TIOL Update, Monday, Sep 19, 2016

Life Beyond Tax - K V Chowdary, Central Vigilance Commissioner

NOTIFICATIONS

Import policy of Worked monumental or building stone (except slate) and articles thereof, other than goods of heading 6801; mosaic cubes and the like, of natural stone (including slate), whether or not on a backing; artificially coloured granules, chippings and powder, of natural stone (including slate)

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dgft16not027

Import policy of Rough Marble and Travertine Blocks

CASE LAWS

2016-TIOL-2181-HC-MAD-CT

KMC CONSTRUCTIONS LTD Vs JOINT COMMISSIONER [CT] : MADRAS HIGH COURT (Dated: September 8, 2016)

Tamil Nadu Sales Tax (Settlement) Act - Sections 5 & 7(C).

Keywords - application for settlement - merits of assessment.

Whether the Designated Authority under Tamil Nadu Sales tax (Settlement) Act is permitted to proceed to the merits of the assessment, without verifying the correctness of application as well as the particulars furnished by the applicant/dealer, in exercise of his power enshrined u/s 6(1) of the said Act - NO: HC

The assessee/dealer during the concerned year, had filed an application u/s 5 of Settlement Act consequent to which a notice was issued stating the amount to be paid by the assessee in terms of Section 7[C] of the Act. By the said notice, the assessee was informed that if the admissible amount was paid, the assessee would be eligible for one time settlement and was requested to pay difference amount of 2% tax immediately and may file the application. The assessee complied with the same and also submitted a representation to the Designated Authority, who on a perusal of the impugned proceedings, had gone into the merits of the assessment and confirmed the reasons assigned by the AO, forgetting that the order had to be passed in an application for settlement under the provisions of the Act.

Having heard the parties, the High Court held that,

++ it is seen that the applicant, while submitting application u/s 5 has to calculate the amount payable as per the rates mentioned u/s 7(a) to (d) and remit the same and file proof of payment along with application. A separate application is required to be filed for each assessment. Therefore, at the first instance, the onus lies on the dealer/ applicant to determine the payment payable u/s 7. At the same time, the designated authority is bound to verify the correctness of the particulars furnished in the application made u/s 5 with reference to all relevant records and determine the amount payable at the rate specified u/s 7. Thus, the Act being a Settlement Act to give reprieve to the dealer/applicant and bring him out of the misery has first thrown the onus on the dealer/applicant and he has a statutory duty to compute the rate applicable in accordance with Section 7, by considering all the relevant records. If the dealer/applicant properly computes the amount and remits the same and encloses proof of such payment along with the application u/s 5, the same will be taken for verification and if the designated authority, on going through the relevant records, finds that further amount is payable and if the same fall short of not more than 10% grant relief to the dealer and if not the application stands summarily rejected. Therefore, the Act operates on strict limits as clearly defined under the Statute. The onus is not only on the dealer to carefully peruse all his records and relevant documents while determining the rate payable by him, but also on the AO while verifying the application as to the correctness of the particulars furnished exercising power, u/s 6(1);

++ from a reading of the impugned order, it is evidently clear that the Revenue did not follow the procedure contemplated under the Act and has lost sight of the object with which the Settlement Act was enacted. Without proper verification of the application as per provision Section 6 of the Act, the Designated Authority could not proceed further and the error has occurred from the said stage. In the light of the above discussion, the impugned orders are set aside and the matter is remanded back for fresh consideration in terms of the provisions of the Settlement Act, after affording an opportunity of personal hearing to the assessee.

Case remanded

2016-TIOL-2180-HC-MEGHALAYA-ST

JIBAN KUMAR SAHA Vs JOINT CCE & ST: MEGHALAYA HIGH COURT (Dated: July 29, 2016 )

ST - No case is made out for bypassing the regular remedy of statutory appeal - an efficacious remedy of statutory appeal is available in the matter and there is no reason to allow the petitioners to bypass the same - Pre-deposit of 7.5% to be made before CESTAT - Petitioners would be required to part with money for making the deposit; and the petitioners may not find such parting to be encouraging or comfortable to them but such a discomfort, by itself, cannot be taken to be a matter of such an extreme hardship that the remedy of appeal be considered beyond the reach of the petitioners - in the peculiar circumstances of these petitions, it is provided that if the petitioners file the respective appeals within thirty days from today with the requisite pre-deposit, the Appellate Authority may examine the matter on merits while ignoring the question of limitation ? Petitions dismissed with observations and liberty as foregoing: High Court [para 7, 15, 17, 20, 21]

Petitions dismissed

2016-TIOL-2179-HC-MUM-CUS + Story

UNDERWATER SERVICES COMPANY LTD Vs UoI: BOMBAY HIGH COURT (Dated: September 16, 2016)

Cus - Settlement - When the Commission had allowed the settlement applications to be proceeded with u/s 127C it would only mean that at the threshold itself, the Commission was satisfied that the applications were not made for the interpretation of the classification of the goods under the Customs Tariff Act, 1975 - Petitioners had explained that they had not made any additional payment of duty because in the past they had deposited the amount of duty which was far in excess of what was demanded in the SCN - This explanation was accepted by the Settlement Commission, and it was only thereafter that the case was allowed to be proceeded with - Order rejecting the applications quashed & matter remanded: High Court [para 14 to 17]

Matter remanded

2016-TIOL-2178-HC-KOL-CUS

MISHRA AND MISHRA AGENCIES Vs UoI : CALCUTTA HIGH COURT (Dated: September 15, 2016)

Cus - CHALR, 2004 - Revocation of CHA Licence - When a statute is a complete code in itself on the concerned subject like the Customs Act and it provides a particular remedy before a particular forum, the aggrieved party must ordinarily exhaust such remedy before invoking the high prerogative writ jurisdiction of the High Court - This is a practice ordinarily followed by the Writ Courts and there is nothing extraordinary in the facts of this case to depart from such well established practice - Court is not inclined to exercise its extraordinary power under Art. 226 of the Constitution in the facts of the case - appeal is a more comprehensive remedy in which all issues including factual issues and sufficiency or otherwise of the evidence on record can be gone into - Writ petition fails and is dismissed - If the petitioners approach the CESTAT by way of appeal against the order under challenge within a period of 6 weeks, the Tribunal shall decide such appeal as expeditiously as possible, and preferably within a period of 6 months from date of presentation of the appeal, if any - Petition disposed of: High Court [para 19, 21, 22]

Petition disposed of

2016-TIOL-2177-HC-KOL-CX

LGW LTD Vs UoI: CALCUTTA HIGH COURT (Dated: September 15, 2016)

CX - Goods manufactured by SAIL were exported - Petitioner had applied for rebate and which was disallowed - Petitioner's appeal was allowed by the Commissioner (Appeals-I), however, revisional application filed by the department was allowed on the ground that the respondent had allegedly committed procedural lapses - appeal to High Court. Held: Revisional authority has not found that, the petitioner did not export Central Excise Duty Paid goods out of India, or that the relevant ARE forms do not bear the appropriate customs endorsements - Alleged procedural lapses for the consignment under consideration have also not been alluded to or identified - Order set aside and appeal allowed - parties will act in accordance with the directions issued by the Commissioner (Appeals): High Court [para 6, 7]

Appeal allowed

2016-TIOL-2176-HC-P&H-CX

CCE Vs SARITA HANDA EXPORT PVT LTD: PUNJAB AND HARYANA HIGH COURT (Dated: August 17, 2016 )

CX - Rule 5 of CCR , 2004 - Refund of CENVAT -Goods manufactured were not leviable to any tax as exported out of the country, however, refund claimed of input tax credit -Though the adjudicating authority declined the claim of the assessee , the First Appellate Authority accepted it - Revenue appeal rejected by Tribunal, hence appeal to High Court.

Held: Tribunal referred to the decisions in Repro India Ltd. - 2007-TIOL-795-HC-MUM-CX and Drish Shoes Ltd. - 2010-TIOL-350-HC-HP-CX (affirmed by Supreme Court) and dismissed the appeals filed by the Department - Once the issue involved in the present appeal has already been gone into by the Supreme Court and judgments of Bombay High Court and Himachal Pradesh High Court have been upheld granting relief to the assessee, Court does not find any substantial question of law arising in the present appeal - appeal dismissed: High Court [ para 6]

Appeal dismissed

2016-TIOL-1670-ITAT-JAIPUR

KENDRIYA ACADEMY VIDHYALAYA SHIKSHA SAMITI VS ACIT: JAIPUR ITAT (Dated: August 26, 2016)

Income tax - Sections 11, 12AA, 13, 40(a)(ia), 142(2A), 143 & 147

Keywords - beneficial ownership - fiduciary capacity of society members - non compliance of provisions - restoration of registration u/s 12AA.

Whether mere registration of certain properties in the name of individual members of a charitable society and a presumption that they will derive the benefit thereof, is sufficient enough to deny Section 11 benefits - NO: ITAT

Whether it is the substance of the transaction and not the form that should be examined in the specific fact pattern relating to transactions in respect of investment in immovable property, to determine the true capacity of the property holder and the nature of the direct/indirect benefit that will accrue to the individual members of a society, if any - YES: ITAT

Whether the mere act of the individual members of a charitable society in carrying out certain functions in their fiduciary capacity, can be treated as violative of the provisions of Section 13 of the I-T Act - NO: ITAT

The assessee society is engaged in running various schools in Kota and Baran. The society was registered u/s 12AA vide CIT's order w.e.f 1st Apr, 2003 which was later on withdrawan by the CIT Kota. Subsequently, on appeal by the assessee society, the Coordinate Bench restored the said registration. In compliance with the order of the Coordinate Bench, CIT Kota restored the earlier registration u/s 12AA granted to the assessee society. However when the order u/s 147/143(3) was passed by the AO, the order of ITAT restoring the registration was not available. The AO therefore completed the assessment of the society under normal provisions applicable to any business/profession holding that the society was not eligible for exemption u/s 11 in absence of registration u/s 12AA and also in view of non-compliance of the provisions of section 13(2)(a), (g) & (h) of the Act. When the matter came up before the CIT(A), he had taken cognisance of restoration of registration u/s 12AA but at the same time held that assessee society was not eligible for exemption u/s 11 in view of the violation of section 13 of the Act.

Having heard the parties, the Tribunal held that,

++ the issue of assessee society registration u/s 12A is not in dispute for the purpose of availing exemption u/s 11. During assessment, the AO invoked the provisions of section 142(2A) and directed to carry out a special audit. At the same time the AO has drawn reference to certain observations made in the special audit while framing the assessment order. As per the observations in the special audit, several immovable properties have been purchased from the funds of the asessee society and most of the properties were purchased in the name of individual persons namely Shri S.C.Agarwal, Smt. Manju Agarwal Shri Prateek Agarwal & SCA (HUF) etc. It is also observed that after purchasing the properties in individual names, the said properties were transferred in the books of the assessee. Further it is observed that for all practical purposes and also legally the ownership over these properties rest with these persons and they are treating it as their personal properties. Further there are observations regarding vehicles purchased in the individual names though capitalised in the books of the assessee. Considering these facts as per the special auditor, the AO held that the samiti is not running wholly for charitable purposes which is a primary condition u/s 11(1)(a) and assessee is also violating provisions of section 13(2)(a)(g)(h) and is therefore, not entitled to claim exemption u/s 11 and 12 of the Act. Relying on these observations as made in special audit the AO computed the income of the assessee under the normal provisions of the Act. As per CIT, Kota, the assessee has not used the funds of the trust as per objects of trust and the properties have been registered in the name of individuals. As per CIT, it is an undisputed fact that over a period of time, property value gets increased and such appreciations will automatically create wealth in the hands of the individual. In the eye of law, property purchased in the name of individual by any statutory imagination can be said to be owned by the society and these properties are wealth of the individuals who can sell them at any time in future and society has no control or possession over this properties. With these observations, the CIT Kota held that it is a clear case of application of funds in enlarging personal benefit of individuals and such an act is contrary to the object of the assessee. When the matter reached the Coordinate Bench, though in the context of denial of exemption u/s 12A, it was observed that certain properties which are located in the residential areas are purchased in the name of individuals for the simple reason that in residential area the property cannot be purchased by the trust. It was further observed that these properties have been shown in the balance sheet of the trust. So, these are assets of the trust. These properties were purchased from the funds of the trust, merely buying the property in the name of individual, those individuals cannot be held as owner of the property as the rights in the properties are vested with the trust. It was further observed that nothing has been brought on record that funds of the society have been misused;

++ the only allegation is that the members of the society have purchased certain properties in their individual names. The schools are running in the properties and they are part and parcel of the assesee society and not of the individuals. All receipts from the schools are shown in the hands of the society and not in the hands of these individuals. The above observations of the Co-ordinate Bench were rendered in the context of denial of the exemption u/s 12A. At the same time, these are equally important observations for examination of exemption u/s 11 and definitely carry a persuasive if not a binding value. It is for the Revenue to controvert the said findings of the Co-ordinate Bench and if the assessee society has not satisfied the conditions of exemptions, the Revenue is well within its rights to deny the exemption to the assessee society. As noted, the Revenue has relied on the survey proceedings and the observations made in the special audit report and it is noted that nothing new or tangible has been brought on record other than what was there before the Co-ordinate Bench. Hence the findings of the Co-ordinate Bench continues to be relevant for determination of exemption u/s 11 of the Act. The only additional contention which has been raised by CIT is that in the eye of law the property is purchased in the name or individual by no such of imagination can be said to be owned by the assessee. The individuals in whose name assets are registered can sell at any time in future and society has no control or possession over these properties and the income of the assessee therefore, has been held to be used for the benefit of the individual and its family members. While referring to the provisions of benami transactions Prohibition Act, the CIT(A) has observed that when the assessee purchased these properties in the name of Shri Subhash Chand Agarwal and his family members, for all purposes and as per the legal provisions these persons became owner of the said properties. The CIT(A) further observed that these persons can at any time claim the ownership of these properties and assessee cannot do anything and showing these properties in the books of the assesesee shall have no impact in view of the specific provisions of the benami transactions prohibition Act. On perusal of the Benami transactions prohibition Act, Section 4(1) provides that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be a real owner of such property. However, the said provision carries an exception as provided in section 4(3)(b) which provides that the right of a person claiming to be a real owner of the said property shall lie where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity;

++ section 13(1)(c)(ii) provides that the provisions of section 11 or section 12 would not apply to exclude any income from its total income of the previous year, if any part of such income or any property of the trust or the institution is during the previous year used or applied, directly or indirectly for the benefit of any specified person referred to in sub-section (3). What is therefore relevant for invoking the said provision is that firstly, the act of usage or application of the trust income or property should happen during the previous year. Secondly, such usage or application could be direct or indirect for the benefit of the specified persons. In the context of funds utilised for purchase of the immovable property, the direct benefit would mean possession, utilisation and/or exploitation of the immovable property for the use or benefit of the specified person either for his own purposes or for commercial purposes. It would also mean benefit in form of capital appreciation and right to mortgage for the purposes of raising funds, dispose off the said property, etc. In our view, it is the substance of the transaction rather than form that should be examined in the specific fact pattern to determine the true nature of the benefit. Further, in the context of section 11 r/w/s 13, the whole focus and emphasis of the legislature has been that the funds should be utilised for the benefit of the society and not for the personal benefit of the individual members. There are occasions where the individual members carry out their functions in their fiduciary capacity and such acts should not be held to be in violation of spirit of the legislation. In the context of present facts, where the properties are held in the individual names of the society members, what needs to be examined is the reasons for doing so. Whether there are any regulatory reasons for not registering the properties in the name of the society. Whether the properties have been held in the fiduciary capacity for the benefit of the society or in the personal capacity. Are there any benefits available to the individual members in terms of utilisation, exploitation, disposition, etc. Merely by stating that the properties have been registered in the name of the individual members and he has derived or will derive the benefit thereof would not be sufficient enough to deny the exemption. Also the claim of the appellant that it is the beneficial owner of the said properties and the right to dispose off the said properties also lies with the society needs to be verified. In our view, it is the substance of the transaction rather than the form that should be examined in the specific fact pattern relating to each of the transactions relating to the investment in immovable property to determine the true capacity of the property holder and the nature of the direct/indirect, proximate/remote benefit that is accruing or will accrue to the individual members, if any. With these observations, the matter is set aside to the file of AO for examination afresh.

Case remanded