TIOL Update, Friday, Aug 19, 2016

NOTIFICATION

Income Declaration Scheme Rules, 2016 - an option now available with declarant to declare fair market value of immoveable property acquired through Registered Deed

MIXED BUZZ

CBDT releases new version of income distribution data

I-T - Section 35AC benefits - CBDT not to entertain requests beyond Dec 31, 2016

CASE LAWS

2016-TIOL-1775-HC-P&H-ST + Story

BHARAT BHUSHAN GUPTA AND COMPANY Vs STATE OF HARYANA: PUNJAB AND HARYANA HIGH COURT (Dated: August 11, 2016)

ST - Notification 25/2012-ST - Haryana Housing Board is a governmental authority as it is fully under the control of the State Government and, therefore, service being provided by the petitioners of construction of BPL houses would clearly fall in the exemption clause - BPL houses constructed by the petitioners are meant for residential purpose and not for commerce, industry or any other business or profession - ST not payable: High Court [para 19, 21]

ST - Action of the Board in deducting part of the service tax, though payable in the hands of the Board, if tax is leviable, from the bills of the petitioners is declared to be illegal: High Court [para 21]

Liability - Action of the Housing Board, even if it is assumed that tax is leviable, to pass on their share of burden as per the provisions of the Act on the contractors is not envisaged in the clause condition 3 of the contract entered into - Where any liability, as per law, is on the Board, that cannot be shifted on the contractors by way of the aforesaid clause: High Court [para 23]

Petitions disposed of

Observations of the High Court:

(i) Whether service tax is chargeable on construction of BPL houses constructed by the petitioners for the Board?

"19. On a plain reading of the notification dated 20.6.2012, in our view, the service being provided by the petitioners would clearly fall in the exemption clause, as the Board is a governmental authority having been set up under a State Act, i.e., Haryana Housing Board Act, 1971. It is wholly controlled by the State Government. BPL houses constructed by the petitioners are meant for residential purpose and not for commerce, industry or any other business or profession.

21. ... it can safely be opined that for the kind of contract entered into between the petitioners and the Board, no service tax is leviable, hence, the action of the Board in deducting part of the service tax, though payable in the hands of the Board, if tax is leviable, from the bills of the petitioners is declared to be illegal."

(ii) Whether in terms of condition No. 3 in the tender conditions, the petitioners would be liable to discharge the liability of service tax, if payable, by the Board as per the provisions of the Finance Act, 1994, the Rules and the notifications issued thereunder?

+ Though in view of our aforesaid findings, the issue has lost significance, however, as the argument was raised, we will touch upon the same.

+ As per the provisions of Finance Act, 1994, as amended upto date read with notification No. 30/2012-S.T. Dated 20.6.2012 on the works contracts the liability is 50% on the contractor, whereas 50% is on the contractee, i.e., service provider and the service recipient.

+ The stand of the petitioners was that for any alleged levy on the petitioners, namely, the contractors/service provider, the department never issued any notice seeking to levy the tax. Notice was issued to the Board.

+ From the running bills of the petitioners, the Board had deducted the amount of tax, which is to be paid by the Board, in case the tax is leviable, which was totally uncalled for.

+ The case of neither of the parties is that the liability, which may be put on the contractor/service provider, if tax is leviable, is being passed on to the Board, as the scheme of the Act provides for levy of tax 50:50 on service provider and the service recipient.

+ Hence, the action of the Board, even if it is assumed that tax is leviable, to pass on their share of burden as per the provisions of the Act on the contractors is not envisaged in the clause.

Conclusion:

(i) On the contract for construction of BPL houses, as awarded by the Board to the petitioners, no service tax is leviablew.e.f. 1.7.2012; and

(ii) The Board is not entitled to pass on the burden of service tax payable on its part, if the tax is leviable, upon the contractors.

2016-TIOL-2126-CESTAT-MUM + Story

SHAPOORJI PALLONJI AND COMPANY LTD Vs CCE: MUMBAI CESTAT (Dated: August 3, 2016)

CX - Mix manufactured by the appellant is specially made for M&M and is manufactured with precision of a high standard; plasticizers are also added to improve the quality of the concrete - product manufactured by the appellants is RMC [Ready Mix Concrete] and the appellants are not entitled for exemption under Notification No. 4/97-CE dated 01.03.1997 - Entire demand hit by limitation - Appeals allowed: CESTAT [para 4.3, 4.5, 5]

Appeals allowed

Observations of Tribunal -

++ In the instant case, the mix manufactured by the appellant is specially made for Mahindra & Mahindra and is manufactured with precision of a high standard and is delivered to the customer at his site. Thus prima facie it fulfills the criteria identified by the Hon'ble Supreme Court in its decision. In the instant case the appellants are also adding plasticizers to improve the quality of the concrete. In view of above it is held that the product manufactured by the appellants is RMC and the appellants are not entitled under Notification No. 4/97 dated 01.03.1997.

++ Insofar as the issue of limitation is concerned the decision of the Hon'ble Supreme Court in the case of Continental Foundation Jt. Venture (supra) is squarely on this issue. …In fact, the period as well as the issue involved is roughly the same. Relying upon the above said decision of the Hon'ble Supreme Court we hold that extended period of limitation cannot be invoked in this case.

2016-TIOL-1503-ITAT-MUM

ORACLE FINANCIAL SERVICES SOFTWARE LTD Vs ITO: MUMBAI ITAT (Dated: August 17, 2016)

Income Tax - Sections 40(a), 133A , 194C, 194J, 194I, 201(1) & 201(1A).

Keywords - Interest - TDS.

Whether interest computed u/s 201(1A) on outstanding amount of TDS can only be charged till the date on which such tax was actually paid by the assessee - YES: ITAT

The assessee is engaged in the business of providing IT solutions to the financial services industry. In the subject year the assessee filed its return .During the year under consideration survey action was conducted against the assessee u/s. 133A at the business premises of the assessee. Pursuant to survey notices u/s 201(1) and 201(1A) were issued to the assessee calling for details which were submitted by the assessee. The AO observed from the Tax Audit Report that the aforesaid amount was disallowed u/s 40(a) for non-deduction and payment of tax deducted at source u/s. 194C, 194J and 194I. The assessee also provided details of TDS deducted and paid on the aforesaid amount in subsequent years, from which the AO observed that the assessee only paid TDS on gross amount of expenses while no TDS was deducted on the balance amount for which no details and explanation were furnished. The AO raised a demand for such non-deduction and non payment of TDS by the assessee. Aggrieved by the orders passed by the AO, the assessee preferred an appeal before the CIT(A) who ordered deletion of demand raised against the assessee u/s 201(1), while the CIT(A) confirmed the demand raised against the assessee towards interest u/s 201(1A) on the grounds that interest is compensatory in nature.

Having heard the parties, the Tribunal held that,

++ since the assessee is agreeable to pay interest u/s 201(1A) of the Act till the date of payment of TDS by the assessee to the credit of Central Government. The provisions of Section 201(1A) of the Act are very clear that interest can only be charged till the date on which such tax was actually paid by the assessee. We are of considered view that interest being compensatory in nature, the assessee is liable to pay interest u/s 201(1A) of the Act till the date of actual payment of TDS by the assessee to the credit of Central Government and we do not see that how Revenue is aggrieved once outstanding TDS amount stood duly paid by the assessee to the Credit of Central Government and thus we order that Revenue is entitled for interest on outstanding amount of TDS only till the date of actual payment of TDS by the assessee to the Credit of Central Government and not till the date of framing of the order on 31-03-2011 by the AO u/s 201(1) and 201(1A) of the Act. We order accordingly.

Assessee's appeal allowed

2016-TIOL-1502-ITAT-BANG

SUBEX LTD Vs DCIT: BANGALORE ITAT (Dated: August 12, 2016)

Income Tax - Sections 10A & 10B.

Keywords - development of software - export turnover - revenue maximization - composite contract - total turnover - purchase order - sale of hardware & software.

Whether if in the purchase order itself, software and hardware are treated differently, in that case if the assessee contends that software was sold along with hardware and software cannot be used without the hardware specified in the order, the onus is upon the assessee to establish these facts - YES: ITAT

Whether when the order was placed for the supply of software as well as hardware, nothing has been established on record that the said software cannot be used without hardware, such sale of hardware cannot become a part of software exported by the assessee, cannot be included in export turnover - YES: ITAT

The assessee is a public limited company engaged in the business of development of software and export of software. It is an 100% EOU approved by the STP of India. In the main appeal, the assessee had also raised a ground that the CIT(A) was not justified in holding the exclusion of an amount of Rs.9.53,10,234 being the sale of hardware components, from the export turnover for the purpose of computing the deduction u/s 10A. The counsel for the assessee had contended that though this ground was raised before the Tribunal, but the Tribunal did not adjudicate this ground and had considered the alternative contentions of the assessee that if it was excluded from the export turnover, it will also be excluded from the total turnover, following the judgment of the jurisdictional HC in the case of CIT v. Tata Elxsi Ltd. & Ors. With regard to ground No.1, the counsel for the assessee had contended that the assessee company was engaged in the business software product, development of software services and telecom solutions. During the impugned financial year, the assessee company had derived income from hardware sales of Rs.7,38,17,250 and Rs.2,14,92,984 attributable to the India and UK operations respectively. This sale of hardware components were inextricably linked to the sale of software. Typically, the sale pertaining to sale of certain software products pertaining to Revenue Maximisation Solutions ("RMS") provided by the assessee which essentially require certain hardware components, in the absence of which the software does not function. Based on customers requests, as a part of the overall sale of software products, the assessee company procures the required hardware and onward sells them after integrating the software into them as a part of sale of software. The hardware was in the nature of servers that have been procured, as only with these servers, the software products sold by the assessee company operate, and hence it was a composite contract and the assessee was required to supply the said software along with the hardware. The counsel for the assessee had also invited attention to the write-up submitted before the AO. It was further contended that since the hardware was inextricably linked with the software which may not function without the hardware, the sale of hardware is a part of export turnover.

Having heard the matters, the Tribunal held that,

++ the assessee is not a manufacturer of the hardware. The hardware was purchased from the market and was sold to its buyer. We find that the assessee was not required to sell one composite software. Even in the Purchase Order, the software and the hardware were mentioned separately along with their respective cost. Similarly, software and hardware were sold separately through different invoices. From the invoices, it is evident that the software was sold on 25.3.2005 for a value of USD 272,000 and the hardware was sold on 19.9.2005 by separate invoice. It is abundantly clear that the assessee has got the order of hardware and software separately for different costs and was also sold by raising invoices on different dates. It is also evident that the buyer had placed separate order for the software and hardware. The software known as Ranger Fraud Management System includes fraud detection, subscriber pre-check, pre-paid and credit management modules and its cost was specified at USD 272,000. A separate order was placed for the hardware for USD 132,500. The details of hardware has also been mentioned separately in the order. Further, it is also noticed from the payment terms that different schedule of payment was laid down for software and hardware. The warranty services for the software was valid for a period of six months, whereas no warranty was stipulated for the hardware. Therefore, in the order itself, software and hardware are treated differently. Supply of software and hardware are also different. If the assessee contends that software was sold along with hardware and software cannot be used without the hardware specified in the order, the onus is upon the assessee to establish these facts; whereas from the aforesaid documents the fact appears to be different;

++ wherever software and hardware are inextricably connected or linked and the software cannot be used without hardware, sale of hardware would be a part of sale of software. In the instant case, the order for software and hardware are placed separately, though in the same order, for different costs. The sale invoice of software and hardware was also raised separately on different dates. The mode of payment is also different for software and hardware. Moreover, the order was not placed for supply of particular hardware and software only. The order was placed for the supply of software as well as hardware and nothing has been established on record that the said software cannot be used without hardware. In light of these facts, we are of the considered opinion that sale of hardware cannot be a part of software exported by the assessee. Thus, we have no hesitation in holding that sale of hardware cannot be a part of export turnover. So far as the other aspect is concerned, we are of the view that the Tribunal has already taken a view in the earlier order that once a sale of particular item is not considered to be part of export turnover, it cannot be considered as part of total turnover in light of the decision of Tata Elxsi Ltd. and the decision of the Special Bench in the case of ITO v. Sak Soft Ltd. - 2009-TIOL-187-ITAT-MAD-SB in which it has been held that whatever has been excluded from the export turnover had to be excluded from the total turnover also, since total turnover includes export turnover as well. In light of these findings, we uphold the order of the CIT(A) that sale of hardware component would be excluded from the export turnover and for the re computation of deduction u/s. 10A, the matter is restored to the AO in the terms indicated above. In the result, the appeal of the assessee is partly allowed.

Assessee's appeal partly allowed