MIXED BUZZ

CBEC invites applications from officers for grant of Commendation Certificate on Central Excise Day

OFFICE ORDER

Order No 1 of 2017

CBEC gives Chief Commissioner's additional charge of Kolkata Customs + Shillong Customs to Mr S K Panda & Vizag Customs to Mr S M Bhatnagar

CASE LAWS

2017-TIOL-04-SC-VAT

PATEL BROTHERS Vs STATE OF ASSAM: SUPREME COURT OF INDIA (Dated: January 4, 2017)

Assam VAT - Sections 79, 81(1) & 84 - Central Sales tax - Section 8(5) - Limitation Act - Section 5.

Keywords - application of limitation provisions - condonation of delay - revision petition.

The assessee was running a business of purchasing tea and is a registered dealer under the Assam General Sales Tax Act as well as the VAT Act and the Central Sales Tax Act. Based on the sales of his business, the assessee had submitted the declaration in Form 'C' for the years 1998-1999, 1999-2000, 2000-2001 and 2001-2002 reflecting the value of sales. Based on the representation made by assessee, the Superintendent of Tax allowed full exemption of sales tax as per Section 8(5) of CST, 1956. But, the information given by assessee turned out to be false and as a result of which the Superitendent passed an order reducing the exemption granted to assessee for the year 19998-99 along with imposing penalty. Similar orders of re-assessment were passed in respect of the other assessment years giving rise to the connected proceedings. On appeal, the assessee was directed to deposit 25% of the demanded dues within 30 days and stayed rest of the demand. The assessee then approached the Assam Board of Revenue, but both the appeals as well as the review application came to be dismissed. Challenging the same, the assessee filed Revision Petitions u/s 81(1) of the VAT Act. However, since there was a delay of 335 days in filing these revision petitions, the High Court has dismissed the applications for condonation of delay holding that provisions of Section 5 of the Limitation Act are not applicable.

Having heard the parties, the Supreme Court held that,

Whether provisions of Section 5 of Limitation Act, 1963 will have application in respect of revision petition filed in High Court u/s 81 of Assam VAT Act, 2003 - NO: SC

Whether when the Legislature has expressly provided for restriction on operation of Limitation Act by way of Special law, then the legislative intent for such restriction has to be construed accordingly - YES: SC

++ The approach which is to be adopted in present case like situation is to examine the provisions of special law to arrive at a conclusion as to whether there was legislative intent to exclude the operation of Limitation Act. In the instant case, we find that Section 84 of the VAT Act made only Sections 4 and 12 of the Limitation Act applicable to the proceedings under the VAT Act. The apparent legislative intent, which can be clearly evinced, is to exclude other provisions, including Section 5 of the Limitation Act. Section 29(2) stipulates that in the absence of any express provision in a special law, provisions of Sections 4 to 24 of the Limitation Act would apply. If the intention of the legislature was to make Section 5, or for that matter, other provisions of the Limitation Act applicable to the proceedings under the VAT Act, there was no necessity to make specific provision like Section 84 thereby making only Sections 4 and 12 of the Limitation Act applicable to such proceedings, inasmuch as these two Sections would also have become applicable by virtue of Section 29(2) of the Limitation Act. It is, thus, clear that the Legislature intended only Sections 4 and 12 of the Limitation Act, out of Sections 4 to 24 of the said Act, applicable under the VAT Act thereby excluding the applicability of the other provisions;

Whether a Court can interpret the law in such a manner so as to read into the Act an inherent power of condoning the delay by invoking Section 5 of Limitation Act, so as to supplement the provisions of the VAT Act which excludes the operation of Section 5 by necessary implications - NO: SC

++ The High Court has rightly pointed out the well settled principle of law that "the court cannot interpret the statute the way they have developed the common law 'which in a constitutional sense means judicially developed equity'. In abrogating or modifying a rule of the common law the court exercises the same power of creation that built up the common law through its existence by the judges of the past. The court can exercise no such power in respect of statue, therefore, in the task of interpreting and applying a statue, Judges have to be conscious that in the end the statue is the master not the servant of the judgment and no judge has a choice between implementing it and disobeying it." What, therefore, follows is that the court cannot interpret the law in such a manner so as to read into the Act an inherent power of condoning the delay by invoking Section 5 of the Limitation Act, 1963 so as to supplement the provisions of the VAT Act which excludes the operation of Section 5 by necessary implications. Therefore, there is no infirmity in the judgment rendered by High Court.

Assessee's appeal dismissed

2017-TIOL-53-CESTAT-ALL + Story

LG ELECTRONICS INDIA PVT LTD Vs CCE & ST: ALLAHABAD CESTAT (Dated: October 3, 2016)

CX - CENVAT - Since SCN did not bring forward any evidence to establish that there has been collusion between the appellant and the service provider for evasion of Service Tax and for availing inadmissible CENVAT credit, invocation of extended period is unsustainable - Penalties and interest also set aside - appeals allowed: CESTAT [para 5]

Appeals allowed

2017-TIOL-11-ITAT-MUM

SBI LIFE INSURANCE COMPANY LTD Vs ACIT: MUMBAI ITAT (Dated: December 23, 2016)

Income Tax – Sections 10(34), 14A & 44

Keywords - life insurance business - Shareholders' Account and Policy Holders' account - Income from other sources - Negative Reserve - exemption – dividend income

A) The assessee is engaged in the business of life insurance and that is the only business of the assessee. Separate accounts of Shareholders and Policy Holders have been made keeping in view the requirement of IRDA, but the assessee has only one integrated business of life insurance. AO recomputed the income of the assessee by treating Shareholders' Account and Policy Holders' account as separate and consequently separately assessing the income being the amount transferred from Shareholders' Account to Policy Holders' Account.AO taxed the income arising in Shareholders' Account as "Income from other sources" and the activity related to insurance as reflected in Policyholders' Account was held to be taxable in accordance with provisions of section 44. CIT(A) deleted the addition by holding that the entire life insurance business should be assessed as one in view of section 44 read with Rule 1 and Rule 1D of First Schedule of the Act.

B) The AO was of the view that the assessee took an undue advantage by reducing its taxable surplus by the amount of Negative Reserve, value of which was taken at zero. AO made addition on account of negative reserve. CIT(A) deleted the addition made by the AO on account of incremental negative reserve.

C) As per the assessing officer, manner of the computation of profit of any business of life insurance is laid down in section 44 of the act which over ride the normal provisions of the act for computation of income. Thus, income so computed u/s 44 of the Act is taxed at special rates on which the tax payable by the assessee is at lower rate. In view of the above facts, the exemption u/s 10(34) of the Income Tax Act is not available to the assessee who is engaged in the business of life insurance.CIT(A) held that benefit of exemption u/s 10(34) upon the dividend income was available to the assessee.

D) The AO held that in case the assessee is allowed the benefit of exemption u/s 10(34) at any stage, in that case disallowance u/s 14A would be required to be made in accordance with law. CIT(A) deleted the disallowance.

On appeal, the ITAT held that,

Whether the income in shareholder's account are to be considered as arising out of Life insurance business only when the concerned assessee is engaged in the business of life insurance and the investments were made in line with the requirement of its applicable regulations – YES: ITAT

++ The issue is covered in favour of the assessee by the earlier decision of the Tribunal wherein it was held that all activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, liabilities and Solvency margin of insurers) Regulations,2000. Income earned on capital infused in business is integral part of Life Insurance business. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only as they are part of same business and investments are made as part of solvency ratio of same business;

++ The assessee has time and again brought to the notice of the AO that assessee is engaged only in the business of life insurance. It has been brought to the notice of the AO that no other business has been carried out. The investments were made in line with the requirement of applicable regulations. It is further noted that nothing has been brought out by the AO in the assessment order to show if any other business has been done by the assessee. It has also been shown that Shareholders' Account and Policyholders' Account have been separately maintained for the purpose of meeting the requirement of law as mentioned above also. Thus, there was no justification to artificially disintegrate the business by separately assessing the amount transferred from one account to the other by the assessee for the purpose of maintenance of accounts as per requirement of law. Assessee was engaged in only one business, i.e. business of life insurance. Under these circumstances, the recomputation of income made by the AO was rightly rejected by the CIT(A);

Whether Negative Reserves can be added back while computing the income of life insurance company u/s 44 r/w Rules 1 & 2 of First Schedule of the Income-tax Act – NO: ITAT

++ AO passed fresh assessment order for AY. 2005-06 by observing that t he mathematical reserve is part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes into consideration this mathematical reserve also. Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s. 44 of the 1 T. Act. Mathematical Reserve, which is debited on expense side of the profit and loss account, is computed as per the insurance regulations, as per which negative reserve is to be ignored while arriving at the Mathematical Reserve and as the Assessing Officer has no power to modify the amount after actuarial valuation was done, which is the basis of assessment under Rule 2 of First Schedule read with Section 44. Thus, the negative reserve cannot be added back while computing the income of life insurance business of the assessee company under Section 44 r.w. Rule 1 & 2 of the First Schedule to the Income-tax Act, 1961. The AO has himself took a decision that the Negative Reserves cannot be added back while computing the income of life insurance assessee company u/s 44 read with rules 1 & 2 of First Schedule of the Income-tax Act, 1961. Therefore, addition has been rightly deleted by the CIT(A) on the basis of his well reasoned findings;

Whether the claim u/s 10(34), 10(38) and 10(23AAB) are to be excluded before computation of income from life insurance business u/s 44 r/w Rule 1 & 2 of First Schedule of the Act – Yes: ITAT

++ The AO verified the facts and granted the benefit of exemption while holding that assessee is entitled to exemption under section 10. Thus, the claim of the assessee company U/s 10(34), 10(38) and 10(23AAB) are to be excluded before computation of income from life insurance business under Section 44 read with Rule 1 & 2 of the First Schedule of the Act. These Grounds raised by the Revenue are dismissed.

 

2017-TIOL-10-ITAT-MUM

RELIANCE MONEY INFRASTRUCTURE LTD Vs PR CIT: MUMBAI ITAT: (Dated: December 23, 2016)

Income Tax – Sections 32(i) & 263.

Keywords - revision – erroneous order - prejudice to interest of revenue - issue of preference shares - return of referral fee - loss incurred on forward broking trade settlement - long-term capital loss - cost of improvement of leasehold premises - lease rent and improvement expenditure

The assessee is company engaged in the business of marketing and distribution of insurance and mutual fund products, trading in bullion, real estate broking services, derivatives trading in commodity market, providing infrastructural facilities to its associate concerns etc. Original assessment for the relevant A.Y. 2011-12 was completed by the AO u/s 143(3). Subsequently, the PCIT issued show cause notice u/s 263 for revising of the assessment order passed u/s 143(3) for the reason that the AO failed to carry out relevant and meaningful enquiries with regard the issue of preference shares to Reliance Money Mall Ltd. (RMML) in respect of the issue of 20 crore preference shares of face value of 10 each on a premium of Rs. 20 totaling to Rs.600 crore, claim of deduction towards return of referral fee, claim of deduction towards loss of incurred on forward broking trade settlement of gold business, claim of allowance of long-term capital loss on sale of shares amounting to Rs.2,75,76,240/-, claimof depreciation on cost of improvement of leasehold premises u/s 32(i) of the Act and lease rent and improvement expenditure.

On appeal, the ITAT held that,

Whether the order of AO can be said to be erroneous and prejudicial to the interest of Revenue, where assessee has filed complete details before the AO in lieu of queries raised to verify the details and all the issues were examined of before passing the assessment order – NO: ITAT

++ On all the issues the assessee has filed complete detail before the AO in lieu of queries raised to verify the details. The entire facts brought out in the above order are supported by the evidences. As regards to the share application money, AO has examined everything and even the nature of transaction in regard to the issue of share and it is also a fact that this investment was made on the basis of erosion of loss of the company as on 31-03-2011, wherein, paid up capital resulting in an erosion of its capital and amounts have been paid on a going concern basis on the understanding that finance will be available with the company for work-in-capital requirement from its promoters. The observations of PCIT that huge investment made in loss making company by paying a premium of Rs. 20 per share does not make commercial sense and investment ought to have looked into closely is of no consequence because the promoter has brought in the funds by way of preference shares as their holding was 62%. From the terms of preference shares issued it can be seen that the same was redeemable at premium of Rs. 20 per share and the premium was required to be refunded by the company on its redemption. Hence, funds were brought in by the promoters and on the terms which cannot be said to be prejudicial to the interest of the Revenue. In view of the above, huge investment in quantity and that also preferential share was a commercial decision by a businessman and the Revenue has no authority to question the same. Another observation of the PCIT that the investment by RMML in the shares of assessee's company by borrowing funds from its associate companies that's why a huge loss making company was made as subsidiary by RMML is also without any basis for the reason that RMML has brought funds from its associate company is not at all correct as RMML had issued preferential shares and utilized the same proceeds to make investment in the capital. RMML obtain the funds from RCL in the form of preferential shares and RMML acquiring stake in a holding company does or does not make any commercial sense, it is a businessman decision and same cannot be questioned now by PCIT or Revenue;

++ It is also a fact that RMML is a promoter of the company and they have infused funds into the company from their survival or revival and it is a common knowledge that the promoters have to invest huge funds for managing the affairs of the company and more particularly when the investee company is making loss. The assessee proved this fact that this business was growing and therefore funds were required and turnover in subsequent years went up to Rs. 785 crore in 2012 and Rs. 1356 crore in 2013. It is also a fact that this transaction of issue of preferential shares of RMML and transfer of funds from RCL to RMML has no tax implication. This was explained that the assessee had issued preferential shares to RMML, the source of which were explained and also it is confirmed by PCIT while adjudicating the issue. It is only the conjuncture of surmises of the PCIT that there is façade in respect to issue of preference shares by the RML at huge premium to transfer funds from RCL to assessee threw the conduit. AO is required to look into the source of funds by way of share capital, which has been confirmed by the PCIT that the funds are fully explained. To confirm this the assessee explained vide letter dated 27-01-2014, whereby copy of board resolution allotting of shares of RMML was submitted which shows that the shares were allotted on 07-09-2010 and this fact was filed during the course of assessment proceedings. In view of these facts and details filed before the AO, we are of the view that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue because the source of share is fully explained and even source of source is also explained;

Whether when the scheme of demerger and orders of High Courts are in public domain and the same are also filed with the Registrar of companies, the same cannot be questioned by the Revenue in the revision proceedings u/s 263 - YES: ITAT

++ As regards to the issue of demerger of infrastructure division into Reliance Capital Asset Management Company Ltd., the scheme of an arrangement of demerger approved by High Court of Bombay and High Court of Gujarat, looked into all the aspects before approving the schemes of demerger and now the PCIT cannot raise any question on the judgment of High Courts. When the scheme and orders of High Courts are in public domain and the same are also filed with the Registrar of companies (ROC), the same cannot be questioned by the Revenue and moreover in the revision proceedings u/s 263. The same was filed and this was very well noticed by the AO while framing assessment and even that authorities below cannot take any adverse view on the issue of scheme of arrangement i.e. demerger of infrastructure undertaking from the assessee company because High Courts have approved the same. Even otherwise on merit also as an effect of demerger scheme, the loss of the company which were brought forward will be carry forward by the assessee company and thus available loss of the assessee's company to have been reduced for carry forward purpose and this cannot be considered as prejudicial to the interest of the Revenue or even no error has caused to the Revenue. Accordingly also the order AO cannot be held to be erroneous or prejudicial to the interest of the Revenue;

++ As regards to the issue of claim of deduction towards return of referral fee, on the instructions of IRDA who is the controlling authority for Insurance business, this amount was refunded and during the year under consideration no referral fee has been received, which is part of this refunded amount. Thus there is no rendering of service during the year and services were rendered in the earlier years. Therefore, if any enquiry is to be made qua this income or assessment of the income in the hands of the assessee that can only be made in A.Y. 2008-09 and 2009-10 and not in the relevant A.Y. 2011-12. The transaction of debit of referral charges during the year in the profit and loss account is nothing but writing off of income which was previously received and offered to tax. AO has examined this issue by making a query and the same was replied by the assessee and this aspect has also been considered while framing assessment of RCIBL, wherein, the same AO has framed assessment only on 30-01-2014, which is also the same date when the assessment was framed. These amounts are not in doubt or the genuineness of the same is doubted neither by the PCIT or the AO during the course of assessment proceedings. Hence, the assessment order cannot be said to be erroneous so as to prejudicial to the interest of the Revenue;

Wether where the AO has exercised quasi-judicial power vested in him in accordance with law and arrived at a conclusion, such a conclusion cannot be found to be erroneous simply because the Commissioner does not feel satisfied with the same - YES: ITAT

++ In respect of claim of deduction towards loss incurred on forward brokering trade settlement, the assessee company is into distribution of gold coins to retail customers and to cover the risk of price fluctuation of gold, it hedged the gold position with MCX exchange on mark to market position and is accounted under the head Forward brokering Trade settlement. For this issue of hedging, it was explained that there is a considerable gap between the date of purchase and the date of sale and the company needs to hedged the same against the price movement of gold and company used gold futures at MCX to achieve this purpose. The assessee has filed the complete details of forward brokerage trade settlement of Rs. 6,025,9,311/-and the assessee realized loss of Rs. 6,58,66,270/-and there is unrealized profit of Rs. 33,56,959 and the net loss is at Rs. 6,025,9,311/-. Assessee has taken actual delivery as noted by PCIT in his order even though payment is made by cash for purchase of gold and even instruction No.3 of 2010 issued by CBDT dated 23-03-2010 is not applicable i.e. there is mark to market loss but there is a profit. There is no unrealized loss and the question of applying instruction No.3 as applied by the PCIT does not arise. Even otherwise the complete details in respect to this loss is filed before the AO during the course of assessment proceedings in lieu of query raised and it is presumed that the AO has applied his mind to the facts of the case and passed an appropriate order. Hence, the assessment order cannot be said to be erroneous so as to prejudicial to the interest of Revenue on this issue. As regards to the issue of claim on long term capital loss on sale of shares, the shares of the above companies are still held by RCL and Reliance Exchange Next Ltd. as evident from the schedule of investments appearing in the financial statement of RC Land Reliance Exchange Next Ltd. as on 31-03-2015. The shares of the above companies were sold at cost on which the same were purchased and therefore, there was no profit or loss but the loss has arising only on account of the provisions requiring the assessee to adopt the indexed cost because these shares are held for long term purposes, i.e. beyond one year. The assessee has recovered the entire investment and there is no impairment in respect to thereof. Hence, on this issue the assessment order is neither erroneous nor prejudicial to the interest of the Revenue;

++ as regards the claim of depreciation on cost of improvement of lease hold premises u/s 32(1), the assessee has sold/transfer the lease hold premises during the year on account of demerger of its infrastructure division and this was done as per the scheme of demerger of infrastructure undertaking between the assessee and Reliance Capital Asset Management Ltd. as per which various assets and liabilities were demerged and demerger was approved by Bombay High Court and Gujarat High Court. The sale of lease hold premises and improvement thereon is stated to be Rs. 2,71,72,549/- is not sale value but it is accumulated depreciation which is removed from the schedule of fixed assets on account of transfer of assets and demergers. The assessee filed complete details before AO. Once it is a fact that this accumulated depreciation amounting to Rs. 2,71,72,549/- is not sale value, which is removed from fixed assets on account of transfer of assets and demerger of the companies. Even otherwise the complete details were available before the AO during the course of assessment proceedings, which were filed by the assessee on query from the AO. The assessment order framed under 143(3) is neither erroneous nor prejudicial to the interest of the Revenue. As regards the lease rent and improvement expenditure the AO enquired the issue by raising a query u/s 142(1), wherein the AO has asked the details of merger expenses including breakup and nature. Complete expenses of rent rates and taxes and details of rent premises which are filed before the AO, wherein, the assessee has debited the sum of Rs.56,41,858/- as property tax under the head rates and taxes and the details were submitted before the AO. It is a fact that this premise was taken on leave and license basis from Uptown Properties And Leasing Properties Pvt. Ltd. vide agreement dated 12-10-2007 and the same was evicted on 04-06-2009. Assessee has incurred the expenditure as per agreement and reimbursement of municipal taxes was on actual basis at the rate of bills. The assessee has filed compete details were filed before the AO during the course of assessment proceedings on a query from the AO and after satisfying the AO has passed the order u/s 143(3). An order cannot be termed as erroneous unless it is not in accordance with law and if the AO acting in accordance with law frames assessment, it cannot be branded as erroneous by the Commissioner simply because in his opinion the order should have been written more elaborately. Where the AO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion such a conclusion cannot be found to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.