CASE LAWS

2018-TIOL-354-SC-IT

CIT Vs PVR LTD: SUPREME COURT OF INDIA (Dated: September 4, 2018)

Income Tax - Writ - Sections 194I, 201(1A) & 271C.

Keywords - CBDT Circular No.3/2018 & Low tax effect.

The Revenue filed an appeal in which it challenged the action of Tribunal in confirming the order of CIT(A) who had cancelled the penalty orders u/s 271C which were passed by the AO holding that there was reasonable cause for failure to deduct TDS despite the fact that the supplementary agreement between the parties in which it mentioned the nature of payments as monthly fee/rental.

In writ, the Apex Court condoned the delay and dismissed the Revenue's SLP on the ground of low tax effect.

Revenue's SLP dismissed

2018-TIOL-353-SC-IT

CIT Vs ZEE ENTERTAINMENT ENTERPRISES LTD: SUPREME COURT OF INDIA (Dated: September 4, 2018)

Income Tax - Sections 194C, 194H, 194J, 201(1) & 201(1A).

Keywords: Fees for technical services - Placement and carriage fees - TDS & Works contract

The assessee company is engaged in the business of mass media. During assessment for the relevant AY, the AO held the assessee to be in default for not deducting TDS on payments made by it under various provisions. On subsequent appeal, the Tribunal held that the placement fees & carriage fees paid to cable operators, MSO & DTH operators, were payments for works contract u/s 194C & not fees for technical services u/s 194J. It held similarly for payments made for programme software purchase, equipment hire charge & other production related expenses excluding dubbing and processing charges made to production houses and therefore, the assessee correctly deducted tax u/s 194C on payments made to event managers & for events other than sport related activities. It was also held that no TDS needed to be deducted u/s 194H on purported reimbursement of expenses was not part of the commission paid by the assessee to Zee Turner Ltd. Hence in totality, the assessee was held not to be in default under the provisions of Section 201(1) & 201(1A). On appeal, both the lower authorities held in favour of the assessee. However, the High Court partly allowed the appeal filed by the Revenue.

Having heard the parties, the Apex Court condoned the delay and directed to issue the notice.

Notice issued

2018-TIOL-352-SC-ST

CST Vs HELIGO CHARTERS PVT LTD: SUPREME COURT OF INDIA (Dated: September 4, 2018)

Service Tax - The assessee company provided helicopters on charter-hire basis to entities engaged in Oil & Gas industry - The assessee is responsible for maintenance of the helicopters as per DGCA regulations - It also provided experienced & licensed air crew for operating such helicopters as per the client's requirements & directions - The assessee treated such service as 'Supply of Tangible Goods' without transfer of right of possession and effective control & discharged service tax - As the helicopters had been leased from other parties, the Revenue treated such service as 'Infrastructure support service' or 'Business Support Service' - Duty demands were raised with interest & penalty - On appeal, the Tribunal held that a transaction being 'deemed sale' under Article 366(29A)(d) could not be taxed as service - The Tribunal noted that the helicopters leased by the assessee involved transfer of right to use - Hence the duty demands with interest were set aside - Penalty imposed u/s 78 for alleged evasion of service tax was set aside as it is actually delayed payment of service tax - Hence the Revenue's appeal.

Held - The present appeal & applications with it are dismissed on grounds of delay - Question of law left open: SC

Revenue's appeal dismissed

2018-TIOL-1842-HC-KERALA-IT + Case Story

CIT Vs STATE BANK OF INDIA: KERALA HIGH COURT (Dated: August 08, 2018)

Income Tax - Section 36(1)(vii) & (viia).

Keywords: Claim of bad debts written off - Provision for bad and doubtful debts & Rural advances.

The assessee-bank write off bad debts relating to rural branches amounting to around Rs.24.53 lakhs. However, during the assessment proceedings, the AO noticed that the assessee had made a provision with respect to rural advances which was evidenced from the books of accounts to the tune of around Rs.117 Cr. Therefore, the AO rejected the claim of the assessee for write off bad debts relating to rural branches. On appeal, the lower authorities upheld the decision of the AO.

On appeal, the High Court held that,

Whether if the provision for bad debts is far more than the actual write-off, any further claim is warranted to be allowed u/s 36(1)(viia) - NO: HC

++ section 36(1)(viia) provides for provision of bad and doubtful debts by a scheduled bank incorporated by or under the laws of India or a non-scheduled bank, to the extent of an amount not exceeding 5% of the total income and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. The provision in the first limb of clause(viia) of Section 36(1) of the Act being an amount not exceeding 5% of the total income relates to the entire business of the bank, while the second limb is confined to the advances made by the rural branches of the bank. A harmonious construction would be that both these amounts can be claimed as provision for bad and doubtful debts;

++ under clause (vii) of Section 36(1) of the Act, the deduction permitted is of the actual write off of bad debts while clause (viia) of Section 36(1) deals with provision for bad and doubtful debts. Proviso to clause (vii) of Section 36(1) provides that when a provision has been made under clause (viia) of Section 36(1), the amount of deduction under clause (vii) of Section 36(1) shall be limited to the amount by which such claim exceeds the credit balance in the provision made for bad and doubtful debts. Hence, when the bank had made a provision under clause (viia) of Section 36(1) for bad and doubtful debts to the extent of 10% of the rural advances, a subsequent claim for actual write off of bad debts arising insofar as the rural branches are concerned can be allowed only to the extent it exceeds the provision;

++ it is clear that the bank had made a provision insofar as the rural advances which evidenced from the books af accounts itself was Rs.117,86,00,000/-. The claim for actual write off for the subject assessment year is Rs.24,53,000/-, which is far lesser than the provision. Hence, the proviso definitely becomes applicable and the claim has to be restricted only to such amounts exceeding the provision. In the present case since the provision exceeds the actual written off amounts, there could be no claim raised. Therefore, the First Appellate Authority and the Tribunal to have correctly disallowed the claim under clause (vii) of Section 36(1) for reason of the provision made under clause (viia) of Section 36(1), relating to the business of rural branches being in excess of the claim for actual write off made for the previous year to the assessment year.

Revenue's appeal allowed

2018-TIOL-1841-HC-KERALA-IT + Case Story

CIT Vs JEEVAN TELECASTING CORPORATION LTD: KERALA HIGH COURT (Dated: August 10, 2018)

Income Tax - Sections 194J, 201(1) & (1A)

Keywords - Fact finding body - Late deduction of TDS - Non-deduction of TDS

On assessment for the relevant AY, the Revenue alleged that the assessee failed to deduct TDS in respect of several transactions entered into by it. It was also alleged that the assessee was delayed in deducting TDS in certain instances. The transactions involved payment against contracts, commission, rent, salary, professional and consultancy charges, payment of uplink charges, payment of backhaul link usage charges, equipment hire charges and camera rental payments. The Revenue also imposed penalty u/s 271C. On appeal, the Tribunal remanded the matter.

On appeal, the High Court held that,

Whether the Tribunal can abandon its role as fact-finding authority & mechanically follow a decision of the Apex Court, without distinguishing the facts in both the cases - NO: HC

++ the Tribunal being the fact finding authority ought to have looked into facts without making a remand on the basis of the directions issued by the Supreme Court. The Tribunal being a creature of the statute, cannot adopt the directions issued by the Supreme Court without looking into the distinction on facts, on which the directions were issued as against the facts available in the case before it. The Supreme Court's powers to issue directions cannot be assumed by the Tribunal to issue directions in a similar manner. The issues could be dealt with by the Tribunal itself;

++ on the tax deduction from payment of contracts, commission, rent, salary, professional and consultancy charges for the financial years 2003-04 to 2007-08, the assessee shall produce sufficient evidence before the Tribunal as has been laid down in Circular No.275/201/95-IT (B) dated 29.1.1997. The Tribunal shall look into it and after verification, pass appropriate orders as per the directions of the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v. Commissioner of Income Tax. Regarding the payments of uplink charges and backhaul link usage charges, the Tribunal shall examine an expert as produced by the assessee and the Department shall be permitted to cross examine the expert as also produce any further evidence or witnesses on their behalf. It is made clear that there can be no liability on hire charges and camera rental payments for the financial years 2003-04 to 2006-07. The order of the AO as confirmed by the appellate authority is deleted for the said years. The Tribunal shall pass appropriate orders as per the directions issued. The Income Tax Appeals are remanded for fresh consideration. However, the rental charges and hire or equipment charges shall be sustained only for the financial year 2007-08, the assessment year of which is 2008-09. However, the assessee shall be given an opportunity to produce sufficient evidence as per the circular on which appropriate orders shall be passed on the liability of the assessee.

Revenue's appeal partly allowed

2018-TIOL-1840-HC-DEL-IT

PR CIT Vs NEW WORLD SYNTHETICS LTD: DELHI HIGH COURT (Dated: August 27, 2018)

Income Tax - Section 41(1).

Keywords - Non-payment of Outstanding liability - Remission or cession of liability.

The assessee company, filed its return for the relevant AY. On assessment, it was noted that the assessee had to pay an outstanding liability of Rs 2.61 Cr to one M/s P.T. Polysindo, Jakarta, Indonesia. The assessee claimed to have shown such liability in its balance-sheet and that it had apprised the Registrar of Companies and the Income Tax department of the same. It also paid off such debt and incurred huge losses in the process. However, the AO held there to be cessation of liability which had remained outstanding and unpaid. Hence the same was added to the assessee's income u/s 41(1).

On appeal, the CIT(A) deleted such addition. On further appeal, the Tribunal dismissed the appeal of Revenue on grounds that there was no cessation of liability.

On appeal, the High Court held that,

Whether if non-payment of outstanding liability is admitted & also acknowledged as yet to be paid, such admission amounts to remission or cession of liability - NO: HC

++ that when an assessee makes an allowance or deduction in respect of loss, expenditure or trading liability incurred, any amount obtained in cash or in any other manner; or when there is remission or cessation, the amount obtained or the value of benefit accruing by way of remission and cessation shall be deemed to be profit and gain of the business or profession. The word "cessation" is used in sec. 41(1) connote that the debt has become extinct, has come to an end or it has been forfeited. Whereas, the "Remission" implies cancellation or extinguishments of all or part of the financial obligation on part of the creditor;

++ In the present case, there was no unilateral act by way of remission or cessation by the assessee, as the assessee had not written off the outstanding amount payable to M/s.P.T. Polysindo. This is also not a case where benefit in any form or in cash was received by the assessee;

++ Thus, the non-payment of outstanding liability which is admitted and acknowledged as due and payable by an assessee does not indicate remission or cession of liability. When an assessee suffers losses, payments and debts due including those due to financial institutions are not paid. Delay or non-payment, even when the Assessing Officer is of the opinion that likelihood of payment was remote as business has stopped, would by itself not denote and mean cessation or remission of liability.

Revenue's appeal dismissed

2018-TIOL-1839-HC-KAR-WT

CIT Vs MEENAKSHI DEVI AVARU: KARNATAKA HIGH COURT (Dated: August 30, 2018)

Wealth tax Act - Sections 2(ea), 2(m), 4(8)

Keywords - assets belonging to - exemption clause - net wealth - ownership - protective assessment - pending litigation - urban lands

The assessees are sisters of Sri. Srikantadutta Narasimharaja Wodeyar, Son of the Ex-Ruler of Mysuru, whose entire property in question known as "Bangalore Palace and its lands appurtenant" came to be acquired by the State Government by enacting the legislation known as "Bangalore Palace (Acquisition and Transfer) Act, 1996". Prior to the said enactment, the family members had partitioned the entire property situated in the City of Bengaluru in the year 1984 and the assessees i.e., the five sisters, got approximately 28 Acres of land each in their hands, while the remaining land and the Building of the Palace itself fell in the share of the brother, Shri. Shrikantadatta Narasimharaja Wodeyar. Later on, about 45 Acres of the remaining land came to be transferred to one M/s. Chamundi Hotels Private Limited, a closely held Limited Company of the same family. While prior to enactment of "Bangalore Palace (Acquisition and Transfer) Act, 1996", the litigation under the Urban Land Ceiling law of 1976 was going on in respect of the said property. Therefore, the constitutional validity and the vires of the said enactment came to be challenged by all the assessees i.e., the brother and sisters, before this Court, in which interim orders were passed by Single Judge of this Court in the first instance. However, these petitions came to be dismissed by the Division Bench of this Court in a detailed judgment in M/s. Chamundi Hotel (P) Ltd. vs State of Karnataka and others - ILR 1997 Kar.1573, against which the appeals were preferred before the Supreme Court where also, interim orders were passed in favour of assessees, the appeals against which were said to be pending adjudication before the Nine Judges' Bench of Supreme Court viz. Civil Appeal No.3305/1997.

Irrespective of the said fact, the AO under the Wealth Tax Act, passed 'protective Assessments' in the hands of assessee sisters, imposing Wealth Tax on the 'Urban Land' falling in their share measuring about 28 Acres determining its market value, however, the demand raised under the protective assessments was not enforceable and recoverable from the assessees. Still, the assessees approached the FAA, who decided the appeals in favour of assessees holding that the lands in question were not taxable as 'urban lands' in their hands. Challenging the same, the appeals filed by Department before ITAT also came to be dismissed. by the ITAT and against which the Revenue has preferred these Appeals before this Court raising the aforesaid Substantial Question of law and therefore, at the level of the Appellate Authorities under the Act, the determination of liability to pay the Wealth Tax stood decided in favour of the Assessees that the lands in question are not taxable as 'urban lands' in their hands.

On appeal, the HC held that,

Whether Exclusion clause in the definition of term "urban land" u/s 2(ea) of Wealth tax Act, prohibits construction of temporary or semi-permanent structures made of wood/iron which are constructed from time to time for public functions - NO: HC

Whether lands situated within the locals limits of Municipality from which the owners are generating income which is also offered to tax under I-T Act, can be construed as 'barren vacant land' - NO: HC

Whether assets including 'lands' used for productive & income yielding purposes are definitely "urban lands", which are not intended to be excluded from the taxable net under Wealth Tax Act - YES: HC

Whether the term "net wealth" under the Wealth tax Act incorporates within its ambit not only the owners of the assets stricto sensu, but also 'person who are in possession & control of certain assets - YES: HC

Whether 'urban lands' belonging to assessees for which they are not only claiming 'ownership' through litigation but are undoubtedly in possession, dominion & control but also in user of the land yielding income therefrom, cannot be held to be outside the tax net under Wealth-Tax Act - YES: HC

++ the words "belonging to" which determine the basis of levy and attracts the charge of the Wealth Tax under the Wealth-Tax Act are of wider import than the narrower concept of "ownership" of the Assets which is more rigid and narrower in its scope than the words "belonging to". The words 'belonging to' may include within its ambit, the concept of 'ownership' also, but vice versa may not be always true. The 'ownership' of a property continues to be with the owner, even if the property is under some charge or even litigation about the title and possession and such 'ownership' is not lost merely because of such charge over the property like mortgage, statutory charge of unpaid taxes or cloud of litigation over the question of title or possession of said property and such property in that state of being under charge or being under cloud of litigation, will also be subject to taxation in the hands of the owner. The words 'belongs to' make it still more so because, a person who may not be the 'owner' of the property in strict sense can still be subjected to taxation, if the property can be said to be 'belonging to' him. viz. in case of a lease for a long period. However, the word 'owner' or 'ownership' itself is not even defined in the definition Clause of Wealth-Tax Act, 1957. The definition of 'net wealth' defined u/s 2(m) of the Act uses the words "all the assets, wherever located, "belonging to the assessee" on the valuation date, including assets required to be included in his net wealth as on that date u/s 4 of the Act, in excess of the aggregate value of all the debts owed by the assessee will be the 'net wealth'. Similarly, the definition of the word 'asset' u/s 2(ea) of the Act only enumerates the six assets, viz. buildings or lands, Motor cars, jewellery, bullion etc. yachts, boats and aircrafts and urban land and cash in hand;

++ the Explanation of the term "urban land" with which this Court is presently concerned, demarcates the 'urban lands' in any area which is comprised within the jurisdiction of the Municipal Corporations or in any area within 8 kms. from the local limits of any Municipality. The only exclusion is, where the construction of a Building is not permissible under any law for the time being in force or it is used as industrial land or is used as Stock-in-trade. Therefore, this court is of the opinion that the lands in question belonging to the assessees owned and possessed by them through out the period in question cannot be said to be the lands on which the construction of a Building is absolutely prohibited. The said exclusion terms 'construction of a building' does not prohibit construction of temporary or semipermanent structures made of wood or iron or sheds which are constructed from time to time for such public functions or some of them may be even almost permanently standing over the said lands, which are permitted to the Assessees under the interim Orders of the Apex Court. The lands in question are not absolutely barren vacant lands and there is also no dispute that the lands in question lie within the Municipal limits and which is the only criteria to decide whether the lands in question are 'urban lands' or not. It is true that no permanent construction of Building is permitted by the Supreme Court, but the temporary or semi-permanent constructions of Sheds and other structures for public functions from which the Assessees are undoubtedly earning the regular income and which is also offered to tax under the Income Tax Act, the lands in question cannot be said to be falling in the Exclusion category in Clause (b) of the Explanation (1) to Section 2 (ea) of the Act. This Court is of further opinion that the purpose of the said exclusion of 'urban lands' in the Exclusion Clause (b) of Explanation from 1st April 1993 is to exclude from charge of Wealth-Tax only on the absolutely barren vacant 'urban lands', but the assets including 'urban lands' used for productive and income yielding purposes are definitely "urban lands", which were not intended to be excluded from the taxable net under the Wealth Tax Act. Even though the said user of land is permitted under the conditions imposed by the Apex Court and subject to Government control and regulation requiring them to obtain permission from time to time for each function and such permission cannot be normally declined by the State, it is nonetheless a fact that the lands in question are high income yielding lands and therefore, the productive assets for the Assessees who are in full control and dominion over the said land and even themselves claiming to be the 'owners' of the lands in question, they are in full and peaceful possession of the lands in question, also cannot be held to be non-taxable and they cannot be said to have been de facto divested from the dominion and control of these properties;

++ the contention of the assessees is that they are the 'owners' of the lands and the matters are pending before the Apex Court, as would be clear from the Memorandum of their Appeals before the Supreme Court of India and they even claim that the valuation of the entire Bangalore Palace and the appurtenant lands thereto was around Rs. 3,000.00 Crores and that also shows that even though prima facie and without any doubt the Valuation of the assets is much higher than the cap of Rs. 11.00 crores claimed by the assessee's counsel. In any case, this court is not expressing any opinion on the 'Valuation' aspect as already indicated, but the fact remains that highly valued 'urban lands' and the 'urban lands' yielding income subject to the regulations and conditions imposed by the Courts of law or Government Regulations are not intended to be exempted from the levy of Wealth-Tax with effect from Apr 01, 1993, particularly, when the narrower concept of 'ownership' is not the crucial basis or sole determinative factor for levy in the Wealth-Tax Act but, allowing the Assessees to be covered by the tax net for the assets "belonging to the assessees on the Valuation Dates." The Assessees therefore cannot be allowed to take a mutually conflicting stands before the Court of law "that they are owners of Bangalore Palace and the lands appurtenant thereto" while challenging the Bangalore Palace (Acquisition and Transfer) Act, before the Supreme Court and different plea "that they are not the owners of lands and the lands do not belong to them and the lands stood vested in the State Government with effect from Nov 21, 1996 and they were divested of their ownership of these lands" before this Court to contend that they are not liable to pay Wealth-Tax. Such diagonally opposite stand of assessees in Courts of law to serve their purposes is legally not permissible. They cannot approbate and reprobate in the same breath. Section 5(6) of BPAT Act also indicates that the Suit or other proceedings in respect of the said property shall not abate but shall be continued against the State Government. This also suggests that vesting of the said Property in the State can remain subject to litigation and its fate would naturally depend upon the finality in the litigation;

++ theprovision of Section 4 of the Act which mandates the assets "belonging to" other persons also to be included for the purposes of assessments in the hands of assessees is also significant. The said provisions incorporates that in computing the "net wealth" of an assessee, even if the assets are held by the spouse or minor child or by a person or Association of persons to whom such Assessees' assets have been transferred/divested, such assets are liable to be taxed in the hands of Assessees. Sub-section (8) of Section 4 also permits the assets to be taxed in the hands of the Assessee, even if the asset is not yet fully de jure transferred to him and invoking the provisions of Section 53-A of the Transfer of Property Act, 1882, the Assessee retains the possession of such property in part performance of the contract. Section 8 deems such a person to be the 'owner' of that building or property and allows taxability in his hands even though the title in favour of the Assessees is not yet crystallized and only on the basis of possession and in part performance of the Contract to purchase that the asset under Section 53-A of the T.P.Act, the Assessee retains the possession thereof. The intention of the Legislature is therefore, to throw the tax net under the provisions of the Wealth-Tax a little wider and not to cover only the 'owners' of the assets stricto sensu. In this perspective, this court is fortified in taking the view that the assets in question namely 'urban lands' belonging to Assessees for which they are not only claiming 'ownership' through litigation but are undoubtedly in possession, dominion and control but also in user of the land yielding income therefrom, they cannot be held to be outside the tax net under the Wealth-Tax Act, 1957. Upon the final decision of the Apex Court, upholding the validity of "The Bangalore Palace (Acquisition and Transfer) Act, 1996", the title of the lands may be divested from the appointed date or a later date but the levy under the Wealth-Tax Act can still hold the ground on the basis of interpretation of the key words 'belonging to' construed to be of wider import and the possession, dominion and control of the 'urban lands' having remained with the Assessees on the respective Valuation dates. On the other hand, if the appeals of the Assessees are allowed by the Apex Court and the BPAT Act, 1996 is struck down, the clear title and 'ownership' of the Assessees would emerge further fortifying their liability to pay Wealth-Tax on such 'urban lands' as 'owners', even though during the period of their litigation, their Wealth-Tax liability is still enforceable upon substantive Assessments as the said 'urban land' continues to 'belong to' them, irrespective of litigation, on the respective Valuation Dates relevant to these Assessment Years.

Revenue's appeal allowed

2018-TIOL-1838-HC-AHM-IT

CIT Vs PARAMOUNT CHARITY TRUST: GUJARAT HIGH COURT (Dated: August 21, 2018)

Income tax - Sections 12A, 12AA & Rule 17A

Keywords - amendment of trusts objects - cancellation of registration - diagnostic treatment center

The assessee, a registered public trust, had applied for registration u/s 12A during the relevant year, and was granted the same. Initially, the object of the Trust had eleven clauses which inter alia included education purpose; research; relief to poor; medical aid in form of donations to the hospitals, dispensaries, convalescent homes, and to organize relief works in normal times as well as during natural catastrophes. The trust deed authorize the trustees to amend the objects as long as the same were for public charitable purpose. During the year under consideration, this trust deed was accordingly amended so as to include providing all kinds of medical, diagnostic, family welfare and general health facilities and treatment to the patients, in the field of allopathy, Homeopathy or Ayurved, without any distinction of castes, creed, race, religion or language basis, either on free of charge or no profit basis. Yet another object added was to import medical or diagnostic machineries and equipments to run a hospital, dispensary, maternity home, etc. The CIT(E) was of the opinion that insertion of these clauses were not informed to him and they mutilated the charitable objects of the trust. On such basis, he proposed to cancel the registration in exercise of powers u/s 12AA. In the process, he rejected the assessee's contention that existing clauses already enable the Trust to open diagnostic center and that therefore, there was no deviation from the charitable objects. On appeal, the Tribunal reversed the order of CIT(E) and allowed registration to the assessee trust.

On appeal, the HC held that,

Whether non-communication of amendment in trust deed to CIT(E), is a mere irregularity and is no ground for cancellation of registration already granted u/s 12A, unless such revision is inconsistent with charitable objects of trust - YES: HC

++ it is seen that the Tribunal was of the opinion that non communication of the amendment in the trust deed was a mere irregularity and would not be a ground for cancellation of registration already granted. The Tribunal did not agree with the Commissioner that running of a diagnostic center was a commercial venture. Therefore, this Court is in broad agreement with the view of the Tribunal. After perusing the existing objects as well as those which were added by an amendment in the trust deed, it is found that the objects in the original trust deed were sufficiently wide and cover range of charitable activities relateable to education, medical aid and help to poor in times of calamities. The existing objects would have enabled the Trust to support the diagnostic center as long as it was done for charitable purpose. The amended objects clarify that such center would be run on no charge, or at any rate on no profit basis. It is difficult to see how the CIT(E) thought such center would be a commercial venture.

Revenue's appeal dismissed

2018-TIOL-1837-HC-AHM-IT

PR CIT Vs SAURASHTRA GRAMIN BANK: GUJARAT HIGH COURT (Dated: August 27, 2018)

Income tax - Section 36(1)(viia)

Keywords - income - interest accrued on advances - NPAs - scheduled banks

A) The present assessee is incorporated as a result of amalgamation of three scheduled Gramin banks by way of Government notification dated Jan 02, 2006. During the year under consideration, it had claimed bad debts of Rs 2,57,35,327/- u/s 36(1)(viia)(a) while filing its return. The said deduction was however denied by the AO, who refused to treat the assessee as a scheduled bank. On appeal, the CIT(A) as well as the ITAT reversed the order of AO and allowed the deduction u/s 36(1)(viia). Challenging the same, the Revenue Department preferred present appeal.

B) The Revenue Department also challenged the order, whereby the Tribunal had deleted the additions made by AO on account of accrued interest on advances which had become NPA.

On appeal, the HC held that,

Whether a duly notified scheduled bank is eligible for deduction of bad debts u/s 36(1)(viia) - YES: HC

Whether since a scheduled bank is not required to recognise income from NPAs on accrual basis, hence interest on NPAs are also not taxable on accrual basis - NO: HC

++ it is seen that three Gramin banks were duly notified as scheduled banks as per the Government notification dated Jan 02, 2006, after their amalgamation, bringing into existence Saurashtra Gramin Bank i.e. the present assessee. On account of such facts, the CIT(A) and the Tribunal concurrently held that the assessee bank would also be a scheduled bank and consequently allowed the bad debts u/s 36(1)(viia)(a) of the Act. Such being the position, there is no error in their view, and hence, no question of law arises for consideration of this Court;

++ as far as interest on NPAs are concerned, it is seen that this issue is squarely covered by the judgment of the Division Bench of this Court in case of Principal Commissioner of Income Tax v. Shri Mahila Sewa Sahakari Bank Ltd - 2016-TIOL-1729 -HC-AHM-IT. This question is also therefore not required to be considered.

Revenue's appeal dismissed

2018-TIOL-1836-HC-AHM-IT

CIT Vs GUJARAT INDUSTRIES DEVELOPMENT CORPORATION LTD: GUJARAT HIGH COURT (Dated: August 27, 2018)

Income tax - Sections 2(15), 11(1)(d) & 40(a)(ia)

Keywords - general public utility - activity in nature of trade - corpus fund - income

The assessee corporation is enacted under State Act and is carrying on the business of acquiring land within the State of Gujarat for industrial purposes and developing industrial estates constructing sheds and housing quarters and transferring facilities to the various industries after creating infrastructural facilities such as roads, streetlights, water supply, effluent disposal, storm water drainage etc. During the course of assessment, the AO was of the opinion that the activities of assessee could not be said to be falling within the expression "advancement of general public utility", as well as the subsidies provided by GIDC as corpus fund would be assessable as income in the hands of assessee. He therefore denied the exemption u/s 11(1)(d) of the Act. When the matter went on appeal, the Tribunal allowed the exemption benefit to assessee.

On appeal, the HC held that,

Whether if activities carried out by a trust are not in the nature of trade or commerce for a Cess or Fee, it does not attract proviso to Section 2[15] of I-T Act - YES: HC

Whether income from properties held under trust would have to be arrived at in normal commercial manner without classification under various heads set out u/s 14 of I-T Act - YES: HC

++ as far as advancement of general public utility is concerned, this issue is covered by the judgment of the Division Bench of this Court in case of Commissioner of Income tax v. Gujarat Industrial Development Corporation - 2017-TIOL-1337-HC-AHM-IT, in which it was observed that: "....GIDC has been enacted for securing the orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing commercial centres in connection with the establishment and organization of such industries and for that purpose, to establish an Industrial Development Corporation, and for purposes connected with the said matters. Considering the object and purpose for which the assessee has been established under the provisions of the Act and the activities carried out by the assessee, it cannot be said that the activities carried out by the assessee can be said to be either in the nature of trade, commerce or business, or rendering any services in relation to any trade, commerce or business for a Cess or Fee or any other consideration so as to attract proviso to Section 2[15]....";

++ as far as corpus funds is concerned, it is seen that the Tribunal has observed that income from properties held under Trust would have to be arrived at in normally commercial manner without classification under various heads stated out u/s 14 of the Act. The expression "income" has to be understood in popular or general sense. The Tribunal relied on the judgment of this Court in case of Commissioner of Income Tax v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust - 2003-TIOL-944-HC-AHM-IT, which view stood approved by the Supreme Court in case of Commissioner of IncomeTax v. Rajasthan and Gujarati Charitable Foundation - 2017-TIOL-463-SC-IT. Hence, no question of law arises.

Revenue's appeal dismissed

2018-TIOL-1835-HC-MAD-ST

PRINCIPAL COMMISSIONER OF GST & CENTRAL EXCISE Vs C KAMALAKANNAN : MADRAS HIGH COURT (Dated: August 23, 2018)

2018-TIOL-1834-HC-MAD-CX

RANE NSK STEERING SYSTEMS PVT LTD Vs COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE : MADRAS HIGH COURT (Dated: August 07, 2018)

2018-TIOL-117-HC-RAJ-GST

BALAJI CONSTRUCTION COMPANY Vs STATE OF RAJASTHAN: RAJASTHAN HIGH COURT (Dated: August 29, 2018)

GST - The petitioner company had applied for migration to GST well within the time limit - However, the petitioner claimed that depsite repeated reminders, the authorities concerned did not complete the process of migration - Thereafter the provisions for migration to GST was closed - Hence the petitioner was unable to file any returns - It had also apprised the authorities about the problems it was facing - Held - Notice issued to parties: HC

Notice issued to parties

2018-TIOL-1831-HC-AHM-ST

ST - Petitioner has prayed for a direction to respondents to allow them to carry forward balance CENVAT Credit available - Rule 117 of Central Goods and Service Tax Rules laid down time limit for filing return and making a declaration for unused CENVAT Credit - Lastly, it was extended till 27.12.2017 - Admittedly, the petitioner did not file return which was to be done electronically till such date - The petitioner's first written communication was on 27.04.2018, in which, petitioner conveyed to departmental authorities that due to portal errors, they could not file necessary declarations - The normal conduct if the attempt was made but failed, would have been to approach the Nodal Officer or grievance cell of department during the currency of time limit for filing the return - In absence of any other material suggesting genuine honest attempt on the part of petitioner to file the return electronically, the same having failed on account of portal error or some such technical error attributable to the department, it would not be possible to extend the time limit for the petitioner: HC

Petition dismissed

CX - The motion is filed for COD of 36 days in filing the appeal challenging the order of Tribunal 2016-TIOL-1455-CESTAT-MUM - Court is satisfied with the reasons for condonation of delay: HC

Notice of Motion allowed

CX - Petition challenges the order of Deputy Commissioner which confirmed the SCN imposing penalty under Rule 26 of Central Excise Rules upon the petitioner as a partner of M/s. Tuffware Industries - Impugned order is subject to appeal under Section 35 of CEA, 1944 - In view of an efficacious alternative remedy available, court decline to exercise extraordinary jurisdiction to entertain the petition under Article 226 of Constitution of India - The issue would require examination and consideration at the hands of appellate Authority - Bearing in mind the fact that petitioner has approached this Court within a period of 60 days from the receipt of impugned order and thereafter spent time in this Court bona fide prosecuting this petition, the delay in filing an appeal to appellate Authority is condoned, if the same is filed within a period of 2 weeks - The decision of Apex Court in M.P. Steel Corporation 2015-TIOL-89-SC-CUS applied to condone the delay: HC

Petition disposed of

Cus - This Motion seeks stay of impugned order of Tribunal till the final disposal of accompanying appeal - The issues which arise for consideration are with regard to breaches committed under CHALR, 2004 - The impugned order had restricted the revocation of licence till 31st December 2015 - The impugned order vacated the cancellation of licence w.e.f. 31st December 2015 - This would entitle the assessee to carry out its business, as CHA - The revenue is not able to categorically state whether the assessee is continuing operation as a CHA or not - Therefore, no further breaches from 1st July 2016 till date is even alleged - Staying the impugned order would in effect be allowing the appeal itself at an interim stage - However, as perversity is alleged, it would be appropriate that the appeal itself be expedited and fixed for final disposal: HC

Notice of motion dismissed

Cus - The appellant-company is engaged as Customs broker - During the period of dispute, the appellant's license was suspended under the provisions of Regulations 19 & 20 of the CBLR 2013 - On appeal, the Tribunal set aside such order of suspension on grounds that delay between the suspension and the notice of deviation or omission, exceeded a period of 90 days - Regulation 20 of the CBLR provide a procedure for revocation of license - The issue at hand is whether such period is mandatory or directory in nature.

Held - If Regulation 20 is construed as mandatory, then mere non-adherance to time limits would give the CHA an undeserved benefit, when the suspension would be revoked & action of revocation would be declared invalid - This would be regardless of the gravity or seriousness of the misconduct indulged in by the CHA - However, it is also inappropriate to indefinitely postpone such proceedings & keep the license in suspension, as this would risk putting the agent out of business - Neither of the two extreme situations are ideal - Hence a balance must be struck by construing that the time limit for completion of inquiry for revoking the licence or imposing the penalty and keeping the licence under suspension should be 'reasonable period', depending on the facts and circumstances of each case - There is also no absolute principle to determine what the 'reasonable period' is - Principles of fairness require that any deviation in time schedule owing to uncontrollable circumstances must be explained & accounted for at every stage at which the delay occurs - Only this way can a Regulation effectively safeguard the interests of the Revenue as well as those of the agent - The principle which is to be applied to construe whether the Regulation is directory or mandatory, must be tested by examining the consequences of the Regulation being treated either way in the context of the aim and object of the provision - When a statute prescribes a thing to be done in a particular manner, it must be performed in such a manner - Hence the use of the word "shall" in the Regulation has been construed as mandatory - Thus, the time limit in Regulation 20 cannot be construed as mandatory & must be treated as directory in nature - However, even if time limit is crossed, the period subsequently consumed for completing the inquiry should be justified by giving reasons & the causes on account of which the time limit was not adhered to - This would ensure that inquiry proceedings are swiftly completed & are not prolonged - Such reasons would determine whether the deviation is reasonable - Therefore in the present case, the Tribunal was not justified in setting aside the order of suspension of the Customs broker license - It cannot be laid down as an absolute proposition of law that delay in taking immediate action of suspension or initiation of inquiry within a period of 90 days would vitiate such action - Hence the matter is remanded to the Tribunal for fresh adjudication: HC (Para 1,11,13,15,16)

Revenue's appeals allowed