIA Part C of the Act. In fact, as pointed out by the assessee's counsel, whenever the Parliament decided to restrict the deduction under more than one section of Chapter VI – Part C of the Act, it so provided for it. Attention was drawn to Section 80HH(9A) of the Act prohibiting deduction thereunder to the extent deduction is claimed under Section 80HHA of the Act. There is no such prohibition prior to the 1999 amendment in Section 80IA of the Act. The Revenue is seeking to add words to Section 80IA of the Act prior to 1998 amendment by restricting the deduction thereunder. It is a settled position that while interpreting a fiscal statute, it is not open to disregard the literal meaning thereof, in the absence of any ambiguity in the provision. It is not open to the Courts to add words in a fiscal legislation. In Sales Tax Commissioner Vs. Modi sugar Mills, 2002-TIOL-977-SC-CT-CB, the Court has held "In interpreting taxing statute equitable consideration are entirely out of place. Nor can taxing statue be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cant imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency";

++ in the present case, we are dealing with the deduction claimed by the assessee in respect of the same income under two heads falling under Chapter VIA Part 'C' of the Act. Prior to April 01, 1999, there was no specific prohibition in an assessee taking benefit of deduction on the same income both under Section 80HHC as well as under Section 80IA of the Act, provided the total deduction claimed was less than the gross total income as defined in Section 80B(5) of the Act. Admittedly, in this case, the total deduction claimed is less than the gross total income. In the present facts, Section 80IA was amended w.e.f. April 01, 1999 by introduction of Sub-Section 9A therein which is in accord with the observations made by the Apex Court in Escorts Ltd. However, it is to be noted that when the Finance (No.2) Bill of 1998 (Bill No.51 of 1998) introduced, it provided that the amendment should have retrospective effect from the year 1990. However, when the Parliament passed the bill and made it into an Act, it made the amendment prospective w.e.f. April 01, 1999. Thus, this would indicate that the Parliament was of the view that the deductions taken under Section 80IA and 80HHC of the Act even if it does amount to double benefit it would be allowed prior to April 01, 1999 i.e. Assessment Year 1999-2000. It was in its wisdom that the Parliament made the amendment prospective even though the bill as introduced by the Finance Minister sought to make the amendment retrospective. This would indicate that the Parliament did not seek to disturb and/or affect cases where deduction is taken twice over i.e. under Section 80IA and 80HHC of the Act on the same profit, provided it was less than the gross total income as defined in Section 80B(5) of the Act;

++ therefore for the period prior to Assessment Year 1999-2000, the assessee would be entitled to claim deduction under Section 80IA of the Act on its entire profits without excluding the deduction available under other heads of Chapter VI A Part 'C' of the Act. Such view is fortified by the fact that an identical fact situation, the Rajasthan and Madras High Court in Commissioner of Income Tax Vs. Rochiram & Sons and General Optics (Asia) Ltd. Vs. DCIT have held that prior to Assessment Year 1999-2000, the benefit of Section 80IA of the Act is available without exclusion of the deduction claimed under Section 80HHC of the Act. Even on being specifically asked, the Revenue was not able to inform us whether the above two decisions have been appealed to the Apex Court and the result thereof, if any;

Whether when a new provision is introduced from a particular date, such provision will have retrospective effect without the same being expressly stated - NO: HC

++ thus, for the purposes of deduction u/s 37 of the Act all that was required was that the expenditure must be laid out wholly and exclusively for the purposes of business or profession. The requirement of "necessarily" for the purposes of business was done away with and an attempt on the part of the Revenue to read the word "necessarily" into the Act of Parliament on the basis of it being the part of the bill, was not accepted. Therefore, Section 37 of the Income Tax Act, 1961 was read by the Apex Court in the absence of the word "necessarily" as it was not found in the Act. Similarly, in the present facts, the mere fact that the bill was introduced with the intention of making it retrospective from April 01, 1990 will not enable the Revenue to successfully contend that because the bill was introduced with retrospective effect, for it must be read to be retrospective in effect, notwithstanding the fact that the Act of Parliament makes it prospective;

++ further, attention was also drawn to the Central Board of Direct Taxes (CBDT) Circular dated 23rd December, 1998 explaining the amendments made by Finance (No.2) Act, 1998. This was the Act which introduced subsection 9A into Section 80IA of the Act. This CBDT Circular inter alia explained that the amendment to Section 80IA of the Act and specifically provides it will take effect from April 01, 1999 and accordingly, apply in relation to Assessment Year 1999-2000 and subsequent assessment years. This CBDT circular is binding upon the Department as held by the Supreme Court in K.P. Varghese Vs. Income Tax Officer 2002-TIOL-128-SC-IT;

++ thus, such circular issued by the CBDT has while explaining the provisions of the Finance No.2 Act 1998 stated in terms that the amendment by insertion of Subsection 9A of Section 80IA of the Act would not have retrospective effect. This is binding upon the Revenue. It cannot now urge that it is retrospective in operation; In any event, as held by the Supreme Court in DCIT Vs. Core Health Ltd. 2008-TIOL-17-SC-IT that when a provision is introduced with effect from a particular date, then it would not have retrospective effect unless it is expressly stated to be so. In this case, subsection 9A of Section 80IA of the Act was introduced w.e.f. April 01, 1999. Thus, it cannot have retrospective effect to impact the assessment the subject Assessment Year 1997-98.

++ hence, both questions are answered in favor of the assessee.

Assessee's Appeal Allowed

Commissioner, Central GST & CX Vs ISHAN COPPER PVT LTD : GUJARAT HIGH COURT (Dated: July 6, 2018)

CX - Issue relates to the refund of unutilized Cenvat Credit accumulated due to disproportionate rate of duty on inputs and final products availed at the time of surrender of CX Registration - The issue is squarely covered against the revenue in view of decision of Karnataka High Court in case of M/s Slovak India Trading Co. Pvt. Ltd confirmed by Supreme Court as well as another decision of Bombay High Court in case of Jain Vanguard Polybutlene Ltd. 2010-TIOL-911-HC-MUM-CX subsequently confirmed by Supreme Court - In the aforesaid decision, it is specifically observed and held that the dealer shall be entitled to refund of unutilized Cenvat Credit on closure of factory - No substantial question of law arises: HC

Appeal dismissed

BALJIT NUTRITION STORES PVT LTD Vs Pr.CC : DELHI HIGH COURT (Dated: July 9, 2018)

Cus - The petitioner seeks a direction that the goods which was sought to be confiscated by customs authorities subject to payment of redemption fine and subsequently warehoused with CONCOR ought to be released - It is evident that when imported, there was doubt as to whether the goods answering to description in bills of entry could be permitted to be re-exported - It is not disputed that after 100% inspection which was made after detention of goods, the customs authorities made the order on 08.06.2017 - The order, in fact, imposed redemption fine which was apparently satisfied - Court had appointed a Local Commissioner who visited the site and confirmed that in fact no goods were in existence at the place - As to the appropriateness of remedy petitioner seeks, the production of goods or their equivalent or some kind of compensation, nature of dispute is such that it cannot be adjudicated in writ proceedings - Since the petitioner's goods were subject to 100% checks as well as valuation and upon payment of duty, they were permitted to be acquired subject to redemption fine, the petitioner could have no disability in discharging its ability to prove certain facts - Petition seeking relief of release of goods which are no longer in existence cannot be granted: HC

Petition disposed of

INNOWAVE IT INFRASTRUCTURE LTD Vs UoI: BOMBAY HIGH COURT (Dated: July 9, 2018)

ST - The court earlier on such a petition directed that if total service tax liability computed by Revenue is what is demanded and there is a further sum unpaid and interest component thereon, then, petitioners were expected to make an appropriate statement - It is on that basis that a bona fide and legitimate application can be made to Settlement Commission to settle the dispute - That is a position from which the petitioner cannot now detract or get away - In the event the amount which is unpaid under whatever component is deposited without prejudice to the rights and contentions of both sides before Settlement Commission within a period of eight weeks, impugned order to stand quashed and set aside and thereafter Settlement Commission shall proceed from the stage the law requires it to proceed and render its decision on the application preferred by petitioner: HC

Writ Petition disposed of

CARRIER AIR-CONDITIONING AND REFRIGERATION LTD Vs ASSISTANT COMMISSIONER : KERALA HIGH COURT (Dated: July 4, 2018)

Kerala General Sales Tax - Writ - Section 17D

Keywords - Amnesty scheme - Pre-deposit - Sales tax dues

The assessee company is engaged in manufacture & sale of air conditioners and centralized air conditioning machinery. It was assessed under the Kerala General Sales Tax Act, 1963 for the relevant AYs. Against such assessment orders, the assessee invoked provisions of Section 17D of the Act & filed appeal. It also pre-deposited the tax amount assessed. The appeals were dismissed & thereafter, the assessee sought to obtain benefit under an amnesty scheme introduced under the Kerala Finance Act 2016. Citing relevant provisions of the latter Act, the assessee claimed complete waiver of interest.

However, the Revenue denied such waiver of interest on grounds that interest demand could not be waived off for the relevant AYs since Section 23B(1) of the Kerala Finance Act 2016 provided only for settling of arrears by availing complete reduction of interest on the tax amount and for the amount of penalty and interest thereon. Hence the present writ.

In writ, the High Court held that,

Whether sales tax deposited as pre-condition for filing appeal enables an assessee to seek benefit under an amnesty scheme, where such scheme requires that no sales tax dues should be pending for payment during the relevant AY - NO: HC

++ the counsel for the assessee submits that this Court has declared the law therein that the condition imposed by Section 17D, to pay the tax amount, means the tax amount assessed and that once an assessee complies with such a condition, it should obviously mean that no further tax amount is due from him. Such submission cannot be acceeded to at all since in Babu v. Sales Tax Appellate Tribunal the only issue that was considered and concluded was whether the condition to pay the tax assessed will take in the interest liability also, and a Judge of this Court concluded therein that tax assessed means only the tax and not the interest. The contention of the assessee, as voiced above, has not been considered or concluded in the said judgment;

++ upon evaluating the contentions of the assessee, it is obvious that the benefit of the Amnesty scheme will be applicable only if there were no sales tax amounts pending to be remitted for the years 2003-2004 and 2004- 2005. In the case at hand, the assessee had not remitted the sales tax amount but had only deposited it as a condition precedent, under the provisions of Section 17D of the KGST Act, for maintaining an appeal. Consequently, when he made the application for the benefit of the Amnesty scheme, the Department adjusted the amounts deposited by him towards interest and quantified the amounts payable under the scheme through Ext.P8. There is nothing wrong in the modus adopted taken by the competent Authorities, since it is obvious that the assessee had permitted the appropriation of the amounts deposited by him only when he had made the application for Amnesty subsequently. Hence the order of the competent authority does not suffer from any error warranting writ court's interference.

Assessee's writ petition dismissed

KERALA FINE ARTS SOCIETY Vs STATE OF KERALA : KERALA HIGH COURT (Dated: July 2, 2018)

Kerala Tax on Luxuries Act - Writ - Sections 2(f) & 4(2)(c)

Keywords - Accomodation - Auditorium - Renting of hall

The assessees herein are registered societies. Both own separate auditoriums, which they gave out on rent for public & private functions. During assessment for the relevant AY, the assessees were held to be covered under the Kerala Tax on Luxuries Act, 1976 and penalties were imposed on them. In the assessment order, the Department noted that Sections 2(f) & 4 would only apply in cases of auditoriums, where there is accommodation provided for residence, for consideration. It was also held that the provisions did not exclude an auditorium, which offers itself for rent for public and private functions even if the auditorium does not have any rooms for residence. The amenity provided by the petitioners was found to be a 'luxury' u/s 2(f) of the Act, attracting Luxury Tax u/s 4 of the Act. Hence the present writs.

In writ, the High Court held that,

Whether renting out of auditorium halls for public & private functions is tantamount to providing accommodation for use of such halls & so the rent amount attracts luxury tax - YES: HC

++ the definition clause indicates very specifically and categorically as to what a luxury taxable under the provisions of the Act is. The 'luxury' as provided in the various establishments enumerated in the definition clause, refers to “accommodation for residence or use” and “other amenities and services provided thereon”. Hence, the accommodation could be for residence or for use. The accommodation for use could be, for a day or a part of the day or for more than one day, for a private or public function, as held in such auditoriums. In the case of a hotel, which offers accommodation for residence, then the provision specifically provides that there should be more than five rooms, charging rent in excess of the specified amount, for such rent to be assessed. However, even in a hotel where there are less than five rooms, if there is a hall rented out for public or private functions, the same would fall within the definition of 'luxury' as defined in the statute. The definition clause, in fact, without any ambiguity, as has been noticed in the impugned judgment, put the 'luxury', which is sought to be taxed under the Act in a very definite and precise perspective. The charging section also speaks of “accommodation for residence or use”, wherein the use is for conducting functions whether public or private. The computation provision speaks of the charges for accommodation, amenities and services and the word 'accommodation' includes, the “accommodation for residence” and “accommodation for use”;

++ the word 'accommodation' has been defined in the Oxford Advances Learner's Dictionary as “somewhere to live or stay, often also providing food or other services” and “an arrangement between people, acceptable to everyone”. Black's Law Dictionary defines the term as “An arrangement or engagement made as a favour to another, not upon a consideration”. There can be no dispute that the 'accommodation' as used in the subject statute does not eschew consideration. The levy is on the “charges for accommodation”, which is the the measure of tax. On the renting out of the hall for a public or a private function, essentially the accommodation provided is for use of the hall, for a consideration. Admittedly, the renting out is for a charge and for the period it is rented out, the rentee could use it for the function for which it has been rented out as per the agreement between the two parties. In such circumstances, we are of the opinion that the computation provision also provides for a determination of the tax, which is on the charges for accommodation taken by the appellants from the person, who uses the hall for a public or a private function; Hence the findings of the Department warrant no interference.

Assessee's Writ Appeals Allowed

2018-TIOL-1094-ITAT-MUM-SB + Case Story

DEEPAK SALES AND PROPERTIES PVT LTD Vs Addl.CIT : MUMBAI ITAT (SPECIAL BENCH )(Dated: June 13, 2018)

Income Tax - Sections 269SS & 271D.

Keywords: Deposits - Loan from director - Penalty & Urgent business necessity .

The assessee-company, which is managed by two directors named Mr Moin A.S.Batliwala and Mrs Sherbanoo A.S.Batliwala, filed return for the relevant AY. During the assessment proceedings, the Additional CIT noticed that the assessee had received aggregate amount of Rs.2 lakhs as loans by way of cash in violation of provisions of section 269SS of the Act. Therefore, he initiated penalty proceedings u/s 271D of the Act. However, the assessee contended that it had taken loan of Rs.2 lakhs from its Director due to urgent business needs. However, according to the Addl CIT, the assessee did not offer any concrete explanations and therefore, he levied penalty of Rs.2 lakhs u/s 271D of the Act.

On assessee's appeal, the CIT(A) took support of certain observations made by the Supreme Court in the case of Asst. Director of Inspection (Investigation) Vs. Kum. A.B. Shanthi and held that the assessee had not satisfied the second condition and observed that without satisfying both the conditions specified by the Supreme Court, it could not be concluded that the assessee had any “reasonable cause” for its failure to accept the said amount in compliance with section 269SS of the Act. Accordingly the CIT(A) confirmed the penalty.

On appeal, the Special Bench held that

Whether when the assessee fails to establish the urgent nature of business necessities for taking loans from its Directors in cash, such transaction warrants levy of penalty u/s 271D - YES: ITAT Special Bench

++ the assessee has received loans by way of cash from its director named Sherbanoo A.S Batliwala of Rs.1.00 lakh each on two occasions. Admittedly, the assessee did not offer any explanation before the Addl. CIT except referring to the Grounds of appeal urged before CIT(A) in the appeal filed against quantum assessment proceedings, wherein it was stated that the loans were taken for business requirements. In the appeal filed before CIT(A) challenging the levy of penalty of Rs.2.00 lakhs u/s 271D of the Act, the assessee has further elaborated its explanations that the loans were taken in cash from its director in order to meet the expense relating to payment of Custom duty and freight, towards import of furniture. However no specific details of import was given before CIT(A). The assessee has given further details like, from whom the goods were supposed to be imported, when the goods were shipped;

++ there is no dispute between the parties that bona fide nature of transactions alone would not be sufficient to escape the clutches of sec. 271D of the Act. As per the decision rendered by the Supreme Court in the case of Kum. A.B. Shanthi, it is required to be established that there was some bona fide reasons for the assessee for not taking or accepting loan or deposit by account payee cheque or account payee bank draft, so that the provisions of sec.273B of the Act will come to the help of the assessee. Only in such cases, the AO is precluded from levying penalty u/s 271D of the Act. The counsel for the assessee took support of Explanatory note given while introducing the provisions of sec. 269SS of the Act. However, the Supreme Court has rendered its decision in the case of Kum. A.B.Shanthi after considering the same. In the case of Triump International Finance (I) Ltd also, the Bombay High Court has deleted the penalty only on the ground of existence of reasonable cause;

++ the ledger account of Smt. Sherbanoo A.S Batliwala does not support the contentions of the assessee. The counsel for the assessee also contended that the amount received from the directors cannot be considered as deposits under Companies Act, 1956. However, we are examining the case under the provisions of the Act and the Delhi High Court has held in the case of Samora Hotels (P) Ltd that the transaction with the directors of the Company are not excluded from the ambit of the provisions of sec. 269SS of the Act. The assessee has not substantiated the said explanation with any documentary evidence, i.e., the assessee has failed show that there was any urgent business necessity and hence the assessee was constrained to take loans by way of cash. As per the explanations of the assessee, the goods were being imported from Hongkong. The assessee received first loan of Rs.1.00 lakh on 01-10- 2007. It was repaid on 03-10-2007, since the consignment was stated to be delayed. The second loan of Rs.1.00 lakh was received on 05.12.2007, since the foreign supplier was expected to ship the goods on 11.12.2007;

++ the explanation would show that the goods were not shipped either on 01-10-2007 or on 05-10-2007, i.e., on the dates on which the loans were taken. The question of payment of customs duty, would arise only upon shipment or receipt of goods. In fact, the assessee admits that the goods were expected to be shipped on the second occasion only on 11.10.2007, while the cash loan was taken on 05-10-2007. If the director had given cheque on 05-10-2007, the funds would have been credited to the account of the assessee well before 11.10.2007. These facts would show that there was no urgent business necessity for the assessee on both the occasions to accept the loan in cash. Further, the assessee has also failed to demonstrate that on both the dates the assessee was not having sufficient funds in its possession. The assessee has failed to show that there was a reasonable cause for getting loans in violation of the provisions of sec. 269SS of the Act. Accordingly, the CIT(A) was justified in confirming the penalty of Rs.2.00 lakhs imposed on the assessee.

Assessee's appeal dismissed