2018-TIOL-1566-HC-KOL-IT + Case Story
CIT Vs CARNIVAL INVESTMENTS LTD: CALCUTTA HIGH COURT (Dated: June 18, 2018)
Income Tax - Capital receipt - Recurring income - Revenue receipt
The assessee company received a certain amount on account of it exercising its voting right in another company. On assessment, the issue arose as to whether such payment received would be capital receipt or revenue receipt. On appeal, the CIT(A) treated such receipt as being revenue in nature, while rejecting the assessee's submissions that such receipt was one-time and was not a recurring source of income. On further appeal, the Tribunal set aside the findings of the CIT(A) and held such receipts to be capital in nature.
On appeal, the High Court held that,
Whether receipt of singular payment which is not recurring in nature & which is received for exercise of any right arising from substantial control over another company, is to be treated as capital receipt - YES: HC
++ Though the CIT(A) did not accept the assessee's contention that this was a one-off payment, it could not be said that the assessee was in the business of voting in a particular manner at shareholders' meetings for this to be treated as income from other sources. The Tribunal noticed the Bombay High Court judgment in the Old Spice case and found it to be applicable in the facts and circumstances of the assessee's matter;
++ Further, the income obtained by the assessee from exercising its voting rights in a particular manner was a consequence of the investment of the assessee in RPG Raychem Limited. Even by such logic, the income could have been regarded as a capital receipt;
++ Hence Tribunal's treatment of the matter, particularly, in the light of the judgment of the Bombay High Court, does not call for any reconsideration. It appropriately held that since the income was one-off in nature and arose in the context of the assessee, through a company in which the assessee had substantial control, relinquishing a right, it ought to be treated as a capital receipt and not a revenue receipt.
Revenue's appeal dismissed
2018-TIOL-1565-HC-KERALA-IT
PR CIT Vs KALATHINGAL FAIZAL RAHMAN: KERALA HIGH COURT (Dated: July 02, 2018)
Income Tax - Sections 2(14)(iii)(a) & (b), 45 & 143
Keywords - Agricultural land - Capital asset - Village Officer
THE assessee is a partner in various firms and also has substantial land holdings. The assessee sold a certain property which had been purchased by his father and subsequently devolved to him. The assessee sold such property to a newspaper agency, which constructed upon the land. During assessment, the AO sought to treat the consideration arising from such sale as capital gains. The assessee contested such treatment on grounds that the land was in fact agricultural land. However, the AO rejected such contention on grounds that the only evidence that the assessee produced to substantiate such claim was a certificate issued by the Village Officer. The AO held such certificate to be unreliable. On subsequent appeal, the Tribunal concurred with the assessee and set aside the findings of the AO.
On appeal, the High Court held that,
Whether merely because land does not fall within the ambit of Sections 2(14)(iii)(a) & 2(14)(iii)(b), transfer of such land upon its sale would be excluded from definition of 'capital asset' - NO: HC
Whether land can be treated as agricultural land where the owner fails to prove that such land was agricultural in nature or that it had been put to use for agricultural purposes - NO: HC
Whether certificate issued by the Village Officer classifying certain land as agricultural land, would help raise a valid presumption in favor of the owner of such land - NO: HC
++ the question arises as to whether there was any evidence produced to show the land having been put to use for agricultural purpose. The Village Officer's certificate was the only document produced by the assessee before the AO, which as has been held in Smt.Asha George cannot be relevant. Mansi Finance Chennai Ltd and the decisions referred to therein according to the counsel are in similar circumstances. But on a reading of the decision we do not think so. In the said case there was a certificate by the Village Administrative officer produced by the assessee company. Its memorandum and articles of Association showed as the objects to be financing business and other businesses. The assessee company had admitted income from financing and from other sources, one of which was agricultural income by lease of the property to a third party. The agricultural income received were brought into the account books and was offered for income-tax. The overall circumstances were found to indicate that the assessee has purchased the property for the purpose of earning agricultural income, held the property for a considerable time with routine agricultural activity being carried on and the subject sale was only to take advantage of the boom in real estate market. The AO called for information from the Tahsildar and based on that report rejected the claim. Reliance placed on such report was faulted since the same was obtained behind the back of the assessee and without offering an opportunity to the assessee to controvert it by cross-examining the author of the report;
++ the mere fact that the land does not come under clauses (a) or (b) of Section 2(14)(iii) would not lead to exclusion of the property from the definition of capital asset when it is sold. Inclusion made under sub-clauses (a) and (b) is to include even agricultural lands situated within a particular distance from a municipality or a cantonment board, in the definition of Capital Asset. Whether the land is eligible to be excluded as agricultural lands essentially is a question of fact which has to be established by the assessee. The sole evidence placed on record by the assessee is the certificate of the Village Officer long after the sale; which as held by the AO; going by the binding precedent in Asha George cannot be relied on. The Tribunal too relied on this sole piece of evidence; which according to us is not sufficient to raise a presumption in favour of the assessee. The First Appellate Authority relied on the certificate holding that the Inspector of Income Tax also reported the facts existing after three years of sale. We agree that the Inspector's report of the developments in the subject land after sale cannot be of any consequence. But the lie and nature of the adjacent property which also is asserted to be agricultural land; goes a long way in understanding the intention of the assessee. The assessee has failed to establish the land to be an agricultural land. We cannot also accede to the argument of the learned counsel that in setting aside the Tribunal's order, we would be deciding on a question of fact. The question of fact was decided by the AO which was interfered with by the appellate authority and the Tribunal solely for reason of the certificate issued by the Village Officer; which is against the binding declaration in Asha George;
++ on the question of law framed as (i), we find that the decision to treat the transferred property as agricultural land is against law and facts, especially since the assessee has not established that the land in his possession and sold by him was an agricultural land put to use for agricultural purposes. There could not have been any reliance placed on the certificate issued by the Village Officer and it did not raise a valid presumption in favour of the assessee. The reliance so placed was also against the binding precedent in Asha George. The second question of law framed is also answered against the assessee and in favour of the Revenue. The third question of law is on facts and the report of the Inspector as relied on by the AO spoke of two factory buildings in the adjacent property. We do not find any relevance to that fact. The orders of the first appellate authority and the Tribunal are set aside.
Revenue's appeal allowed
2018-TIOL-1564-HC-AHM-IT
PR CIT Vs PATEL ALLOY STEEL COMPANY PVT LTD: GUJARAT HIGH COURT (Dated: July 16, 2018)
Income Tax - Sections 14A, 40A(2)(b) & 145A; Rule 8D
Keywords - Remuneration to directors
THE assessee company filed returns for the relevant AY. On assessment, the AO noted that the assessee paid remuneration to its managing director, director and executive director having experience of 36, 14 and 7 years. The AO opined that such remunerations had been enhanced by 421% and 133% in comparison to an earlier AY. Besides, the AO noted such enhancement to have been made without any qualitative improvement in payees' eligibility and their services rendered. Hence the AO held such enhancement to be unreasonable. The AO then proceeded to determine the appropriate figures of remuneration based upon inflation benchmark of 10% each year since the earlier AY. The AO also disallowed u/s 40A(b)(2) all the figures which were felt to have been paid in excess. On appeal, the CIT(A) partly upheld such findings. The Tribunal later deleted such disallowance made.
On appeal, the High Court held that,
Whether the Revenue can disallow remuneration paid to directors on grounds of being excessive, based upon a comparison with an earlier AY, where the amount of remuneration paid was not contested in the immediately preceding AY - NO: HC
++ so far as the order passed by the Tribunal deleting the disallowance under Section 40A(2)(b) on account of the excess renumeration to the Directors is concerned, at the outset it is required to be noted that making disallowance under Section 40A(2)(b) on account of excess renumeration to Directors, the Assessing Officer considered the renumeration paid to the Directors in the year 2004-05 though in the preceding assessment year i.e. AY 2007-08 the renumeration paid to the Directors was Rs 3,25,65,315/- against the renumeration paid in the current year at Rs 4,31,00,600/-. It is not in dispute that the assessee's renumeration in the preceding assessment years stand accepted. Therefore, the Tribunal rightly observed that in view of the matter the Assessing Officer was not justified in comparing the renumeration with that paid in AY 2004-05. The Counsel appearing on behalf of the Revenue is not in a position to dispute that in AY 2007-08 (FY 2006-07) the renumeration paid was Rs.3,25,65,315/- to the Director K.H. Jhaveri, which was accepted. Therefore, looking to the increase in the profit and the business when in the subsequent year i.e. year in consideration the Tribunal accepted the renumeration paid to the Director as admissible, it cannot be said that the Tribunal has committed any error. The Tribunal has rightly observed that once the renumeration paid in the preceding year was accepted by the Revenue, the Assessing Officer was not justified in considering and/or comparing the renumeration paid in AY 2004-05. We are in complete agreement with the view taken by the Tribunal.
Revenue's appeal partly allowed
2018-TIOL-1563-HC-KAR-IT
PR CIT Vs VASAVI CREDIT CO-OPERATIVE SOCIETY LTD: KARNATAKA HIGH COURT (Dated: July 30, 2018)
Income Tax - CBDT Circular No.3/2018 - Monetary limits & Tax effect.
The Revenue had preferred an appeal by pointing out that as per the revised CBDT Circular No.3/2018, dated 11th July, 2018, the monetary limits for filing appeals by them before the ITAT, HC and SC were revised. As per the revised circular, the monetary limits for the High Courts were upwardly revised to Rs.50,00,000/-. Thus, the Revenue appealed to withdraw its case.
On appeal, the High Court held that,
Whether if the Revenue realises that tax effect of a pending appeal before the HC is less than the monetary limit fixed for the Departmental appeal as per the the latest CBDT Circular No 3/2018, the same is to be withdrwan by the Department - YES: HC
++ the tax effect in the present case as stated by the Revenue is less than the prescribed limit of Rs.50.00 lakhs for filing an appeal before High Court. The Counsel for the Revenue does not press this appeal and seeks leave of the Court to withdraw the present appeal in terms of the said Circular. Accordingly, in view of the said Circular issued by the CBDT, the present appeal is disposed of as withdrawn without answering the purported substantial questions of law.
Case disposed of
2018-TIOL-1562-HC-MUM-IT
CIT Vs GUNDECHA BUILDERS: BOMBAY HIGH COURT (Dated: July 31, 2018)
Income Tax - Section 80IB(10).
Keywords: Car parking space & Housing project.
The assessee-company, engaged in the business of developing real estate projects had returned income for the relevant AY. In the course of assessment proceeding, the AO found that the assessee had sold car parking space and the same was treated as a part and parcel of the housing project. Further, based on such sale receipt, the assessee had claimed deduction u/s 80IB(10). However, the AO was of the view that the car parking space stilt did not formed part and parcel of the housing project and thus, the assessment was completed after making additions. On appeal, both CIT(A) and the ITAT was of the opinion that after obtaining approval from the competent authority, the car parking space stilt formed a part and parcel of the housing project and hence, the same was eligible for a deduction u/s 80IB(10).
On appeal, the High Court held that,
Whether when it is not clear whether the issue of car parking space stilt is an integral part of a residential unit eligible for Sec 80IB(10) benefits, the appeal deserves to be admitted - YES: HC
++ the appeal may require admission as appeals filed by the Revenue in respect of the same assessee for the AYs 2006-07 and 2007-08 being CIT v/s. M/s. Gundecha Builders were admitted on 7th March, 2013. However, the Counsel appearing for the assessee invites our attention to the order of this Court dated 25th July, 2011 in CIT v/s. Purvankara Projects Limited which dismissed an identical question as raised herein, as not giving rise to any substantial question of law. The Counsel for the assessee further points out that in the present proceeding also the CIT(A) as well as the Tribunal have rendered a finding of fact that the car parking space stilt forms part and parcel of the housing project after obtaining the approval from the competent authority. Prima facie, it appears that the issue stands concluded in favour of the assessee;
++ however, it would be appropriate to admit this appeal on the issue that whether receipts from the sale of stilt parking will be a part of the residential unit and whether such receipts will also be eligible for a deduction u/s 80IB(10). The matter is listed alongwith ITA Nos.1513 of 2012 and 2253 of 2011 filed by the Revenue in respect of the same assessee for final disposal. This is so as the issue seems to be covered by the decision of this Court and Purvankar Projects Limited.
Case admitted
2018-TIOL-1561-HC-DEL-NDPS
JOYCE KAROUNG Vs NARCOTICS CONTROL BUREAU: DELHI HIGH COURT (Dated: July 2, 2018)
NDPS - A lady was apprehended by officials of the Narcotics Control Bureau - Search of her luggage revealed there to be some quantity of Cocaine - She claimed to have been instructed by the petitioner herein to collect a consignment of drugs from another lady - The petitioner had been directing the apprehended lady to meet her at a certain location where the petitioner would collect the drugs from her - When the lady conversed with the petitioner, the latter revealed that she would be delivering the drugs to a man - When such man arrived at the location, the petitioner went to meet him - At this moment, both the petitioner as well as her contact were apprehended - Notice was issued u/s 67 and statements of all four people were taken, namely the lady originally supplying the drugs, the lady ferrying them, the petitioner who was to meet the lady and lastly the man who was to collect the drugs from the petitioner - In his statements, the second man stated that he had been acting on the instructions of the petitioner - Hence the present bail application was filed by the petitioner claiming that she had falsely been framed.
Held - Considering the facts and circumstances, it is not a case that the petitioner was apprehended based solely on the statements given by the co-accused - Nothwithstanding that the petitioner herself was apprehended during search & seizure operations, she also led to the arrest of the co-accused who had come to collect the consignment from her - Thus the petitioner is allegedly a major link in the entire scheme - In fact the co-accused man also stated that he collected drugs from her on an earlier occasion as well - Hence, it cannot be prima facie held that the petitioner is not guilty of the alleged offence if the allegations have been established - Considering the decision of the Apex Court in Babua v. State of Orissa, the liberty of a citizen must be balanced with the interests of society - Where such citizen is involved in dealing with drugs, such activities are lethal to society - In light of the same as well as the fact that the petitioner has a history of being involved in drug-dealing, she does not deserve to be released on bail: HC (Para 3,6-11,23,24)
Bail application dismissed
2018-TIOL-1560-HC-KERALA-VAT
PARVATHY FASHION JEWELLERS Vs STATE OF KERALA: KERALA HIGH COURT (Dated: July 12, 2018)
Kerala Value Added Tax - Section 67; Rule 58(12) & 58(13)
Keywords - Gold & Silver ornaments - Jewellery - Job work - Stock register
THE assessee, a jeweller, is engaged in retail sale of gold & silver ornaments. During the relevant AY, the assessee's shop was inspected by the Intelligence Officer of the Commercial Taxes Department as well as the Intelligence Officer of the Intelligence Wing at Kottayam. On assessment, penalty was imposed by taking 50% of the stock revealed in the shop at the time of inspection as unaccounted. Besides, proceedings were also initiated for non-maintenance of Form 14A. Moreover, penalty was imposed for non-maintenance of stock register for the preceding five days, even though in this regard, the assessee claimed that its accountant had been on leave for five days. The assessee also claimed that the presence of the latter during the inspection was abnormal. Such findings were upheld by the Tribunal.
On revision, the High Court held that,
Whether a dealer of jewellery can claim exemption from maintaining manufacturing account where the stock of jewellery available for display had been manufactured by and obtained from goldsmiths - NO: HC
Whether penalty imposed for non-maintenance of stock register in prescribed format as well as the absence of Day Book, Cash Book, Purchase ledger & Sales ledger - YES: HC
++ The very fact that the assessee had shown the total quantity of gold in the stock register, but the display was of manufactured ornaments establish that they have been making the gold ornaments on job work basis, which requires a manufacturing account to be maintained. Otherwise, the stock shown in weight of gold and silver would result in suppression of sales over a period of time, which sold ornaments could be replaced later by other manufactured ornaments. Hence the Tribunal was right in refusing to interfere with the determination of stock at 50% of that seen from the inventory carried out at the time of inspection;
++ There is a further contention raised by the assessee before the Tribunal that ornaments weighing more than 40 grams each are kept only for display and not for sale. This would again require such item-wise ornaments to be shown in the stock register, failing which it can only be taken as being displayed for the purpose of sale, which sale would not be reflected in the books of accounts or in the stock register by reason of the subsequent replacement of such ornaments. On the slips recovered, the assessee had a contention that they were only estimation slips, which were dealt with by the First Appellate Authority and the Tribunal;
++ Yet another serious ground taken by the Counsel is that the assessee being a mere dealer is not entitled to maintain a manufacturing account as provided in sub-rule (13) of Rule 58; which is required only in case the dealer is a manufacturer. For arguments sake even if it is accepted, there is no explanation for the dealer not maintaining the various books and registers otherwise mandated by the very same Rule 58. Further the revelations on inspection; especially the Quantity Wise Details Of Sales and Purchase as seen from the documents on inspection, which is produced as Annexure A-2, point to a definite attempt at evasion. The purchase is shown in weight and if that is of old gold or ingots, necessarily they have to be converted to ornaments. Admittedly the stock available in the shop and displayed were ornaments, which are manufactured from gold. This clearly points to the assessee having manufacture too, through goldsmiths. This are the specific details which are to be entered in Form 14A;
++ In the present case, we find that the gravity of offense was quite onerous in so far as the assessee, a dealer of jewelry having not maintained a stock register for five days and the maintenance of the stock register also being confined to the total weight of gold. The stock of silver ornaments as recorded in the stock register was of the beginning of the year. The stock recorded was without an item-wise description, when admittedly the assessee was carrying on retail sale of gold and silver ornaments. The Intelligence Officer took the entire stock available as unaccounted stock, which was considerably reduced by 50% on first appeal;
++ The Tribunal has found the stock register to be not maintained in the prescribed format and not containing the required details, as also being not updated as on the date of inspection. There was also absence of Day Book/Cash Book, Purchase Ledger & Sales Ledger. The recovered estimate slips and the letter pad indicated unaccounted sale and purchase of gold and silver ornaments. The recovered sale bills also indicated only accounting of one sale bill in most of the days. These factors were taken into account to find that the assessee is indulging in a pattern of unaccounted transactions. It was on such reasoning that the Tribunal upheld the First Appellate Authority's order determining the unaccounted stock at 50% of that seen at the time of inspection and affirmed the maximum penalty imposed.
Assessee's revision petition dismissed
2018-TIOL-1558-HC-KOL-CUS
ATLANTIC PROJECTS LTD Vs ADDL DIRECTOR GENERAL OF FOREIGN TRADE : CALCUTTA HIGH COURT (Dated: July 26, 2018)
Cus - Petitioner had applied for grant of revalidation, amendment and transferability in respect of a licence dated November 23, 2011 - The initial request was rejected on the ground that the request was barred by time - The factual situation leading upto the authorities making such conclusion is not stated in impugned order - The next request made by petitioner stood rejected on August 11, 2014 - This time, it does not even say that the request is barred by time - No reason, at all, is ascribed in impugned decision - Both the impugned orders being uninformed with reasons, both are quashed: HC
Writ petition disposed of
2018-TIOL-1557-HC-KOL-CUS
BILASPUR SPINNING MILLS & INDUSTRIES LTD Vs CC : CALCUTTA HIGH COURT (Dated: July 16, 2018)
Cus - There were two demands outstanding on account of claim of duties - The petitioner had approached under the Scheme of 1998 to settle claims on account of duties in respect of few transactions - Such application was rejected on the ground that no SCN was issued to the petitioner under indirect tax enactment - With respect, such reason is untenable - There was outstanding dues payable by petitioner, which come within the purview of Scheme of 1998 - The Scheme of 1998 contemplates that an applicant may approach the authorities in relation to indirect tax enactment where the amount of duties payable under the indirect tax as on March 31, 1998 remains unpaid on the date of making of a declaration under Section 88 of the Act of 1998 - In the present case, there were at least two demands of the Custom Authorities under the indirect tax enactment outstanding as on March 31, 1998 - The impugned writing dated February 13, 1999 is quashed - The authorities under the Scheme of 1998 will consider the application made by the petitioner thereunder in accordance with law: HC
Petition disposed of
2018-TIOL-1556-HC-KOL-CUS
RITU DAGA Vs CC: CALCUTTA HIGH COURT (Dated: July 17, 2018)
Cus - There are two fold prayers in writ petition - One portion of prayer is with regard to disbursement of duty drawback of Rs. 9,88,392 as held to be receivable by petitioner by the order dated March 28, 2017 passed by Tribunal - The other portion of claim is for adjudication of a duty drawback claim in respect of 9 shipping bills for a sum of Rs.7,87,177.88 - The authorities will disburse the duty drawback of Rs. 9,88,392 as directed by Tribunal in its order dated March 28, 2017, along with all applicable interest as there are no further proceeding pending in respect of such order before the appropriate forum - So far as the other claim of duty drawback is concerned, the authorities will adjudicate upon the same, in accordance with law, as expeditiously as possible: HC
Petition disposed of
2018-TIOL-1555-HC-KOL-CUS
TERAI OVERSEAS LTD Vs CC : CALCUTTA HIGH COURT (Dated: July 16, 2018)
Cus - Petitioner submits that, the claim is yet to be decided by the authorities till date - He seeks a direction upon authorities to take a decision on the issue, in accordance with law - Respondent submits that the claim was lodged belatedly by petitioner - Relevant records are not available in the department, therefore, the claim of petitioner cannot be processed - It is the petitioner who is guilty of unexplained delay - In a given case, the petitioner may be guilty of delay - It may not be able to produce relevant documents - However, it is for the authority to take a decision on the application - The authority will decide the application for grant of duty draw back made by the petitioner, in accordance with law - All points raised by the parties are kept open to be decided by the authorities by affording a reasonable opportunity of hearing to the petitioner: HC
Writ petition disposed of
2018-TIOL-1554-HC-KOL-CX
BINAY OPTO ELECTRONICS PVT LTD Vs CCE & ST : CALCUTTA HIGH COURT (Dated: July 16, 2018)
CX - Petitioners are before the Writ Court assailing an order passed by appellate authority refusing to entertain an appeal as petitioners have failed to make a pre-deposit as directed - The demand against petitioners is in excess of Rs.64 lakhs - It has secured a sum of Rs.32 lakh by way of bank guarantee which is valid till November 30, 2018 - Experience of the Court has shown that, a person, may refuse to extend the validity period of bank guarantee once the purpose of furnishing the bank guarantee stands secured - In a given case, if appeal is directed to be heard out on merits on the basis of a bank guarantee, there is every likelihood that the person concerned may not keep the bank guarantee live till the disposal of appeal - Moreover, in Revenue matters, securing the claim of Revenue by way of bank guarantee has been frowned upon - In view of subsequent amendment to Section 35(F) of the Act of 1944 requiring a pre-deposit of 7½% of the amount of duty claimed, it would be appropriate to direct the petitioners to deposit 10% of the amount claimed against it, with the appropriate authorities - In the event, such deposit is made, the appellate authorities were requested to hear and consider the appeal in accordance with law: HC
Writ petition disposed of
2018-TIOL-1261-ITAT-COCHIN + Case Story
GEOJIT INVESTMENT SERVICES LTD Vs JCIT: COCHIN ITAT (Dated: August 03, 2018)
Income Tax - Sections 28(va) & 28(ii)(c).
Keywords: Capital receipt - Commodity trading business - Compensation - Principal and agent relationship - Profit earning apparatus & Written agreement.
The assessee-company, engaged in the business of commodity trading, filed return for the relevant AY. During the assessment proceedings, the AO noticed that the assessee had received an amount of Rs 40 cr from BNP Paribas, a French bank, as compensation for agreeing to discontinue the assessee's business in commodity trading. Such BNP Paribas had invested 27.18% stake in the parent company of the assessee, viz., M/s.Geojit Financial Services Limited (GFSL). BNP Paribas had sought to increase its shareholding in GFSL by giving an open offer to the existing shareholders. However, as per the RBI guidelines, any parent company and its subsidiary companies had to withdraw from the commodity trading business before entering such transaction. Therefore, BNP Paribas approached GFSL to consider discontinuing the commodity brokerage business undertaken by its subsidiary, i.e., the assessee in order to comply with the requirements prescribed in the Indian Banking Regulation Act, 1949, being enforced by the RBI.
In lieu of the assessee discontinuing the commodity brokerage business, BNP Paribas offered compensation of Rs.40 crore based on a valuation report obtained by BNP Paribas, which was accepted by the assessee. Accordingly. in the return of income filed for the AY concerned, the entire compensation of Rs.40 cr received by the assessee from M/s.PNB Paribas for agreeing to discontinue its business in commodity trading was claimed as exempt as capital receipt.
The case of the assessee was taken up for scrutiny and the AO noticed that the assessee had not lost profit making apparatus and the commodity business of the assessee though discontinued, was carried on by another company having similar shareholding pattern and therefore, the amount of Rs.40 crore was liable to be taxed u/s 28(va). On assessee's appeal, the CIT(A) upheld the decision taken by the AO.
On appeal, the Tribunal held that,
Whether when to clear the way for acquisition of shares by a foreign bank, in compliance with various regulators such as SEBI and RBI, asseessee had to transfer its commodity trading business along with its clientele to a newly-floated company with common promoters, it can be said that profit making apparatus of the assessee is impaired - NO: ITAT
Whether therefore, in such a scenario compensation received by the assessee to discontinue the commodity trading business is to be taxed under head of profits & gains of business and profession u/s 28(va) and not as a capital receipt - YES: ITAT
++ the compensation of Rs.40 crore paid by BNP Paribas to the assessee was credited to the profit and loss account of the assessee for the year ending 31.03.2009 and disclosed as an "extraordinary item". In the income-tax return, the assessee included the compensation of Rs.40 crore while computing book profit and paid tax thereon as per the provisions of section 115JB of the I.T.Act. For the purpose of computing tax under normal provisions of the Act, the assessee excluded the said compensation as not liable to tax. According to the assessee, compensation received was capital receipts for loss of source of income/profit earning apparatus and hence not liable to tax. The Assessing Officer held that the assessee's source of income/profit earning apparatus was not impaired, since a new company under the same group 'Geojit' was incorporated by common promoters and in essence there was no loss of profit making apparatus or source of income. Alternatively the Assessing Officer held that even it is assumed that the profit making apparatus of the assessee was impaired, the compensation received by the assessee was taxable in terms of the provisions of section 28(va) of the I.T.Act. The CIT(A) on his part, apart from affirming the order passed by the Assessing Officer, also held that the compensation received by the assessee was taxable u/s 28(ii)(c) of the I.T.Act;
++ the assessee's commodity trading was transferred entirely along with its clientele to the new floated company M/s.Geojit Comtrade Limited. The new company, though not a subsidiary of the assessee or its parent company, was promoted by the promoters of M/s.Geojit BNP Paribas Financial Services Limited, the holding company of the assessee. In the new company, 53.13% of the share belongs to the wife of Shri C.J.George, who is the promoter of the holding company of the assessee. Though the assessee-company had surrendered its license with various commodity exchanges in the month of December 2008, at the very same time, the new company GCL had obtained license, as a member of commodity exchanges where the assessee had surrendered its license. The entire clientele consisting of 6000 clients were transferred in toto to the new company GCL. The credit balance in respect of the clients of the assessee-company were transferred to the books of account of the GCL. The new company, GCL had entered into an agreement with the assessee's parent company for the use of trademark "Geojit" and therefore, as rightly pointed out by the Assessing Officer, in the eyes of the clients, the business is carried on in the same name;
++ the business of the new company was carried out in the same premises of the parent company, making uses of the administrative set up, the equipments and the manpower etc. of the parent company of the assessee. This categorical finding of the Assessing Officer has not been dispelled by the assessee by placing any contra evidence. In this context, the Assessing Officer had come to a conclusion that there is no impairment in the loss of commodity trade to the group concern namely 'Geojit'. Therefore, it was held that the profit making apparatus of the assessee-company/the group company was not impaired by the discontinuance of commodity trade business of the assessee per se. Since there is no sterilization of income/profit earning apparatus from the consolidate perspective of the group concerns, viz., 'Geojit', the amount so received by the assessee as compensation cannot be termed as a capital receipt not liable to be taxed under the provisions of the I.T.Act. Therefore, the finding of the Assessing Officer in this context is upheld;
Whether even though, there was no written agreement for payment of compensation, payment received by the assesse to discontinue the commodity trading business will be treated as an arrangement for the purpose of section 28(va) - YES: ITAT
++ the assessee-company in the instant case, had received the compensation for not carrying on any activities in relation to its commodity trading business. The compensation so paid for not carrying any activity in relation to any business (commodity trading business) would be taxable going by the plain meaning of section 28(va)(a) of the I.T.Act. Section 28(va) of the I.T.Act was introduced w.e.f. 01.04.2003. Though there was no written agreement for payment of compensation, the letters of BNP Paribas dated 23.05.2008 and 27.05.2008 and the Board Resolution of the assessee-company stating that it would discontinue the commodity trading business of the assessee on receipt of compensation of Rs.40 crore, would come within the ambit of an arrangement/undertaking/action in concert, whether or not, the same was formal or in writing or it was intended to be enforceable by legal proceedings and that would tantamount to an agreement for the purpose of section 28(va) of the I.T.Act. The wordings of section 28(va) of the I.T.Act is unambiguous and clear. The said section does not restrict, the bringing to tax only the non-compete fee but any sum that was received or receivable in cash or kind for not carrying out any activity in relation to any business. The exception for such taxation is only the cash received on account of transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head "Capital gains".
Whether when there is no arrangement between the assessee and it's parent company, and the fact that compensation was received from a third party and not from the parent company, the CIT(A) cannot alleged the principal and agent relationship to tax such amount u/s 28(ii)(c) on account of termination of a contract - YES: ITAT
++ there is no arrangement between the assessee and the parent company wherein it can be concluded that there was a principal and agent relationship as alleged by the CIT(A). Moreover, the compensation received by the assessee was not in lieu of surrender of any agency and secondly when such compensation was received from BNP Paribas and not from GFLS with whom the agency relationship has been alleged by the CIT(A), the compensation does not fall within the ambit of taxation u/s 28(ii)(c) of the I.T.Act. Further the CIT(A)'s direction to the A.O. to refer the matter to the Transfer Pricing Officer is also devoid of merits. The Assessing Officer has to refer the case to the TPO within the time limit for issuance of notice u/s 143(2) of the I.T.Act. Since the time limit for issuance of notice u/s 143(2) had already expired, any proceedings regarding the determination of Arm's Length Price by the TPO at this stage of the proceedings is barred by limitation. The counsel for the assessee also contended that the compensation of Rs.40 crore received should also be excluded from the calculation of book profit u/s 115JB of the I.T.Act, in view of the legal position set out in various judicial pronouncements, wherein it was held that the capital receipt even if it is credited to the Profit & Loss Account had to be reduced while computing the book profit under the said provision. The above contention raised by the AR does not survive since we have already held the amount of compensation received by the assessee was taxable by virtue of the provisions of section 28(va) of the I.T.Act.
Assessee's appeal dismissed
2018-TIOL-1260-ITAT-MUM
DCIT Vs PALAVA DWELLERS PVT LTD: MUMBAI ITAT (Dated: June 15, 2018)
Income Tax - Sections 269SS, 269T, 271D, 271E & 273B.
Keywords: Inter-corporate loan - Journal entries & Transfer balances.
The assessee-company, engaged in the business of land development, construction of real estate properties had returned income for the relevant AY. In the course of the assessment proceedings, the AO noted that the assessee had accepted loans from its different sisters concerns in violation of the provisions of Sec. 269SS. The AO also noted that the assessee had also repaid certain sum to its sister's concern by way of passing of journal entries. Thus, the AO completed the assessment but, initiated the penalty proceedings under Ss 271D and 271E for violation of provisions of Ss 269SS and 269T. The matter was then, referred to the Additional CIT wherein, SCN was issued to the assessee. In reply, the assessee submitted that it had adjusted such payments through journal entries due to business expediency and reasonable cause. The assessee also submitted that transfer of asset and the liabilities to the sister concerns by way of journal entries did not constituted the loan or deposit in term of money within the provisions of Ss 269SS and 269T. However, rejecting the assessee's explanations, the Additional CIT levied penalty under Ss 271D and 271E. On appeal, the CIT(A) granted relief to the assessee.
On appeal, the ITAT held that,
Whether if the assessee settles a loan with its sister concern through journal entries so as to transfer balances to consolidate debts, the same violates the provisions of Sec 269T and thus, attracts penalty u/s 271E - NO: ITAT
++ the assessee has accepted loan/deposits from various sisters concerns through journal entries otherwise then account payee cheque or draft in excess of Rs. 20,000/- in violation of the provisions of section 269SS. Similarly, the assessee has also repaid the sum to the sister's concern by way of passing of journal entries to the effect of accountable claims / payments/ receivables by the sister's concerns;
++ the Bombay High Court in the cases of Lodha developers Pvt. Ltd and Triumph International Finance (I) Ltd. has held that where loan/deposit has been repaid by day to day accounts of the parties through journal entries, it must be held that the assessee has committed default for the contravention of provisions of Ss 269SS or 269T as the case may be. But the Bombay High Court has clarified the position w.e.f. 12.06.2012 date when the judgement was pronounced and prior the date of decision of the Bombay High Court in the case of Triumph International Finance (I) Ltd. there was a reasonable cause for the assessee to receive deposit of loan or repayment of the same through journal entries. Accordingly, the assessee's case is squarely falls under a reasonable cause u/s 273B and therefore, in our view, penalties levied by the Addl. CIT under Ss 271D and 271E has rightly been deleted by CIT(A). Hence, we confirm the order of CIT(A).
Revenue's appeal dismissed
