NOTIFICATIONS
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Date for filing declaration under Direct Tax Dispute Resolution Scheme, 2016 extended upto Jan 31, 2017
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CBDT notifies rules to amend investment pattern norms under Rule 67 sub rule (2)
OFFICE MEMORANDUM
F.No.A. 12026/26/2016-Ad.I
Selection for the post of Chairman, Settlement Commission(IT/WT) - Reg
CASE LAWS
2016-TIOL-245-SC-IT
MM AQUA TECHNOLOGIES LTD Vs CIT: SUPREME COURT OF INDIA (Dated: December 5, 2016)
Income tax - Sections 43B
Keywords - Actual payment & Interest paid to financial institution
The assessee preferred this SLP challenging the judgment of High Court, whereby it was held that payment of interest to FIs by way of debentures would not amount to 'actual payment' for purpose of deduction u/s 43B.
Having heard the parties, the Supreme Court condones the delay occured in filing of SLP and issues notice on the Special Leave Petition.
SLP admitted
2016-TIOL-244-SC-IT
MOHANLAL AGARWAL Vs CIT: SUPREME COURT OF INDIA (Dated: December 14, 2016)
Income tax - Sections 40A(3) & 263
Keywords - block assessment - estimation of profits & revisional jurisdiction
The assessee preferred this SLP against the order, whereby the High Court had upheld the assumption of jurisdiction by CIT u/s 263 on the ground that AO was not alive of the application of provision of Section 40A(3) in cases of block assessment made by estimation of profits.
Having heard the parties, the Supreme Court condones the delay occured in filing of SLP and issues notice on the Special Leave Petition as well as on the prayer for interim relief.
SLP admitted
2016-TIOL-3162-HC-ALL-IT
SAGUN FOUNDRY PVT LTD Vs CIT: ALLAHABAD HIGH COURT (Dated: December 21, 2016)
Income Tax - Section 43B & 139(1)
Keywords - Contribution - employee - employer - ESI - labour welfare & Provident fund
The Assessee is a private limited company and is engaged in manufacture and sale of cast iron and also in job work. It deposited contribution of employer and employees towards Provident Fund and Employees State Insurance beyond due date prescribed under relevant labour welfare statutes. However the deposits were made in the same Financial Year and balance contribution were deposited well before due date of filing Income Tax Return u/s 139 (1) of I-T Act. Assessee had not set up any fund for PF or ESI. Contributions have been forwarded to Provident Fund Authorities under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and ESI Corporation set up under ESI Act, 1948. Assessee filed his return. AO disallowed the deduction towards employees' contribution to Provident Fund and ESI and employers' contribution to Provident Fund and ESI. Against Assessment Order appellant preferred appeal before CIT(A) who dismissed the same. Upon further appeal, Tribunal also rejected the same.
On appeal, the HC held that,
Whether employer can claim deduction in respect of employees contribution towards PF and ESI, if such contribution has been deposited after the due date prescribed under the relevant labour statutes but prior to filing of return u/s 139(1) - YES: HC
++ The Assessee would be entitled to deduction only if contribution stands credited on or before due date given in the Act 1952 or Act 1948. Second proviso to Section 43B created difficulties, inasmuch as under Act, 1981, due date was after the date of filing of returns and thus industries made representations to the Ministry of Finance. Section 43B, when enacted in 1984, commences with a non obstante clause. The underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, Section 43B made it mandatory for the Department to grant deduction in computing income u/s 28 in the year in which tax, duty, cess etc. is actually paid. Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under Provident Fund Act, Municipal Corporation Act (Octroi) and other Tax laws. Therefore, by way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would than be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return u/s 139(1), Assessee would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988.
Assessee's appeal allowed
2016-TIOL-3161-HC-P&H-IT
TRIBUNE TRUST Vs CIT: PUNJAB AND HARYANA HIGH COURT (Dated: December 23, 2016)
Income Tax - Sections 2(15), 11 & 10(23C)(iv)
Keywords - charitable trust - charitable purpose -advancement of an object of general public utility - predominant object - object of general public utility - profit making - incidental or ancillary activities
A) The assessee is a trust. It was exempted from tax on the basis of assessment under section 11 from the years 1979-80 to 1983-84. With effect from 01.04.1984, the assessee was exempted by the CBDT under section 10(23C)(iv). The exemption was renewed from time to time, the last of which was granted on 28.02.2007, applicable for the Assessment Year 2007-08 onwards. The assessee accordingly has been claiming exemption from paying income-tax. It filed its return declaring loss after claiming an exemption under section 10(23C)(iv). The return was processed under section 143(1). The assessee filed a revised return declaring the same loss. The case was selected for scrutiny. A notice under Section 143(2) was issued along with a questionnaire. Assessing Officer construed section 2(15) as it stood at the relevant time. He observed that under section 2(15), if any Trust advances any other object of general public utility which involves carrying on of any activities in the nature of trade, commerce or business, etc. for which any consideration is charged, irrespective of that application, such object cannot be termed as a charitable object. He was of the view that assessee having revised its return without claiming an exemption under section 10(23C)(iv), it cannot be treated as a Trust carrying on activities covered under section 2(15). The income was assessed under the head "Income from business and profession" treating the assessee as a normal business entity. Intimation was sent to the CBDT for final decision regarding eligibility for exemption under section 10(23C)(iv). CIT (Appeals) held that the assessee having been granted approval for exemption under section 10(23C)(iv) was entitled to continue to enjoy the exemption till it was withdrawn and irrespective of the amendment to section 2(15). Tribunal noted that the assessee had earned an amount of about Rs.125 crores from advertisements. Tribunal held that the assessee was earning profits. The balance in the corpus account was also about Rs.121 crores. The assessee had received interest of more than Rs.11.38 crores on its fixed deposits which was held by the Tribunal to indicate the assessee having earned profits.
B) The assessee is a body corporate incorporated under section 3 of the Punjab Town Improvement Act, 1922. It is a body corporate liable to sue and be sued in its name. The assessee and similarly incorporated trusts are referred to in the Act as 'the trust'. The assessee declared the income to be nil after claiming exemption under section 12A amounting to about Rs. 1.46 crores being surplus shown in income and expenditure account. Assessing officer held that the assessee derives its income from constructing and selling residential apartments, commercial flats and booths etc. It received amounts during the relevant assessment years towards rent, interest, fees, sale of premises etc. The Audit report indicates that the assessee inter-alia purchases the land at nominal cost, develops it, cuts it into small plots and sell them at much higher prices earning huge profits. Auction notices were issued by the assessee inviting bids in the usual manner with a view to obtain the maximum price. The properties would thus be sold to the highest bidder. The Assessing Officer held that the auction and the conditions imposed on the bidder clearly indicate that the activities of the assessee were more in the nature of a big private builder/colonizer rather than the institution constituted for 'charitable purpose' of the advancement of any other object of general public utility. Assessing Officer held that the income from these receipts cannot be considered to be in relation to activities in the nature of advancement of any other object of general public utility and is infact income similar to that derived from a private builder or colonizer. He held that the assessee's main object was only to earn more profit. He, therefore, inferred that the objects/activities of the assessee were commercial in nature and not charitable. The income treated by the assessee as exempt income was added to the assessee's income for the assessment year 2011-12. The penalty notice under section 271(1)(c) was issued separately. Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Tribunal held that the activities of the trust fall within the category "objects of general public utility". It was also held that separate books of accounts for the business activities were maintained. It further held that profit on sale does not necessarily imply profit motive in the activities of the assessee. What is important is the motive or the predominant object of the activities.
On appeal, the HC held that,
Whether the objects of a trust can be declared as charitable in nature, if the said trust is engaged in publication of newspapers which was running on commercial lines and had accordingly accumulated huge profits, without any indication that it was for the advancement of general public utility - NO: HC
++ It is noted that Judicial Committee of the Privy Council in the assessee's own case i.e., Trustees of the Tribune Press Lahore v. Commissioner of Income Tax, Punjab, Lahore, while holding that the property was held under trust wholly for the advancement of an object of general public utility also observed that it cannot be regarded as an element necessarily present in any purpose of general public utility that it should provide something for nothing "or for less than it costs" or for less than the ordinary price". The activities of the assessee have been held by the Privy Council as constituting the advancement of an object of general public utility. The mere fact that there is greater competition today and thousands of newspapers are being published makes no difference. It is still an advancement of an object of general public utility. The activities do not cease to be for the advancement of an object of general public utility merely because other newspapers are also in circulation in the same area and other means of information are also available. The introduction of a newspaper where there is none is activity for the advancement of an object of general public utility. The introduction of a newspaper where there already are newspapers can equally be so for it exposes the public to a variety of views, perceptions and perspectives to the same news. Newspapers do not necessarily report dry facts. They project views on the same incidents and topics differently. The content may also vary each newspaper emphasizing an item or issues differently. A choice of an additional newspaper possibly sub serves an object of general public utility better than a single newspaper. The assessee's activities, therefore, constitute the advancement of an object of general public utility;
++ In Surat Art Silk's case, the Supreme Court held that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general pubic utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. Thus the concluding words "not involving the carrying on of any activity for profit" go with the "object of general public utility" and not with the "advancement". Supreme Court held that the publication of the newspaper was carried on commercial lines "with the object of earning profit" and that the publication of the newspaper was an activity which had profit making as its predominant object. The activities of the assessee could not be held to be a charitable purpose within the meaning of Section 2(15) even as it stood between 1961 and 1984;
++ In case of Commissioner of Income Tax, Jalandhar-II v. M/s Sadhu Singh Hamdard Trust, it was held that profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. Section 2(15) defines charitable purpose. As in the case of any other definition, it is to assist the construction of the main provisions in which the terms defined are used. The main provisions such as Sections 11, 12 and 13 use the words "charitable purpose" in the context of granting the assessee's the relief against taxation partly or fully often subject to certain conditions. The relief from taxation partly or fully predicates taxability and taxability predicates income and income predicates profit. This is the normal sense of these terms. There is nothing in the Act and in particular section 2(15) thereof that indicates that the legislature contemplated a trade or a business or a commercial activity other than for profit. It is to be noted that assessee's activity falls within the ambit of the words "advancement of any other object of general public utility". The decision of the Privy Council in the Tribune's case in this regard still holds good. Further the words trade, commerce or business in the proviso to Section 2(15) refers to those activities carried on for profit. So long as it is carried on for profit, it is irrelevant whether the profit is actually made or not. In view of the judgment of the Supreme Court in Surat Art Silk's case, it must be held that the activities of the assessee are carried on with the predominant motive of making a profit;
++ It is also noted that about 85% of the revenue was from advertisements and interest only. Rs. 17.49 crores was from the sale of newspapers and Rs. 3.07 crores was from subscriptions of the dailies. Moreover the balance in the corpus account was Rs. 121 crores. The accumulation of a huge profit without any explanation for the same or without any indication that it is for the advancement of the object of general public utility would take the assessee out of the definition in Section 2(15) of 'charitable purpose'. There is nothing in this case to show that the surplus accumulated over the years has been ploughed back for the charitable purposes. The assessee was only engaged in the publication of newspapers which was running on commercial lines as held in Surat Art Silk case. Assessee's only activity was the business of printing and that activity was found to have been carried on commercial lines. If, therefore, the predominant activity of the trust is charitable purpose and the profit resulting from its ancillary or incidental business activity, is for the charitable purpose only of the advancement of an object of general public utility, it is sufficient. It is not necessary that such income must also be for the advancement or the purpose of another charitable purpose as well. Therefore, the question of law are, therefore, answered in favour of the Revenue;
Whether a trust which is making profit on account of its ancillary activities is entitled to benefit of Section 11, where the predominant activity of such trust was town improvement and it was established for the purpose of advancement of general public utility - YES: HC
++ The Tribunal rightly rejected the contention that to fall within the ambit of the words "advancement of any other object of general public utility" the trust must necessarily be involved only in implementing poverty alleviation programs or doing other acts of charity. It is sufficient if it does precisely what the last category in Section 2(15) states namely being involved in activities for the advancement of an object of general public utility. They include a proper systematic development of certain areas. These activities are by virtue of the PTI Act undertaken by this assessee. Tribunal also rightly held that an object of general public utility does not necessarily require the activities to be funded or subsidized by the State. So long as the objects fall within the ambit of the words "object of general public utility", it is sufficient. The achievements of those objects do not have to be as a result of State funding or State subsidy. The Tribunal accordingly rightly held that the authorities were not justified in denying the benefit of section 11 and holding that the assessee was not covered by the words "advancement of any other object of general public utility" in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption. Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide interalia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive;
++ The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes. This power is, therefore, in furtherance of, connected with and in relation to a scheme in Chapter-IV. It is not an absolute power independent of and unconnected with the assessee's statutory functions under the PTI Act. The predominant activity of and the purpose for the establishment of the assessee is summed up in two words "town improvement" in the title "Punjab Town Improvement Act, 1922". The preamble is titled "An Act for the improvement of Certain Areas". The preamble states "whereas it is expedient to make provision for the improvement and expansion of towns in Punjab". The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of "advancement of the object of general public utility". This is the predominant purpose of the trust. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, "advancement of an object of general public utility". The activities of the trust fall within the meaning of the words "charitable purpose" in Section 2(15);
++ Whether the mandate of the Act is followed by such a trust is a different matter. The facts in that regard are relevant in examining whether the activities of the trust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(iii) by disposing off its lands. That, however, does not take it out of the definition of 'charitable purpose' in Section 2(15). Profit, however, is not the predominant motive of such trusts. Selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is "town improvement" in almost every respect. Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of such schemes is driven by public requirements and not as a commercial venture per se. They are incidental to the main object of the trust. The Assessing Officer has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. Therefore, the order of the Tribunal must be upheld;
++ The assessee is undoubtedly an authority constituted in India. It is also constituted by or under a law, namely, the Punjab Town Improvement Act, 1922. Further, it is engaged for the purpose of dealing with and satisfying the need for housing accommodation. It is also constituted for the purpose of planning, development of improvement of cities, towns and villages or for both. The assessees would, therefore, undoubtedly have been entitled to the benefit of Section 10(20A). The assessee would not have been entitled to the benefit of Section 10(20A) upon its omission by the Finance Act, 2002 with effect from 01.04.2003. Section 10(20A) of the Act did not contain any other requirement. It was wider than Section 2(15).However, Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA of the Act.
Assessee's appeals dismissed
