2018-TIOL-1912-HC-MUM-CX

COMMISSIONER OF CGST &ND CENTRAL EXCISE Vs WELLKNOWN POLYESTERS LTD : BOMBAY HIGH COURT (Dated: September 07, 2018)

2018-TIOL-1911-HC-MUM-CX

LUDHIANA WOOLEN AND SILK MILLS PVT LTD Vs CCE : BOMBAY HIGH COURT (Dated: September 05, 2018)

2018-TIOL-1910-HC-MP-CX

CC, C & CE Vs INDORE STEEL CASTING PVT LTD: MADHYA PRADESH HIGH COURT (Dated: July 9, 2018)

2018-TIOL-1906-HC-P&H-CUS

P R PRODUCTS Vs CC : PUNJAB AND HARYANA HIGH COURT (Dated: August 28, 2018)

2018-TIOL-1905-HC-DEL-CUS

DONYIO POLO TIMBERS PVT LTD Vs CC : DELHI HIGH COURT (Dated: September 7, 2018)

2018-TIOL-1904-HC-MUM-CX

COMMISSIONER OF CGST & CENTRAL EXCISE Vs JAI CORPORATION LTD : BOMBAY HIGH COURT (Dated: September 7, 2018)

2018-TIOL-1903-HC-DEL-IT

CIT Vs BHARAT HOTELS LTD : DELHI HIGH COURT (Dated: September 6, 2018)

2018-TIOL-1902-HC-DEL-IT

CIT Vs JRD STOCK BROKERS PVT LTD : DELHI HIGH COURT (Dated: September 12, 2018)

2018-TIOL-1901-HC-MAD-IT

Pr.CIT Vs M P PURUSHOTHAMAN : MADRAS HIGH COURT (Dated: August 6, 2018)

 

2018-TIOL-1899-HC-DEL-IT

Income tax - Section 158BC(1)

Keywords - block assessment - undisclosed income

DURING the year under consideration, one Mr. Sunil Aggarwal, engaged in the business of plastic raw material and carrying on a commercial activity under two proprietorship concerns M/s Polychem Traders and M/s Petrochem Overseas (India), was subjected to search and seizure operations at both his residential and business premises. The said Mr. Sunil Aggarwal was also a Director in Petro Impex (India) Pvt. Ltd. The ensuing assessment in the block period was completed u/s 158BC(1) at an undisclosed income of Rs. 3,71,79,576/-. In the course of the search proceedings, substantial cash was found with the present assessee i.e., Gopal Singh Sood, who was an employee of Sunil Aggarwal. He too was subjected to income tax proceedings. In the assessment order by AO u/s 158BC, two amounts of Rs. 86 lakhs and Rs. 41 lakhs were added. On appeal, the ITAT set aside the amounts brought to tax.

On appeal, the ITAT held that,

Whether once undisclosed income seized stands surrendered under block assessment and assessed to tax on substantive basis, then no protective addition of the same amount can be made in hands of other assessees - YES: HC

++ it is evident that the sum of Rs. 86 lakhs, though seized from the present assessee was surrendered, offered and accepted as part of the larger amount of Rs. 2.26 crores by the asseesse's employer i.e. Mr. Sunil Aggarwal and as such no question of law therefore arises because that amount was brought to tax. As far as the other sum of Rs. 41 lakhs is concerned, it is noticed that the Revenue does not appear to have even preferred an appeal before this Court against the order of the ITAT made at the hands of Mr. Sunil Aggarwal, on a substantive basis. In these circumstances, the insistence on stating that that amount should be added in the hands of the present assessee, is not justified.

Revenue's appeal dismissed

Income tax - capital receipt - non compete fee - reasons for reopening - remand proceedings

THE assessee, an individual, had filed his return admitting a total income of Rs.3,51,885/-. The said return was processed u/s 143(1) and an intimation was received by the AO of the assessee from Asst CIT, Chennai that M/s.Citadel Aurobindo Biotech Limited (CABL) had paid a sum of Rs.6 Crores to the assessee being non compete fee. Based on such intimation, the assessment was reopened by issuance of a notice u/s 148. The assessee however requested that the original return filed might be treated as the return filed in response to reopening notice and also requested the reasons for reopening. After verification of the details furnished and going through the return, the assessment was completed at an income of Rs.6,03,51,885/- after adding back the entire amount of Rs.6 Crores being the amount of non compete fee received by assessee from the CABL and treating the same as income from business & profession received and accrued during the year under consideration.

On appeal, the CIT(A) granted relief to the assessee and deleted the addition of Rs.6 Crores under the head 'non compete fee'. On further appeal, the Tribunal restored the matter back to the file of FAA with certain directions. Consequently, the CIT(A) took up the matter on remand. In the meanwhile, the said Mr.M.S.Krishnamurthy died and his legal representative and son Mr.K.Rajiv was permitted to represent the deceased assessee. The CIT(A) thereafter held that the amount of Rs.6 Crores received/ receivable by the assessee was treated only as capital receipt, that since he was not an employee of the new company, the receipt of non compete fee could not be treated as profit in lieu of salary and that therefore, the addition of Rs.6 Crores was deleted. Not satisfied, the Revenue again approached the Tribunal, and the matter was once again remanded back to the file of CIT(A).

On appeal, the HC held that,

Whether the Tribunal being the last fact-finding authority, should refrain from exercising remand process in a routine manner, unless any new material is added on record requiring fresh consideration - YES: HC

Whether non-compete fee received under a contractual covenant has to be construed as capital receipts only and not profit in lieu of salary - YES: HC

++ the short issue, which falls for consideration, is as to whether the Tribunal could have remanded the matter for the second time to the CIT(A) for a decision as to whether the sum of Rs.6 Crores received/receivable by the assessee should be treated as a capital receipt or a revenue receipt. In case of Cholamandalam MS General Insurance Co. Vs. Assistant/Deputy CIT - 2013-TIOL-513-HC-MAD-IT, two of the questions, which fell for consideration, were as to whether the Tribunal exercised its power of remand judiciously and in accordance with law and as to whether the Tribunal was right in law in remanding the matter back to the file of AO even when no new material had been produced before it and when all the materials were placed before the lower authorities. While answering the questions, the Division Bench of this Court held that in the background of the jurisdiction of the Tribunal as a Fact Finding Authority, the Tribunal should have acted with greater circumspection to order a remand, particularly when the Revenue itself did not dispute that the materials were all those that were considered by the AO. It was pointed out that remand is not a power to be exercised in a routine manner and should be used sparingly as an exception only when the facts warranted such course of action. It was held that the Tribunal should have arrived at its own conclusion on facts after due consideration of the materials before it, which were no different from which were placed before the lower Authorities;

++ in present case, there is no dispute in respect of the fact that the assessee did not place any new material before the Tribunal even in the first round, when it passed the order remanding the matter to the CIT(A). A perusal of the order passed by the Tribunal would show that the Tribunal referred to the case of two other directors of the company namely Mr.P.Rajendra Rao and Mr.M.Ranjan Rao and in the case of those assessees, certain documents were filed by them at the appellate stage. Therefore, the Tribunal passed an order to remand the matter. When this was placed before the Tribunal, it appears that the authorized representative of the assessee did not raise a serious objection to the remand. The Tribunal, following the decision in the case of the said Mr.M.Ranjan Rao, allowed the appeal filed by the Revenue and remanded the matter to the CIT(A). Thus, it is evidently clear that there is absolutely no fresh material produced by the legal representative of the deceased assessee before the CIT (A) or before the Tribunal. Nevertheless, on remand, the matter was taken up for consideration by the CIT(A). Thus, the scope of remand order passed by the Tribunal was essentially to examine the nature of receipt/ receivable of Rs.6 Crores and as to whether it is a capital receipt or revenue receipt. Further, the scope of remand was to compare the case of the assessee with that of the other two directors namely the said Mr.P. Rajendra Rao and the said Mr.M.Ranjan Rao;

++ it is found that the CIT (A) had scrupulously followed the directions issued by the Tribunal, taken note of the judicial precedents as well as the factual position and discussed the differences and the substantiating features between the assessee and the two directors such as the said Mr.P.Rajendra Rao and the said Mr.M.Ranjan Rao. This distinction in the nature of differences in the facts of the case was brought out by the CIT(A). From the details furnished therein, it is clear that the assessee was never an employee in the new company and therefore, the assessee had a scope to compete. Further, there was no employer employee relationship between the payer company and the assessee and therefore, the payment could not be assessed under the head 'salary'. Further, the CIT(A) held that the legal representative of the deceased assessee had not raised any new point at first appellate stage for deciding the issues. Thus, there was no sufficient material before the Tribunal to remand the case for a fresh consideration at the first instance. The next issue, which was taken up for consideration by the CIT (A) was with regard to the distinction between the non compete fee and the goodwill. It is relevant to point out that out of Rs.6 Crores, the assessee received only Rs.1 Crore and by the time the remaining payment was made, the company namely the CABL became defunct for having incurred huge losses during the financial years 2003-04 and 2004-05 with negative net worth of Rs.68.49 Crores. When the Revenue carried the matter by way of appeal challenging the order of the CIT(A), the Tribunal ought to have decided the issue, if, in its opinion, the finding rendered by CIT(A) was either factually incorrect or legally not tenable. However, there was no such finding to that effect. But, the Tribunal proceeded on the basis that the assessee should bring materials or evidence on record to substantiate or prove his claim. The Tribunal ought to have examined the case based upon the covenants contained in the agreement between the CABL and the assessee;

++ the non compete agreement states that for a period of ten years, the assessee would refrain himself from carrying on the business of marketing/promoting ethical allopathic branded pharmaceutical formulations in the Union of India and the Kingdom of Nepal. The covenanter namely the assessee acknowledged that if he was not restricted from competing with the CABL, the CABL would potentially suffer considerable economic prejudice including the loss of custom and goodwill. Accordingly, it was decided that to protect the interests of the CABL, the covenanter namely the assessee agreed to a restraint of trade undertaking in favour of the CABL to ensure that he was precluded from carrying on certain activities, which would be harmful to the business of the CABL. Thus, it is evidently clear that the case of the assessee could not have been treated on par with other persons such as the said Mr.P.Rajendra Rao and the said Mr.M.Ranjan Rao for the simple reason that the said persons had become the employees of the payer company, that the payment was received from the prospective employer and that the Department made a submission that there was no scope for competition. However, the facts of the present case are wholly different. The Tribunal does not dispute the covenants contained in the said agreement nor can it dispute the same in the absence of any evidence produced by the Department. The said payment of non compete fee is bound by a contractual requirement and it is a contractual right conferred on the assessee and in the event any violation, it was well open to the assessee to enforce the terms of the contract. Thus, it is found that the order of remand passed by the Tribunal is wholly unjustified and the facts as brought out by the CIT(A) after the first remand are just and proper and in the absence of any new material produced by the assessee, the question of remanding the matter does not arise.

Assessee's appeal allowed

2018-TIOL-1896-HC-KAR-IT

Income tax - application of income - carry foward of deficit - income of charitable institution - general commercial principles

THE Revenue Department preferred present appeals challenging the action of ITAT in holding that the assessee development authority was eligible for carry forward of its deficit to subsequent years when the income of a charitable or religious trust/institution was required to be computed by applying general commercial principles without referring to the regular provisions of Income Tax as contained under Chapter-IV and as such while arriving at the income of a charitable or religious trust/institution, various heads of income as contemplated u/s 14 and specific provisions of computation of income under respective heads as envisaged u/s 15 to 59 were not pressed into action.

On appeal, the HC held that,

Whether adjustment of expenses incurred by a trust for charitable purposes in earlier years against its income earned in subsequent years, is to be construed as application of income - YES: HC

++ it is noted that that the controversy raised under present appeal is covered by a decision of this Court in ITA No.231/2018 in the case of Pr. Commissioner of Income- Tax (Exemptions) and Another vs. M/s Green Wood High School, wherein it was observed that: "....With regard to carrying forward of the losses for being set off against the income of the charitable trust for the present Assessment Year, the controversy is covered by the judgment in Commissioner of Income Tax (Exemptions) and another Vs. Ohio University Christ College in ITA.No.312/2016 and ITA No.313/2016, in which this Court held that, allowing any expenditure of the earlier year which has been brought forward and set off in the year under consideration, is a justified finding of fact based on the correct interpretation of law and the judgment relied upon by it rendered by the cognate Bench. Therefore, the same does not call for interference. A similar view was also taken by the Division Bench of Bombay High Court in Commissioner of Income tax v. Institute of Banking - 2003-TIOL-1106-HC-MUM-IT, wherein the Division Bench of Bombay High Court held that the income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied, then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year...." In view of the same, this Court is of the opinion that no substantial question of law arises for our further consideration in the present case also.

Revenue's appeal dismissed

2018-TIOL-1895-HC-MUM-CX

CX - Assessee is a public charitable trust and also exempted from tax under the Income Tax Act, 1961 - The assessee renders the service of imparting education - Revenue issued SCNs to the assessee seeking to recover the service tax under head "Commercial Training or Coaching Center" for the period from 1st July 2003 to 1st April 2006 and 1st April 2006 to 31st March 2008 respectively - The grievance of the Revenue is the deletion of demand beyond the normal period of limitation and setting aside of equivalent penalty under Section 78 of the Act - The issue of a charitable institution rendering the service of Commercial Training and Coaching being chargeable to service tax under the Act was a debatable issue before the decision in Sri Chaitanya Educational Committee - 2015-TIOL-1175-CESTAT-BANG was rendered on 1st June 2015 - In fact reference of the above issue to a third member in Sri Chaitanya Educational Committee itself evidences that fact that prior to its decision, a party could have a bonafide belief that a charitable institution rendering the service of Commercial Training and Coaching is not chargeable to service tax under the Act - Thus, no fault can be found with the impugned order of the Tribunal restricting the demand only to that extent of normal period of limitation and deletion of equivalent penalty under Section 78 of the Act: HC

Appeal dismissed

2018-TIOL-1894-HC-MUM-CX

CX - The assessee is engaged in rendering services of selling space and time for advertisement - This involves promoting business by placing advertisements on various forms of media through the advertising agency - The advertising agency facilitate the transaction between the broadcaster and advertiser - The broadcaster raises invoices wherein the name of assessee as the advertiser or that of the advertising agency is also clearly mentioned - The amount discharged by broadcaster is paid by advertising agency and subsequently, reimbursed by advertiser - On the basis of invoices issued by broadcaster, assessee claimed CENVAT credit - Revenue views that assessee is not entitled to claim CENVAT credit of service tax paid in respect of invoices issued by broadcaster in the name of agency - On examination of invoices, Tribunal by impugned order held that the invoices clearly shows that the agency has merely acted to as a conduit for transfer of money from assessee the broadcaster - The grievance of Revenue is that the invoices issued by broadcaster also shows the name of advertising agency, therefore, the assessee could not avail of CENVAT credit on the basis of invoices - Impugned order of Tribunal has rendered a finding of fact that the invoices as issued by broadcaster are in the name of assessee - It also holds on a finding of fact that the advertising agency is merely shown as an agent of the assessee - This finding of fact is not shown to be perverse: HC

Appeal dismissed

2018-TIOL-1893-HC-KAR-VAT

Karnataka VAT Act - Sections 42(6), 62 & 63

Keywords - adjustment of tax dues - discrepancies in compliance - karsamadhana scheme - waiver of interest & penalty.

THE dispute under present case took a spin off with the introduction of a provision by the State Government in the Budget for the year 2017-2018, for a Scheme called 'Karasamadhana Scheme-2017. Pursuant to the said declaration, a Notification No. FD 24 CSL 2017, Bengaluru, dated Mar 31, 2017 came to be issued in order to "enable trade and industry to clear their pending tax liabilities and start with a clean slate in GST". This Scheme provided for waiver of 90% arrears of penalty and interest payable under the respective taxing statutes subject to compliance of certain conditions as stipulated in the Scheme. It provided that the Recovery Officer/Prescribed Authority would scrutinize the application filed by a dealer and after working out as regards to "the actual arrears of tax, penalty and interest payable," call upon him to comply with preconditions/stipulations and rectify the discrepancies, if any, in order to avail benefit under the Scheme. In pursuence of this, the dealers under present case had preferred applications before the competent authority seeking benefit of such scheme. The State Government however, rejected those applications on the ground that computation of arrears of tax, interest & penalty by the assessees, by first adjusting the deposits made during the pendency of appeals against the tax due and then towards the balance of tax and 10% of interest and penalty and, thereupon seeking waiver of 90% interest and penalty had been incorrect as regards determination of 'arrears of tax' or "arrears of interest and penalty" as contemplated under the Scheme. It was alleged that the amount in deposit during the pendency of appeals was to be adjusted first against the head of 'interest' and not under the head of 'tax' as had been resorted to by the assessee. Since the assessees did not accept the mode of determination of arrears of tax, interest and penalty as resorted to by the Prescribed Authority under the Scheme and refused to comply with the demand for the payment of arrears of tax, penalty and interest, the applications came to be rejected.

This rejection order came to be challenged before the Single Judge Bench of this Court, who set aside the endorsement of, rejection of the applications filed by the assessees under the Scheme, while accepting the contention of the assessees that computation of 'arrears of tax, interest and penalty' was to be resorted to by adjustment of amount deposited by the assessees first under the head of 'tax' and thereafter computing the arrears of tax, interest and penalty.

On appeal, the HC held that,

Whether the mere fact that Sections 62 and 63 of Karnataka VAT Act do not use the term 'deposit', is no reason to hold payments made pending appeal under these sections as not being pre-deposits - YES: HC

Whether payments made while preferring an appeal or as a prerequisite to consider the application for stay being statutorily mandated, cannot be the subject matter of appropriation till the adjudication process has reached a finality - YES: HC

Whether only way of reconciling the provisions of Karsamadhan Scheme under Karnataka VAT Act to give effect to the object of granting 90% waiver of penalty & interest, is to adjust the payments made pending adjudication first towards tax and then, towards interest and penalty arrears - YES: HC

Whether remittances made by dealers for admitting their appeals under various statutory provisions which are not referable to any particular component of tax/penalty/interest and are only 'colourless deposits', cannot be deemed to be paid and offset from unpaid amount for calculation of arrears to be waived - YES: HC

Whether payments made under Karsamadhan Scheme of VAT Act and the adjustment of deposit after withdrawal of appeal and after the promulgation of such Scheme, must be appropriated first towards tax arrears - YES: HC

++ in the present case, the assessees' applications have been rejected by the State solely on the ground that the prerequisite condition for eligibility, i.e., payment of entire tax arrears and 10% of penalty and interest, was not complied with, as the assessees had adjusted remittances made whilst filing appeals towards tax, at the first instance and consequently had calculated arrears of tax, penalty and interest which was at variance with the mode of calculation adopted by the State. The Single Judge has relied on the decision of this Court in case of Mangilal S. Jain v. Commissioner of Income Tax and Others - ILR 2003 KAR 2066, wherein it was clarified and rightly held that the appropriation under Explanation to Section 140A of Income Tax Act would apply only where liability had attained finality. Though as regards the 'Kar Vivad Samadhan Scheme 1998,' the CBDT had issued a circular No.FC/149-145/98-TPL dated Sep 03, 1998 wherein it was specifically pointed out that the part payments would be appropriated first towards tax and then towards interest, it would still not alter the appropriation as contemplated under Explanation to Section 140A. In fact, the Court merely relied on the circular as being clarificatory. Hence, inapplicability of appropriation provisions under taxation enactments would remain even as regards the 'Karasamadhana Scheme 2017' notwithstanding lack of clarificatory circular as was available for the 'Kar Vivad Samadhan Scheme 1998'. An allied aspect as regards appropriation is as to the nature of payments/deposits made by the assessees. The Single Judge while disposing the Writ Petitions had observed that payments made pending adjudication of the appeals would be in the nature of colourless deposits till the finality of adjudication;

++ the finding of Single Judge is sought to be assailed by the State contending that the payments made as statutorily mandated either at the time of filing of appeal before the Appellate Authority or for the purpose of seeking consideration of their prayer for interim relief were not preconditions for appeal and hence appropriable. On the other hand, the beneficiaries under the Scheme contend that the payments made either for filing of appeal or consideration of interim relief as statutorily mandated cannot be the subject matter of appropriation. They would also contend that permitting appropriation of payments made pending appeals first towards interest would place them worse-off than those assessees who chose to avail benefit under the Scheme without having made the necessary payments as required by law. It was contended by the assessees that their remittances were under specific heads and not towards interest and hence question of appropriation was never contemplated, and further impressed upon the arbitrary classification and resultant discrimination as compared to assessees who had not even filed appeals or actively pursued the disputes to its logical end. The Single Judge however came to the conclusion that the payments made were colourless deposits. However, it is necessary to note that the mere fact that Sections 62 and 63 of the KVAT Act do not use the term 'deposit', cannot be reason enough to hold payments made pending appeal under these sections as not being pre-deposits. It is clear that the payments made which are referred to by any nomen-clature being made while preferring an appeal or as a prerequisite to consider the application for stay being statutorily mandated, cannot be the subject matter of appropriation till the adjudication process has reached a finality. Thus, the finding of Single Judge as regards the payments made pending adjudication being in the nature of 'colourless deposits' requires no interference;

++ the very Scheme as envisaged in its preamble provided for waiver of 90% of penalty and interest remaining unpaid as on Mar 15, 2017; and further, it provided for payment of tax including arrears and 10% of penalty resulting in waiver of remaining penalty and interest. The purpose and intent of the Scheme was clear that all tax would be cleared and only a portion of penalty & interest need be paid. As per the Scheme, "any dealer who makes full payment of arrears of tax on or before May 31, 2017 shall be granted waiver of 90% of arrears of penalty & interest payable". If Section 42(6) is to be made applicable to the provisions of the Scheme, as contended by the State, and payments made pending appeal were to be appropriated first towards interest in accordance with the parent Acts notwithstanding the Scheme, it would then lead to an absurdity where even assessees making payments for compliance with condition of paying full tax and 10% of interest and penalty arrears in terms of Clause 3.3, would have their payments appropriated towards interest first by operation of Section 42(6) of the KVAT Act or other provisions which are in pari-materia. By the time final application and declaration is moved before the Assessing Authority/Recovery Officer/Prescribed Authority to waive the balance amount, no or very little interest would be left unpaid and the contemplated benefit would never be accorded. Hence, the only way of reconciling the provisions of the Scheme to give effect to the object of granting 90% waiver of penalty and interest is to adjust the payments made pending adjudication first towards tax and then, towards interest and penalty arrears. In this particular case, it is clear that the payments made by the respondents for admitting their appeals under various statutory provisions were under dispute and were not referable to any particular component of tax or penalty or interest and were only 'colourless deposits'. Accordingly, these remittances cannot be deemed to be paid and offset from unpaid amount for calculation of arrears to be waived. Any payments made under the Scheme and the adjustment of deposit after withdrawal of appeal and after the promulgation of the Scheme, must be appropriated first towards tax arrears. In the light of same, the order of Single Judge is upheld.

Revenue's appeal dismissed