simply inTAXicating - GST RO(W)AD AHEAD - Episode 3 (Knowledge Partner: PricewaterhouseCoopers (PwC) India

INTSTRUCTIONS

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Revision of the Guidelines for engagement of Standing Counsels to represent the Income-tax Department before High Courts and other judicial forums; revision of their Schedule of fees and related matters- regarding

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Guidelines for engagement of Special Public Prosecutors (SPPs) to represent the Income Tax Department before Courts of Session and its subordinate Courts; revision of their schedule of fees and related matters - instructions regarding

CASE LAWS

2016-TIOL-2361-CESTAT-DEL + Story

MP GLYCHEM INDUSTRIES LTD Vs CC & CE: DELHI CESTAT (Dated: August 10, 2016)

CX - Isolate soya protein is nutritionally very different from the starting raw material viz. soya flour - soya flour and soya isolate are marketed and sold differently and also put to use differently - isolated soya protein which is perceived differently and which has a name, character and use which is totally different from the raw material namely soya flour, has come into existence - activity is manufacture u/s 2(f) of CEA, 1944 - CE duty rightly demanded - suppression also proved as it was only upon investigation that the department could unearth that the appellant's company is also having other units and when total clearances of all these units are considered together, the appellant were not eligible for the exemption under the SSI notification - order upheld and appeal dismissed: CESTAT [para 6, 8, 9, 10]

Appeal dismissed

2016-TIOL-2050-HC-MUM-IT

CIT Vs MARIGOLD INVESTRADE LTD: BOMBAY HIGH COURT (Dated: August 29, 2016)

Income tax - business income - capital gains - conversion to demat - investment company - period of holding & sale of shares

Whether consideration received by an investment company from sale of its shares, which were held for over a period of four to seven months from the date of their conversion into Demat form, is chargeable to tax under the head 'capital gains' only and not 'business income' - YES: HC

The assessee, an investment company, had filed its return claiming an amount of Rs.25.54 lakhs as profit made on sale of its shares in M/s. Lok Housing & Construction Ltd., subject to tax under the head "Capital Gains". This claim was made on the basis that it had been alloted 11,00,000 convertible warrants. The same were first converted into shares on 28th Aug, 2007 and later on converted to demat on 11th Dec, 2007 and thereafter sold. However, the AO held that the aforesaid gain in sale of shares in Lok Housing were to be charged as business income, on the basis of the period of holding of shares in M/s. Lok Housing from the date of it being converted to demat. On appeal, the CIT(A) recorded the fact that the shares in Lok Housing giving rise to income chargeable to tax were out of purchase of convertible warrants in Lok Housing on 11th May, 2006. These warrants were converted into shares on 28th August, 2007. However, the same were demated on 11th December, 2007. In the above view, the CIT(A) held that the period for which the shares were held was from the date conversion from warrants to shares, which was in excess of four/five months and would entitle the assessee to claim the same as arising on account of short term capital gains. The CIT(A) further observed that the assessee being an investment company and not a trader in shares, the amount of Rs.25.54 lakhs was brought to tax under capital gains.

Having heard the parties, the High Court held that,

++ it is found that both the CIT(A) as well as the ITAT have held that the assessee is an investment company. Further, it is held that in respect of the shares in Lok Housing, which were sold during the subject A.Y giving rise to capital gains of Rs.25.54 lakhs, the income was chargeable to tax under the head "Capital Gains" as the assessee was not a trader in shares. The aforesaid facts were found by the Authorities over and above the fact that the shares were held after conversion into Demat for a period between 4 to 7 months. The Revenue has not been able to show how and why the findings arrived at by the CIT(A) and the Tribunal are in any manner perverse and/or arbitrary. Two Authorities have concurrently come to a finding of fact that the respondent assessee is an Investment Company and the shares of Lok Housing were held for over a period of four to seven months from the date of their conversion into Demat form. Thus, the question as framed, being a finding of fact, does not give rise to any substantial question of law.

Revenue's appeal dismissed

2016-TIOL-2049-HC-KOL-IT

NEW KENILWORTH HOTEL PVT LTD Vs CIT: CALCUTTA HIGH COURT (Dated: June 23, 2016)

Income tax - Section 80HHD.

Keywords: notional interest - rental income - reserve - immovable assets - secured loan - income from house property - certainty - contract - issue of shares.

Whether if the proceeds of the share issue could be used for running of new hotels, for the purpose of providing new facility for the growth of tourism in India, benefit of exemption u/s 80HHD cannot be denied - YES: HC

Whether if the contract is not taken into account and the terms and conditions of sale are examined, can it be said with any amount of certainty as to whether the contract between the parties provided for payment of interest or is silent as regards the liability of the buyer to pay interest - NO: HC

Whether when the rental arising out of letting out of the terrace is to be treated as an income arising out of house property, it is necessary the income arising out of letting out rooms of the hotel should also be similarly treated - NO: HC

A) The asses see is a company. Tribunal did not notice the fact that as on 1st April, 2002, the assessee had a credit balance with HRL for a sum of Rs.17.38 crores. Subsequent to 1st April, 2002, the assessee made payments on behalf of the HRL to the extent of Rs.2.15 crores. The total thus worked out to a sum of Rs.19.53 crores which was more or less adjusted by issuance of shares by HRL in favour of the assessee for Rs.19 crores. Therefore the credit balance as on 1st April, 2002 was more or less adjusted. Thereafter during the financial year 2002-03 immovable assets of the Goa unit of the assessee were sold to HRL at a sum of Rs.4.90 crores out of which a sum of Rs.2.34 crores were received. There was thus a total balance of a sum of Rs.3.09 crores receivable from HRL. The investment of a sum of Rs.19 crores in the share capital of HRL, according to the assessee, included a sum of Rs.44,68,966/- conforming to the reserve or part thereof created by the assessee under sub-section 4 of Section 80HHD.

B) During the year the assessee company had debited interest on loan (Secured & Unsecured) amounting to Rs.2,11,65,052/-. The rate of interest appears more or less 13%. On the other hand the assessee has shown a recoverable outstanding balance of advance to a subsidiary of the assessee company amounting to Rs.3,09,18,109/- for which no interest was charged. AO held that the assessee should have made provision for interest in the books of accounts minimum @12% on Rs.3,09,18,109/- and Rs.5,36,086/-. Accordingly, interest amounting to Rs.40,89,045/- @13% on the above amount is added back to the total income of the assessee for the year."

C) The Tribunal held that all the decisions of SC, jurisdictional HC and the decision of the A.P. and Madras HC referred to above have not been considered by the Coordinate bench in their decisions dated 13-4-2007 and 16-6-2006 in the case of the assessee for AYs 2001-02 and 2002-03. We, therefore, respectfully following the aforestated decisions of the SC and High Courts, not distinguished by the assessee hold that the income of the assessee from the exploitation of its depreciable commercial asset i.e. the terrace of the hotel building by giving it to Airtel for installing its transmission tower, was liable to be assessed as business income and not as income from house property. This ground of appeal was, therefore, allowed. '

Having heard the parties, the High Court held that,

A) ++ it is not in dispute that the assessee has invested a sum of Rs.19 crores in the share capital of HRL. The assessee is seeking to take advantage only to the extent of Rs.44,68,966/-. The case of the assessee is that the aforesaid sum has been taken from the reserve created under sub-section (4) of section 80HHD which he utilised in contributing to the share capital of HRL. In other words, the sum of Rs.19 crores invested by the assessee includes the aforesaid sum of Rs.44,68,966/-. Therefore, the question to be asked should be whether the proceeds of the issue were utilised by HRL in either of the two ways appearing from sub-clauses (i) and (ii) quoted above. It is not in dispute that HRL has set up a new hotel which commenced business on April 1, 2002, i.e. to say in the same financial year in which the money was invested. It is also not in dispute that the prescribed authority has granted approval to HRL. The proceeds of the issue could be used for running of the new hotels under sub-clause (a) and could also have been used for the purpose of providing new facility for the growth of tourism in India. Tribunal did not record any finding that the money invested by the assessee or any part thereof to the share capital of HRL was utilised for any object which does not fall either within subclause (i) or sub-clause (ii). Unless such a finding is recorded, the benefit could not have been denied. The minutes of the meeting of the Board of Directors of HRL, held on March 28, 2003, shows that the funds were required by HRL for further diversification and expansion of the existing business. Expansion and diversification, according to us, are both activities pertaining to running of a hotel or any business for that matter. It could not, therefore, have been said that the reserve of a sum of Rs.44,68,966/- was utilised by the assessee for a purpose not authorised by the statute. In that view of the matter, the addition was unwarranted altogether and the finding in that regard is arbitrary and perverse;

B) ++ unless the contract is taken into account and the terms and conditions of sale are examined, it cannot be said with any amount of certainty as to whether the contract between the parties provided for payment of interest or was silent as regards the liability of the buyer to pay interest or there was any stipulation not to pay interest. We cannot make any speculation either in that regard. We may, therefore, not be inclined to rest our judgment only on this part of the submission of Mr. Khaitan. It can also be pointed out that liability to pay interest is there in the absence of a contract to the contrary. In other words, liability to pay interest is there unless the seller has agreed not to claim interest and the buyer has agreed not to pay interest. The other part of the submission of Mr. Khaitan in this regard is that the income tax authorities are not entitled to compel a businessman to maximise his profits. This precisely is what AO, the CIT(A) and the Tribunal wanted the assessee to do. AO found fault with the assessee because it did not charge interest for the outstanding dues from HRL. Tribunal has, however, misunderstood the question. Tribunal proceeded on the basis as if AO had disallowed a part of the expenditure incurred by the assessee on account of interest. That was not the case. The case was that the AO made an addition because the assessee had omitted to charge interest from HRL. In that view of the matter, we are of the opinion that the addition made by the Assessing Officer and upheld by the CIT(A) and Tribunal are not sustainable. Therefore, the question no.[b] is answered in favour of the assessee and against the revenue;

C) ++ the Revenue's counsel has not been able to find any fault with the views taken by the Tribunal except that previously different view was taken. Hotel is obviously a business of the assessee. Terrace of that hotel was utilised for the purpose of installing a tower and the income arose out of the rental of the terrace. The business of the assessee is, in a sense, to let out the rooms to the guests for consideration, though strictly speaking in law it is not a case of letting out. It may be a case of licensing. Then can it be said that letting out of the terrace is not the business of the assessee? If the rental arising out of letting out of the terrace is to be treated as an income arising out of house property, the income arising out of letting out rooms of the hotel should also be similarly treated. The assessee is not prepared to have his income from hotel assessed as income arising out of house property. Therefore, the view taken by the Tribunal is a correct view. Therefore, the question no.[c] is answered in the affirmative and in favour of the revenue. he appeal is, thus, partly allowed.

Assessee's appeal partly allowed

2016-TIOL-2048-HC-AHM-IT

NIRMA LTD Vs ADDL CIT: GUJARAT HIGH COURT (Dated: July 21, 2016)

Income Tax - Section 143(1)(a) & 234B

Keywords - interest - intimation - refund

Whether Interest u/s 234D is to be charged on the sum after considering refund which was issued on passing intimation u/s 143(1)(a) - NO: HC

The assessee is a public company engaged in the business of manufacture of detergents and intermediate industrial products. Its return was processed u/s.143(1)(a) and assessment order was passed. Against the said order, the assessee preferred appeal before the CIT(A). The CIT(A) partly allowed the appeal However, being aggrieved by the order of CIT(A), the Revenue preferred appeal before the Tribunal. The said appeal was allowed. Hence, this Tax Appeal at the instance of assessee.

After hearing the parties, the High Court held that,

++ in the present case, the assessee paid advance tax aggregating for the relevant AY. There was a refund of certain amount after deducting the amounts of tax payable and TDS. The AO issued intimation u/s.143(1) of the Act and the refund was worked out. For the said AY, the assessment u/s.143(3) of the Act was completed on 08.01.1997. Considering the aforesaid aspects of the case, we are of the opinion that the provision of Section 234D of the Act would not be applicable in this case since the assessment was completed in January 1997. The provision of Section 234D would have applied if the assessment had been completed after 01.06.2003. In our view, the issue on hand is squarely covered by the decision of this Court in CIT v. Gujarat State Financial Services Ltd.'s case. Hence, the Tribunal committed serious error in law in holding that interest u/s.234B should have been charged in the present case;

++ insofar as the judgment rendered in Sumit Industries' case relied upon by learned Standing Counsel Mr. Mehta is concerned, the same would not apply to the case on hand since that case pertained to payment of interest u/s.234B and 234C in respect of tax determined on the basis of Sections 115JA and 115JB of the Act. Whereas, in this case, the issue relates to refund on passing intimation u/s.143(1) of Act. Further, the decision of Apex Court in Bhagat Construction's case will also not apply to the present case since in that case advance tax was not paid. Therefore, both the decisions relied upon by the learned Standing Counsel will not be of any help to the Revenue.

Assessee's appeal allowed

2016-TIOL-2047-HC-DEL-VAT

NUCLEUS MARKETING AND COMMUNICATION Vs COMMISSIONER VAT: DELHI HIGH COURT (Dated: July 12, 2016)

Delhi VAT Act, 2004 - Sections 38, 59(2) & 67(2).

Keywords: grant of refund - interest - output tax payable - input tax credit available - audit - processing of refund.

Whether when the assessee has not adhered to the time limits set out in Section 38 of the DVAT Act, it is still possible for such assessee to file an application for taking refund in respect of such assessment - NO: HC

Whether the issuance of notice to the dealer u/s 59 of the DVAT Act could delay the grant of refund, the failure by Revenue to process the refund claimed by assessee would entitle the assessee grant of refund claimed together with interest - YES: HC

The assessee company is a dealer duly registered under the Delhi Value Added Tax Act, 2004 and Central Sales Tax Act, 1956. It had been filing returns as and when due under the DVAT Act. For the month of November 2012, the return was filed on 27th December 2012 claiming refund of Rs. 20,46,725. It was submitted that in respect of the said claim, the due date for issuance of refund in terms of Section 38 of the DVAT was 27th February 2013. As regards the quarterly returns for the 3rd and 4th quarter relating to 2012-13, returns were filed on 31st October 2013 (revised) and 26th April 2013 (original) respectively. The respective due dates for issuance of the refund as claimed in these returns were 31st December 2013 and 26th June 2013 respectively. As regards the returns for 2013-14 the revised returns for the 1st and 2nd quarter were filed on 16th July 2014 claiming refund and for the 3rd and 4th quarter on 28th March 2015 (all revised returns) claiming refund. While the due date for issuance of refund for the 1st and 2nd quarter for 2013-14 was 16th September 2014, the refund for 3rd and 4th quarter for 2013-14 was due on 28th May 2015. During the relevant period, dealers had less output tax payable and more input tax credit ("ITC") and such refund was due as indicated in the return. A reference was made to Circular No. 6 issued by the Commissioner, VAT on 15th June 2015 in terms of which the assessees had the right to receive the refund within 15 days from the date of filing of the return where the return was not picked up for audit. It was stated that the said Circular issued u/s 67 (2) was binding on the VATO and yet no refund has been made till date. It was asserted that neither was the refund issued to the Petitioner within 15 days nor was the case picked up for audit nor any security u/s 38 (5) demanded. No notice was issued u/s 59 (2) within 10 days from the date of filing return.

Held that,

++ as regards the preliminary objection raised by the Respondent, the Court finds that the matter pertains to the delay in processing and issuing the refund due to the Petitioners. For the reasons discussed hereinafter it would be seen that even in the matter of processing of the refund claim, the Respondent has not adhered to the time limits set out in Section 38 of the DVAT Act and in Circular No. 6 issued by the Commissioner, VAT under Section 67 (2) of the DVAT Act. Relegating the Petitioner, in the circumstances, to the alternative remedy of going before the OHA would only further delay the refund and therefore, is not considered to be efficacious. The preliminary objection is, accordingly, rejected;

++ as rightly pointed out by counsel for the Petitioner, the law explained by this Court in Swarn Darshan Impex (P) Limited v. Commissioner, Value Added Tax appears to squarely apply in the facts and circumstances of the present case. The Court in Swarn Darshan Impex (P) Limited v. Commissioner, Value Added Tax next considered whether Section 38 of the DVAT Act was directory or mandatory. The Court in Swarn Darshan Impex (P) Limited v. Commissioner, Value Added Tax also rejected the argument that the issuance of notice to the dealer u/s 59 of the DVAT Act could delay the grant of refund. The Court is of the view that in view of the law explained in the above decision, the failure by the Respondent to process the refund claimed by the Petitioners for all the above tax periods appear to be wholly unjustified. It is no longer open to the Respondent to raise an objection to the grant of refund claimed together with interest. In view of the matter, a direction is issued to the Respondent to process the claim refund made by the Petitioners for the aforementioned periods as set out in the three writ petitions and issue appropriate orders granting refund together with interest in terms of Section 38 within a period of eight weeks from today and in any event not later than September 10, 2016. If there is any failure by the Respondent to comply with the directions, the Petitioners shall seek appropriate relief in accordance with law. The petitions are allowed in the above terms with no orders as to costs.

Assessee's appeal allowed