2018-TIOL-03-HC-MUM-BM

YASHOVARDHAN BIRLA Vs INCOME TAX SETTLEMENT COMMISSION : BOMBAY HIGH COURT (Dated: December 20, 2018)

Black Money Act - Section 19(1)

Keywords - full disclosure - interim stay - notice issued under Black Money Act - settlement application - undisclosed foreign income

The assessee is an individual. For the relevant year under consideration, he had moved an application before the Settlement Commission, seeking settlement of cases of assessments for the A.Ys 2008-09 to 2014-15. This Settlement Application came to be dismissed by the Commission, principally on the ground of lack of true & full disclosures of income. This order of Commission had been challenged under present petition.

However, during pendency of this petition, the assessee was visited with a notice issued by the Add CIT, Mumbai u/s 19(1) of Black Money and Imposition of Tax Act, 2015, calling upon him to produce certain documents in connection with the assessment for A.Y 2016-17, on the ground that the office was in possession of information of the assessee's undisclosed foreign income and assets during previous year. This notice contained the anexures, under which, it is further stated that, the office of the Commission had received information under DTAA with Switzerland that the assessee was beneficial owner of undisclosed bank account of a Swiss Bank.

Therefore, by way of proposed amendment, the assessee had sought permission to bring on record these developments and as a consequential prayer, contended to add an interim prayer that pending adjudication of the writ petition, the said notice be stayed.

On Writ, the HC held that,

Whether a taxpayer deserves permission to amend the writ and seek consequential relief on the basis of notice issued under Black Money Act on an independent cause of action, during pendency of his writ against SETCOM's ruling - NO: HC

++ it is noted that the Commission has rejected the assessee's request for settlement of cases for the A.Ys 1998-99 to 2014-15. The notice issued by the Competent Authority under the Black Money Act, is an independent issue and a fresh proceeding instituted against the assessee under the said Act. Whether the order of the Commission and the ultimate outcome of the Petition, would cast a shadow on the proceedings instituted under the said Act, is neither possible nor necessary for this Court to pronounce at this stage;

++ this Court however, makes it clear that the said notice is an independent cause of action and is based on the materials mentioned in the notice itself. It is always open for the assessee to take recourse of legal options in connection with the said notice. However, in the present Petition, this Court is not inclined to allow the amendment by bringing on record such additional developments and the interim prayer against the notice. The Petition would proceed after hearing Advocates on both sides, at which stage, the Court would also examine whether interim protection should be granted to the assessee or not. Whatever be the effect of culmination of the said exercise, either in the nature of final judgment or interim order, it would always be open for the assessee to consider the effect thereof on the proceedings arising out of the said notice under Black Money Act.

Case disposed of

2018-TIOL-2702-HC-MUM-IT + Case Story

Income tax - Sections 11, 13(2)(b) & 13(3)

Keywords - diversion of funds - exemption benefit - purchase in name of trustee - prohibited person

The assessee is a trust registered u/s 12AA and engaged in the activity of running educational institution. For the relevant A.Y, the assessee had filed its return declaring Nil income. During the course of assessment, the AO noted that the asssessee had purchased one Skoda car valued at Rs.11.38 lakhs in the name of one of its Trustee Mr. Sandeep Pachpande i.e. person specified u/s 13(3). Accordingly, the AO passed an order u/s 143(3) denying the benefit of exemption to the entire income u/s 11, thus bringing to tax its entire income of Rs.5.14 Crores in view of Section 13(2)(b) r/w/s 13(3).

The matter went before Tribunal, where there was a difference of opinion amongst two members constituting the bench, and inter alia, it was referred to the third member, who held that denial of exemption u/s 11 should be limited to the amount which had been diverted to purchase the car in the name of prohibited person u/s 13. In view of the same, the Regular Bench of the Tribunal denied the benefit of Section 11 only to the extent the income was diverted/ used to purchase a car in the name of trustee.

On appeal, the HC held that,

Whether exemption benefit available to a charitable trust u/s 11 can be denied only to the extent of quantum of diversion of income and not the entire income of such trust - YES: HC

++ is is found that the the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions, after having noted that the decision of Supreme Court in Bharat Diamond Bourse does not very clearly specify whether it is only the income diverted as loans to a person specified u/s 13, which was denied the benefit of Section 11 or the entire income was denied the benefit of exemption u/s 11. A close reading of the decision of Apex Court in Bharat Diamond Bourse, does not extend the benefit of Section 11 to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the present case was whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions, dealt with the very issue herein viz. the denial of exemption of entire income u/s 11 or is the denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13. The Court held that the benefit of Section 11 will not be available only in respect of the diverted income;

++ moreover, on a plain reading of Sections 11 and 13, it is clear that the legislature did not contemplate the denial the benefit of Section 11 to the entire income of the Trust. If the interpretation sought to be advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out that the decision of Karnataka High Court in Fr. Mullers Charitable Institutions, was carried by the Revenue to the Supreme Court and its SLP was dismissed. In the said view, the view taken by the Tribunal is in accord with the view of Karnataka High Court in Fr. Mullers Charitable Institutions, Delhi High Court in Agrim Charan Foundation and this Court in Sheth Mafatlal Gagalbahai Foundation Trust. Hence, the proposed question does not give rise to any substantial question of law.

Revenue's appeal dismissed

2018-TIOL-2701-HC-MUM-IT

Income tax - Sections 50C & 269UL

Keywords - capital gain - formal development agreement - sale consideration - stamp duty valuation

The assessee, an executor of the estate of deceased, had filed the return declaring total income of Rs.1,63,86,880/. Thereupon, the return was taken in scrutiny, wherein it was noticed that the assessee had entered into a MoU with Mahavir Builders, agreeing to assign them development rights in respect of the immovable property for a consideration of Rs.2.51 crores. This was done after obtaining necessary NOC u/s 269UL of Income Tax Act from the competent authority. This MOU however, could not be converted into a formal development agreement till September, 2004. At the time of execution of the agreement, the stamp duty authority assessed the value of the property for the purpose of stamp duty collection at Rs.4,63,73,500/-. The AO therefore invoked Section 50C and computed capital gain on the basis of stamp duty valuation of the property in question.

Not satisfied, the assessee approached the CIT(A), who, in relation to the dispute on hand, accepted the assessee's two primary contentions. Firstly, that the MOU was executed in the year 2001 after obtaining NOC from the Revenue authorities, whereas the formal development agreement was executed in September, 2004 which was on the same terms and conditions as the MOU. The stamp duty authority had assessed the value of the property on the date of the execution of development agreement. The assessee also contended that the valuation made by the stamp duty officer was on larger piece of land admeasuring 7644 sq.meters, whereas the assessee had sold only 3872 sq.mters out of such larger area. The CIT(A) accepted both these contentions and allowed the prayer of assessee.

On appeal, the HC held that,

Whether stamp valuation made on the date of execution of formal development agreement, can be considered for the purpose of collecting capital gain tax, if there is substantial gap between the date of execution of MOU - NO: HC

++ from the record, it can be seen that there were two significant factors why the CIT(A) and the Tribunal did not adopt the valuation of stamp authority for the purpose of collecting capital gain tax in the hands of assessee. Firstly, there was a gap of nearly three years between the date of execution of the MOU and the execution of a formal development agreement. Obviously, the valuation made by stamp authority was as on the date of execution of the development agreement. Secondly and more importantly, the stamp valuation of Rs.4.63 crores was for a larger area of 7644 sq. meters where the assessee had assigned the development rights only with respect to 3872 sq. meters. Under these circumstances, the Tribunal has committed no error.

Revenue's appeal dismissed

2018-TIOL-2700-HC-KAR-IT

Income tax - Sections 10(12) & 54

Keywords - accumulated provident fund - investment in residential property - possession of property

The assessee is a Consultant by profession and he had filed his return declaring a income of Rs.1,18,03,300/-. His case was taken up for scrutiny and the assessment was completed u/s 143(3) determining the assessee's income at Rs.5,16,93,547/-. On appeal, the CIT(A) deleted the additions made by AO on account of denial of exemption u/s 54. However, he did not render any finding on the variations made by AO to the computation of long term capital gain. In respect of the additions on account of withdrawal from provident fund amount, the CIT(A) deleted Rs.82,00,783/- without rendering any finding in respect of the interest received on Provident Fund balance.

On further appeal, the Tribunal noted that the sale deed was produced before the AO showing the transfer of property in his name and the assessee was also put in possession of the property. Therefore, the material indicated that the assessee had invested the sale consideration in acquiring a residential premises and taken possession of the same. The object of enacting Section 54 was to encourage investment in a residential building, was completely fulfilled. Therefore, the Tribunal extended the benefit of Section 54F to the extent of investment made within a period of twelve months.

On appeal, the HC held that,

Whether delay occured in completion of construction work, which is not attributable to the investor but the builder, should not form basis for denial of exemption u/s 54 - YES: HC

++ in the instant case, the investment is made in a new property. The construction was not completed within a period of three years as narrated u/s 54. The delay was not because of the assessee, but beyond his control, since the construction was put up by the builder. He has invested the amount of Rs.2,26,82,097. Therefore, following the judgment, the Tribunal rightly held that the said investment is made towards construction of the property. Therefore, it requires to be exempted. Under these circumstances, there is no error in arriving at such a conclusion;

Whether an individual is eligible for exemption on the entire accumulated amount in his provident fund from the date of his retirement - YES: HC

++ further, in the instant case, the assessee retired on April 01, 2002. As on that date, the amount accumulated in the Provident Fund was Rs.37,93,888/- and he did not withdraw the same. He sought to withdraw it only on April 11, 2011. The accumulated balance as on that date was Rs.82,00,783/- which constituted the interest on the amount of Rs.37,93,588/- as on April 01, 2018 onwards. By relying on the provisions of Section 10(12), the Tribunal held that so far as to the extent of the amount as on the date of retirement is concerned, the assessee is eligible for exemption. Therefore, law has been rightly applied by the Tribunal. What is relied by the AO is only the amount as was available on the date of retirement. It is the amount on that date that was held to be eligible for exemption and not the accumulated amount.

Revenue's appeal dismissed

2018-TIOL-2699-HC-KAR-IT

Income tax - Sections 139(5), 143(3) & 148

Keywords - double taxation - reopening notice - receipts previously taxed - verification of returns

The assessee is an individual engaged in the business of Interior Decoration. He filed his return declaring total income of Rs.5,46,400/- and the same was accepted determining a refund of Rs.1,78,270/-. Later on, the return was processed u/s 143(3) determining the total income at Rs.6,47,802/-. The said assessment order was however set aside by the CIT u/s 263. A survey u/s 133A was conducted in the business premises of assessee, pursuent to which, a notice u/s 148 was issued. In response, the assessee filed a return declaring total income of Rs.80,58,140/- by taking into account the additional income of Rs.75,11,742/- considering certain receipts and expenses, which were already offered to tax for the A.Y 2003-04. Pursuant to the same, a notice u/s 143(2) was issued, wherein the AO recomputed the total income at Rs.81,59,540/- and interest was also levied.

On appeal, the HC held that,

Whether returns already submitted in response to Section 148 but not considered then by the Revenue authority, merits re-verification in terms of Section 139(5) to ascertain as if receipts already taxed in previous A.Ys shall not be taxed twice - YES: HC

++ on considering the contentions as well as the material on record, the same would prima facie indicate that the orders cannot be sustained on the ground that the same would amount to double taxation. That the receipts already being taxed so far as the A.Y 2002-2003 is concerned, could not be taxed for the A.Y 2003-2004. The said receipts pertain to M/s. Prestige Leusures Resorts Private Limited and M/s. Millenium Developers to an extent of Rs.1,21,51,444 and 21,76,182/- respectively. Therefore, in order to appreciate the facts and contentions, it would be necessary for the AO to redetermine the income for A.Y 2003-2004 insofar as it pertains to M/s. Prestige Leusures Resorts Private Limited and M/s. Millenium Developers. It is only on doing such an exercise, that the true picture on double taxation or otherwise could be ascertained. However, Revenue's counsel contends that the question of re-considering the returns already submitted would be improper. That in terms of Section 139(5), the assessee is required to file a fresh return, which would be considered by the Revenue. The same is objected on the ground that the returns already submitted having not been processed, the same can be considered by the Revenue. Therefore, in view of the peculiar facts and circumstances of the issue involved, it will be proper, not only in the interest of assessee, but also in the interest of Revenue, that the returns as furnished by assessee subsequent to the notice issued u/s 148, are directed to be considered in terms of Section 139(5). That the delay, if any, shall not be taken in to consideration while considering the said revised return.

Case disposed of

2018-TIOL-2698-HC-AHM-CUS

Cus - Appellant has submitted that Tribunal while dismissing their appeal had placed reliance upon the decision of Delhi High Court in case of Orion Enterprises 2015-TIOL-1991-HC-DEL-CUS - It was submitted that said decision was subsequently reviewed by Delhi High Court and the court had held in favour of assessee - It was submitted, therefore, the Tribunal was justified in not rectifying its order which was based upon the earlier order of Delhi High Court - It was further pointed out that the Tribunal has placed reliance upon Notfn 67 issued under rule 11 of Export (Quality Control and Inspection) Act, 1963 to hold that proportion of non-basmati rice in export being in excess of 20%, prohibition in terms of notification applies to all the consignments and accordingly, confirmed the order of confiscation and penalty under section 114(1) of Customs Act, 1962 - It was submitted that it is nowhere the case of revenue that the notification is applicable in the case of assessee and therefore, in the absence of assessee having been called upon to show cause in this regard, the Tribunal could not have placed reliance upon the said notification - Proposed Question admitted: HC

Appeal admitted

2018-TIOL-2697-HC-DEL-CUS

Cus - The assessee’s grievance is that its appeal before Tribunal was not dealt with but was merely dismissed on the ground that the Revenue’s appeal was rejected - The Revenue’s appeal was confined to the issue of valuation of goods whereas the assessee’s appeal was in respect to re-export the goods on an assumption of its liability and certain other grounds - The Tribunal completely failed to apply its mind - This Court expresses its regret that Tribunal which is under a duty to consider the appeals pending before it, on their merits, appears to have completely abdicated its responsibility merely on two circumstances; firstly, that the Revenue’s appeal was rejected and secondly, that this Court had been approached on an earlier occasion for some directions - This can hardly be grounds for dismissing the appellate remedy, upon which compulsorily the Tribunal has to record findings on each of the contentions urged - The impugned order is therefore set aside - Parties are directed to be present before the Tribunal for further proceedings: HC

Appeal allowed

2018-TIOL-2696-HC-MUM-CX

CX - The entity in this appeal is MRNM Trust - It has been described as Mathurabai Rambhau Narkhede Memorial Trust, but in the memo, it is stated that it is public charitable trust registered under the then Bombay Public Trust Act, 1950 - In terms of Trust deed, the Income/surplus has to be applied only for the object of Trust which is imparting education - The Trust claims to rely upon the Trust Deed and the fact that at the relevant time, it was imparting education through two institutes, one is Sun Hi-Tech and the other is IIMT - Once the matter was sent back by Commissioner (A) and thereafter the O-I-O was passed, then, the merits of both orders are before the Tribunal - The Tribunal refrains from going into the merits of the matter and rests its finding on a technical issue of maintainability - When the Tribunal was aware that it's bounden duty was to scrutinize the orders brought before it on merits and adjudicate the issue of taxibility, then, it should not have indulged itself and wasted its time on such technical matters which do not go to the root of the case at all - Once it has not performed its obligation/duty, then, court cannot sustain the order under challenge - The order under challenge in appeal ST/86461/2014 is quashed and set aside - Both appeals are restored to the file of the Tribunal for adjudication on merits and in accordance with law: HC

Appeals allowed

2018-TIOL-2695-HC-KERALA-CT

Kerela GST - Writ - Section 26C

Keywords - liability of Director - recovery proceedings - stipulations under Companies Act

The assessee, who is the Director of a private limited company, had preferred the present petition challenging the revenue recovery proceedings, by contending that the provisions of Section 26C of Kerala GST Act, 1963 was unconstitutional and that there could be no proceedings taken against the Director of a private limited company and if at all such a proceeding was taken, then it had to be subject to the provisions of the Companies Act.

On Writ, the HC held that,

Whether the Director of a Private limited company can be chased u/s 26C of Kerela GST Act for recovery of company's liabilities, but not in contravention of the Companies Act - YES: HC

++ it is found that both the issues under present petition, stands covered by two judgments of two different Division Benches of this Court. The first question on constitutionality is against the assessee and the next against the Revenue. In case of Jose Kurian v. The Deputy Tahsildar (RR) (Writ Appeal No.2314/2008), it was found that from the words employed u/s 26C, without first proceeding against the assessee company, there could be no proceedings taken against the Directors. There can also be no simultaneous proceedings against the Director. Section 26C specifically speaks of joint and several liability of every person who was a Director of a private limited company, only if the tax or other amounts recoverable under the Act cannot be recovered for any reason from the private company. Hence the proceedings has to be taken first against the company and there should also be sufficient material to show that the recovering authorities were not able to recover the amounts from the assessee company. There is no such averments made by the Government in the counter affidavit also;

++ it is also noticed that Section 26C is subject to the provisions of Companies Act, 1956. The assessee's counsel would submit that if at all a proceeding is taken against the Director after finding the recovery against the company to be futile, then the Director would be entitled to raise all available contentions as per the Companies Act. There is sufficient support for such submission from the decision of another Division Bench in Mohammed Harid, v. District Collector [(2014) 2 KLT 102]. This Court had declared that since Section 26C contains a specific clause that it would be subject to the Companies Act, if any statutory right or protection is available to the Director under the Companies Act, contravention of the same could be taken as a defense against the recovery.

Case disposed of