NOTIFICATION

it16not90

CBDT prescribes Application Form for seeking immunity from penalty u/s 270A

CASE LAWS

2016-TIOL-2408-HC-MAD-WT + Story

KARUR VYSYA BANK LTD Vs CIT: MADRAS HIGH COURT (Dated: September 8, 2016)

Wealth tax - Sections 2(ea), 16(1), 17 & 27A.

Keywords - depreciation statement - industrial purpose - net wealth - proportionate liability & residential accomodation.

Whether the AO while computing the net taxable wealth, is required to find out as to whether the building which an entity has allotted for its Chairman for residential purposes, falls within the expression 'assets' or not - YES: HC

Whether a vacant land held by a Bank carrying on core banking activity as an Industrial Enterprise, falls within the expressions 'industrial purposes' and, hence, the same is liable to be excluded from the purview of the expression 'asset' described u/s 2(ea) of Wealth Tax Act, till the period of 2 years from the date of acquisition - YES: HC

Whether where the Assessee is carrying on a business for which accounts are maintained by him regularly, a net value of the business as a whole having regard to the Balance Sheet of such business, shall be taken as the value of such assets for purposes of the Wealth Tax Act - YES: HC

Whether where it is not possible to calculate the amount of debt so utilised for acquiring the asset in question, then the amount which bears the same proportion to the total of the debts owed by the Assessee as the value of the particular asset, bears to the total value of the assets of the business - YES: HC

The assessee, carrying on Banking business, had filed its Wealth Tax Return admitting the net-wealth at Rs.1,81,000/- and the same was processed u/s 16(1). Subsequently, this assessment was reopened u/s 17, to verify the correctness of the assessee's claim towards proportionate liability of Rs.1,67,29,000/- from the taxable wealth of Rs.1,69,10,000/-. In response to the notice u/s 17, the Assessee Bank filed its Return, admitting the taxable wealth as Rs.1,81,000/- only. The AO thereafter, passed orders assessing the taxable wealth as Rs.2,19,52,000/- and the tax payable thereon as Rs.2,19,520/, after taking into account the depreciation statement filed for the purpose of assessment of income tax, for determining the wealth of the 3 assets, viz., quarters, building-sites purchased during the year and the Motorcars.

Having heard the parties, the High Court held that,

++ any building or land appurtenant thereto, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise answers the description of an asset. But, however, 5 items are declared as not included therein. The very first item excluded clearly brings out that the house, meant exclusively for residential purposes and which is allotted to by a Company to a Whole-Time Director having a gross annual salary of less than five lakh rupees, is thus kept outside the purview of the expression 'asset'. Therefore, the AO is required to find out as to whether the building, which the Assessee, has allotted for its Chairman for residential purposes, still falls within the expression 'assets' or not. The requirement in that regard being that the Chairman should not have been remunerated as salary of less than five lakh rupees. It is hardly in doubt that the Assessee being a Company and its Chairman, is a Whole Time Director and therefore, the remuneration paid to such a Whole Time Director by the Assessee ought to have been ascertained and only in that event, if the salary so paid is more than Rs.5 lakhs, such a residential quarters can be included and be treated as an 'asset' of the Assessee for the purpose of the Wealth Tax. Unfortunately, neither the AO nor the Appellate Authority made any attempt, whatsoever, to ascertain as to how much salary is being paid by the Assessee Bank to its Chairman and hence it has not examined as to whether the residential quarters in question can still be regarded as an asset of the Assessee or not;

++ it is important to notice that any unused land, held by the Assessee for industrial purposes for a period of 2 years from the date of its acquisition, has been kept outside the purview of the meaning as ascribed to the expression 'Urban Land'. Since the AO has taken note of the value of assets from the depreciation statement filed for purposes of reckoning income tax by the Assessee wherein the building sites purchased during the year ended on 31st March 1999 have been reflected, it would be safe to infer that the Assessee has acquired those building sites during the year that ended on 31st March 1999. If that be the case, such unused land held by the Assessee for the period of 2 years from the date of acquisition falls outside the definition ascribed to the expression 'Urban Land', provided such vacant land is held for industrial purposes. That brings to the core question as to whether the Assessee is carrying on any industrial activity or not. It is now beyond any pale of doubt that Banking business activity carried on by entities like the Assessee have firmly been recognised as industrial activity, no doubt for purposes of Industrial Disputes Act, 1947, in the context of retrenchment of employees working in such Banking Institutions, the question came to be examined and it was answered that those who satisfied the definition of 'workmen' assigned to that expression u/s 2(s) of Industrial Disputes Act, are liable to be treated as workmen of the Banking Industry and the Supreme Court has applied the beneficial principles behind Section 25F r/w/s 2(oo) of Industrial Disputes Act. Therefore, carrying on the core business of Banking certainly answers industrial activity. All the more so, in the absence of any specific meaning ascribed to the expression 'industrial purposes' by the said Act, we, therefore, consider it safe to treat the Banking activity carried on by the Assessee as an Industrial Enterprise and, hence, we hold that any vacant land held by it, its usage, falls squarely within the expressions 'industrial purposes' and, hence, for a period of 2 years from the date of acquisition of such a vacant urban land, the same is liable to be kept outside the purview of the expression 'asset' described u/s 2(ea) of Wealth Tax Act;

++ one important feature which requires to be noticed is that the Assessee made a claim for proportionate liability for all the three assets which it has disclosed in its Wealth Tax Return. Though the claim for proportionate liability is accepted at the first instance, but, however, the assessment was reopened only for purposes of examining the correctness of such a claim. In the instant case, it is therefore appropriate to examine the correctness behind the claim of the Assessee with regard to the proportionate liability. A perusal of the definition of 'net wealth' u/s 2(m) clearly brings out that the aggregate value of all the assets is required to be computed in accordance with the provisions of the said Act and, in case, the aggregate value of all debts owed by the Assessee have been incurred in relation to the said assets are also required to be noticed. Section 7 has dealt with as to how the value of the assets are to be determined. Sub-section (1) thereof makes it clear that the value of any asset, other than cash, shall be its value as on the valuation date as determined in the manner laid down in Schedule-III of the said Act. Part-D of Schedule-III of the Act makes it clear that where the Assessee is carrying on a business for which accounts are maintained by him regularly, a net value of the business as a whole having regard to the Balance Sheet of such business, shall be taken as the value of such assets for purposes of the Wealth Tax Act. The Commissioner of Appeals has virtually declared that Rule 14 comprising of Part-D of the Schedule-III of the Act does, not apply only on the ground that the net value of all the assets of the business, as a whole, are not undertaken in the instant case. The reasoning assigned by the Commissioner of Appeals is hardly satisfactory. Rule 14 of Part D of the Schedule-III of the Act, dealt with valuation of the assets of the business. When the whole of the assets of the business are being assessed, the particular assets which the Assessee has declared in its Wealth Tax Return, cannot be kept outside the assets of the business;

++ proviso, in fact, lends support to our view that each of the assets of the business are also required to be determined for their value in accordance with Para 14 of Part D of Schedule III of the Act. Otherwise, no meaning can be ascribed to the Proviso. When once all the assets of the business are sought to be valued, the necessity to undertake individual or proportionate distribution of the debts is not required to be undertaken separately. It is a fundamental principle of law that no part of a Statute should be construed as carrying no meaning at all. Every provision must be construed as intended to achieve some purpose or object by the Statute Maker. In other words, no provision of the Statute can be treated as otiose or useless. Keeping those principles in mind, when the Proviso to Rule 14 is examined, it becomes clear that the same will be applicable where it is not possible to calculate the amount of debt that is utilised for purposes of acquiring each of the assets and the formula contained therein brings out the theory of proportionate liability and the principle that would become applicable. In that view of the matter, the Assessee has made a claim to extend the proportionate liability to the value of the 3 assets that was initially applied by the AO, but however, it was taken up for re-examination u/s 17 of the Act. Unfortunately, the re-examination has not been confined to that specific area at all and it went into the merits of the matter. Due to lapse of more than 15 years period and also in view of the fact that the Wealth Tax Act itself has already been done away with, we find that no useful purpose would be served in remanding the matter and hence, we restore the original order passed by the AO u/s 16(1).

Case disposed of

2016-TIOL-2407-HC-AHM-IT

PARAS S SAVLA Vs ACIT: GUJARAT HIGH COURT (Dated: October 3, 2016)

Income Tax - Sections 158BC & 179.

Keywords - lifting of corporate veil - liability of director & public limited company.

Whether an order directing recovery of a company's unpaid taxes from its director, can be sustained by invoking the principle of lifting of corporate veil, when the Revenue instead of confronting the assessee with necessary material for doing so, issued a notice calling upon him to substantiate that the company concerned is a public limited company - YES: HC

The assessee was the Director of a Public Limited Company called Yash Organics. During his tenure as Director, Yash Organics faced income tax unpaid demand, pursuant to the order of assessment passed by the AO u/s 158BC. Against the assessment, company preferred an appeal before the Appellate Commissioner which came to be dismissed. The company preferred further appeal before the Tribunal which was dismissed for non-prosecution. At that stage, Tax Recovery Officer issued a notice to the assessee as to why as a Director of the company in default, in terms of Section 179 of the Act, the recovery with interest should not be made against him. The assessee replied to the said notice raising multiple defences. The tax recovery officer referred to the assessee's defences that the company was not a private limited company and called upon the assessee to furnish evidences to substantiate such a claim. Further pleas of the assessee were ignored and the Assessing Commissioner passed the impugned order ordering recovery of such unpaid taxes with interest from the assessee. The present petition is filed against the same.

Having heard the parties, the High Court held that,

++ it is seen that the revenue had instead of confronting the assessee with necessary material why the corporate veil should be lifted and Section 179 be applied to him, issued the notice and called upon the assessee to substantiate the claim that the company is a public limited company. This fact is not even seriously in dispute. The Revenue ought not to have questioned such a basic fact. If the revenue wanted to apply the principle of lifting the corporate veil in the context of Section 179, it ought to have prima-facie sufficient material to confront the assessee on the issue and should have so confronted the assessee calling upon him to show cause why such powers should not be invoked. Further as noted, the demand with interest referred to in the notice has currently come down.

Assessee's petition allowed

2016-TIOL-2406-HC-AHM-IT

HASMUKHLAL THAKORDAS DALWALA Vs CIT: GUJARAT HIGH COURT (Dated: October 3, 2016)

Income tax - Sections 132, 154, 245C & 245D.

Keywords - kar vivad samadhan scheme - jurisdiction of Commission & withdrawal of settlement application.

Whether where the tax determined by the designated authority u/s 90(1) of the KVSS, 1998 is paid by the assessee, then no further proceedings in terms of prosecution or penalty would lie nor appellate authority would proceed on any issue relating to such disputes - YES: HC

Whether it would be open for an assessee to approach the designated authority under the KVSS, 1998 and seek any adjustment in the tax arrear, once the Settlement Commission passes an order u/s 245D(4) - NO: HC

Whether the Settlement Commission can be said to have jurisdiction over the same subject matter, when the settlement declaration was accepted by the designated authority and the assessee has paid the taxes as per the directives of the designated authority - NO: HC

The assessee is an individual. During the subject year, search operations were carried out at the assessee's premises u/s 132 and on the basis of the same, the AO completed assessment for the A.Ys 1987-88, 1988-89 and 1989-90. On appeal, the CIT(A) remanded the matter to the AO to carry out fresh assessments. When the assessment proceedings after remand were pending before the AO, the assessee filed an application before the Settlement Commission u/s 245C for the above 3 years. While such proceedings were pending before the Settlement Commission, the AO passed the fresh order of assessment for the same period. Subsequent to the same, the Settlement Commission admitted the assessee's application in terms of Section 245D(1). While these proceedings were pending before the Settlement Commission, the Parliament enacted Kar Vivad Samadhan Scheme, 1998. The assessee therefore, filed an application before the authority u/s 90(1) of KVSS, 1998, offering to pay tax as per the said Scheme of Rs.4808/-, Rs.22720/- and Rs.231466/- for A.Ys 1987-88, 1988-89 and 1989-90 respectively on the disputed income of Rs.12,020/-, Rs.56,800/- and Rs.5,78,665/- for the said 3 years. The CIT, to whom such application was made by the assessee, asked him to withdraw the petition before the Settlement Commission only after which the benefits under KVSS,1998 would be granted. The assessee accordingly applied to the Settlement Commission for withdrawal of the same, which was however rejected on the ground that the provisions of the settlement do not envisage withdrawal of an application for settlement once made. On appeal, the Division Bench of this High Court directed the competent authority under the KVSS to accept the application of assessee for Kar Vivad and to issue necessary certificate u/s 90(2) of KVSS. The CIT thereupon issued a certificate in prescribed proforma in terms of Section 90(2) of the KVSS,1998. He accepted the assessee's declaration that he had paid the sum of Rs.2,58,993/- which was tax arrears determined by the designated authority.

The assessee thereafter urged before the Settlement Commission that for the same period, there cannot be separate proceedings for settlement. The Settlement Commission by the impugned order rejected the same and proceeded to decide the assessee's application for settlement. The Commissioner thereafter passed an order u/s 245D(4) and determined the assessee's gross total income at Rs.56,952/-, Rs.56,517/- and Rs.5,29.467/- for the A.Ys 1987-88, 1988-89 and 1989-90 respectively. Subsequently, the Settlement Commission passed an order exercising suo-motu powers u/s 154 providing for interest on the unpaid tax. The assessee thereafter filed an application for rectification and again requested the Commission to drop the entire proceedings which was rejected by the Commission.

Having heard the parties, the High Court held that,

++ the short question that calls for consideration is, can the Settlement Commission proceed with the assessee's application made u/s 245C(1), after issuance of certificate u/s 90(2) of KVSS, 1998, which had till then only reached the stage of being admitted for further hearing in terms of Section 245D(1). In terms of the provisions of Chapter- XIXA, as they stood at the relevant time, an assessee could make an application for settlement in connection with any proceedings pending for assessment or reassessment or any appeal or revision in connection with such assessment or reassessment. On such an application being filed, the same would be processed by the Settlement Commission as per the procedure laid down u/s 245D. As per the provisions of Section 245D(1), the Settlement Commission would first decide, whether such application should be allowed to proceed further or that the same should be rejected at that very stage. If allowed to proceed further, the application would pass through various stages envisaged u/s 245D and finally, the Settlement Commission would pass under sub-section (4) thereof such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application but, refer to in the report of the Commissioner. Section 245H of the Act envisages the power of Settlement Commission to grant immunity from prosecution and penalty. The KVSS,1998 contains Section 87 which is a definition provision, clause (e) of which defines the term 'disputed income'. Section 91 of KVSS, 1998 envisages the designated authority granting immunity from prosecution or penalty in respect of matters which are covered under the declaration u/s 88 of KVSS,1998 once the conditions of Section 90 are satisfied. Section 92 provides, inter-alia, that no appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, interest, income, wealth etc. in respect of which an order has been made u/s 90 by the designated authority;

++ it can be seen that the KVSS, 1998 made comprehensive provisions for settlement of tax arrear. U/s 88 of the KVSS,1998, a person could make an application within the time prescribed making a declaration to the designated authority in respect of tax arrears. The term 'tax arrear' in relation to direct tax enactments is defined as amount of tax, penalty or interest determined before 31.3.1998 which remained unpaid on the date of declaration. In such a case therefore, a person could make an application as referred to in Section 88. If such an application is so made, the computation of the tax arrear would be as provided in clause (a) thereof. Such computation would be on the basis of certain percentage of the disputed income. Under sub-section (1) of Section 90, upon receipt of such a declaration the designated authority would determine the amount payable by the declarant in accordance with the provisions of the KVSS,1998 and grant such certificate as may be prescribed setting the particulars of the tax arrear and the sum payable after such determination towards the full and final settlement of tax arrears. Under sub-section (2) of Section 90, the declarant would pay the said sum within 30 days from the date of the order, upon which the designated authority would issue a certificate to the declarant. Under Section 91, the designated authority would subject to the conditions provided in Section 90, grant immunity from prosecution and penalty in respect of matters covered under the declaration under Section 88 of the KVSS,1998. It can thus be seen that the KVSS,1998 envisaged settlement of tax arrears. A declaration u/s 88 could be made only in respect of tax arrear i.e. the tax which had remained unpaid before 31.3.1998. If the tax determined by the designated authority u/s 90(1) of the KVSS,1998 is paid, thereafter no further proceedings in terms of prosecution or penalty would lie nor appellate authority would proceed on any issue relating to such disputes;

++ in terms of the provisions, the assessee could have applied for settlement since the order of assessment was already passed determining tax liability which had remained unpaid. Once such application was accepted, it is difficult to comprehend how the Settlement Commission would continue to enjoy the jurisdiction over the same subject matter, particularly when the settlement declaration was accepted by the designated authority and the assessee also paid the taxes as per the directives of the designated authority. For the same period the Settlement Commission would not be allowed to process the application for settlement. Any other view would give rise to independent and separate proceedings for settlement; first under Chapter-XIXA of the Act and the second, under KVSS,1998. This could lead to incongruent results and a possible clash between orders by two separate authorities, a consequence legislature would ordinarily not be expected to bring about. Whatever doubt one may have, would disappear when we look at the relevant portion of Section 95 of the KVSS,1998. To make the matters abundantly clear, this section provides that the provision of the section would not apply in case where an order was passed by the Settlement Commission u/s 245D(4) or similar such provision for settlement under the Wealth Tax Act to any tax arrear in respect of such assessment year. Once therefore the Settlement Commission passes an order u/s 245D(4), it would not be open for an assessee to then approach the designated authority under the KVSS,1998 and seek any adjustment in the tax arrear. In the result, the impugned order passed by the Settlement Commission u/s 245D(4) is set aside. With that, the consequential orders passed by the Settlement Commission in purported exercise of rectification powers are also set aside.

Assessee's petition allowed

2016-TIOL-2405-HC-KOL-CUS + Story

SESA INTERNATIONAL LTD Vs DGFT: CALCUTTA HIGH COURT (Dated: October 5, 2016

Cus - DFIA - If merchant exporter has not availed CENVAT facility, then it cannot be deprived of the benefit of exemption from payment of additional customs duty just because the manufacturer of the export product has availed CENVAT - question of double benefit can arise only if the same entity avails of the same benefit twice - The manufacturer of the export products and Petitioner SESA are two distinct entities and any CENVAT facility availed of by the manufacturer cannot be said to be a benefit reaped by Petitioner - direction of DGFT Authorities on the Customs Authorities not to allow exemption of additional customs duty to SESA or to the transferees of the licenses in question is erroneous and not sustainable: High Court [para 41 to 43, 47, 48]

Petitions allowed