CASE LAWS
2017-TIOL-11-SC-IT
AMAN KHERA Vs CIT: SUPREME COURT OF INDIA (Dated: January 4, 2017)
Income Tax - Sections 143(3) & 271(1)(c)
Keywords - cash system of accounting - mercantile system - professional/management consultancy
The assessee, an individual preferred this SLP praying to withdraw the same and stated that assessee had paid some tax in the subsequent years which should now become refundable and he would be moving an appropriate application for refund thereof.
Having heard the parties, The Supreme Court held that,
Whether an SLP deserves to be dismissed as withdrawn, if the litigant in question seeks permission to withdraw the same - YES: SC
++ It is noted that nothing is observed on the merits of the aforesaid submissions of assessee. Therefore, this court grants permission to assessee to withdraw the matter.
Assessee's SLP dismissed
2017-TIOL-10-SC-IT
CIT Vs SANE & DOSHI ENTERPRISES: SUPREME COURT OF INDIA (Dated: January 3, 2017)
Income tax - The Revenue preferred this SLP challenging the order, whereby the High Court held that if two conflicting views of CIT were placed before the Tribunal and it had concurred with one of those views, then the view with which it concurred prevails and the Revenue cannot raise such issue further.
Having heard the parties, the Supreme Court admits the case of Revenue and grants leave to defend its case.
Leave granted
2017-TIOL-60-HC-KERALA-CT
RAJAH HEALTHY ACRES PVT LTD Vs STATE OF KERALA: KERALA HIGH COURT (Dated: December 9, 2016)
Kerela Tax on Luxuries Act, 1976 - Sections 2(ee), 2(fb) & 4
Keywords - amendment of provision - luxury in hospitals & legislative competence
The assessee hospital is engaged in providing Allopathic and Ayurvedic treatments and conventional methods of medical attention to various patients. During the subject year, the Kerela government noticed that the ambience and infrastructure of the hospitals, especially the accommodation provided to the patients, were spruced up to give the patients and bystanders all the comforts and luxuries as were possible. Accordingly, amendments were brought into Kerala Tax on Luxuries Act, 1976, bringing into its purlieus 'luxury' provided in a hospital and making it mandatory that every hospital having not less than five rooms for accommodation of patients and which charges Rs.1,000/- or more per room, excluding the charges for medicine, food and professional services, to be registered under the provisions of the Act. The effect of this amendment was that the hospitals answering the criterion specified in the Act would become exigible to tax, for the luxury provided by them in the hospitals. The assessee challenged the same primarily on the ground that the amendments were beyond the legislative power of the State of Kerala under Entry 62 List II of VII Schedule of Constitution of India. The primary line of their attack was that levy of luxury tax under Entry 62 List II of VII Schedule of the Constitution would be permissible only if 'luxury' was provided in the hospitals and since they did not provide any luxury, but were only places of healing, the legislature had grossly exceeded in its competence while legislating. The proximate cause for their challenge was that the assessees were sought to be assessed and penalised under the relevant provisions of the Act for not obtaining registration under the Act and for not maintaining or returning the assessments as mandated by the provisions contained therein. The Single Judge, after elaborate consideration of all the materials, repelled the challenge against the constitutionality of the impugned amendments holding it to be within the legislative competence of the State Legislature and finding it to be intra vires the constitutional mandate.
On appeal, the HC held that,
Whether the amendments brought into Kerala Tax on Luxuries Act, 1976, bringing into its purlieus 'luxury' provided in a hospital, is ultra vires to the Constitution of India - NO: HC
++ this court is in conclusion that the amendments made to the Act, bringing into its sweep luxury in hospitals, do not suffer from any constitutional infirmity and is intra vires the legislative competence of the State Legislature in making such amendments. A multitude of judgments of the Supreme Court mirrors that there is presumption in favour of validity of the Statute. The courts are also expected to construe the provisions of a Statute in such a way so as not to make it ultra vires but intra vires. If certain provisions of law, construed in one way, would make them consistent with the Constitution and another possible interpretation would make them unconstitutional, the courts are, under the mandate of various binding precedents of the Supreme Court, to lean in favour of the former construction which would make the Statute valid. It is now well settled that a law made by a Parliament or Legislature can be struck down by the courts only on two grounds, namely, the legislature lacks legislative competence and that it has been passed in violation of any of the fundamental rights guaranteed in Part III of the Constitution or any other constitutional provision. The assessees have challenged the amendments made to the Act singularly on the ground that those amendments have been made in excess of the powers available to the State Legislature under Entry 62 List II of VII Schedule of the Constitution of India. The Act has been obviously legislated by the Legislature of Kerala invoking its nomothetic powers under Entry 62 List II of VII Schedule of the Constitution of India. Entry 62 relates to 'taxes on luxuries, including taxation on entertainments, betting and gambling'. The Act was originally enacted in the year 1976 and it was intended to be an Act to provide for levy and collection of tax on luxury offered in the hospitals and lodging houses. However, by the Finance Act, 1994, the words 'provided in the hospitals and lodging houses' were omitted and thus the Act was re-cast to be one for the levy and collection of tax on luxury. The fact that the State Legislature is competent to legislate on luxuries is obvious from Entry 62 List II of VII Schedule of the Constitution;
++ the assertions essentially impelled by the assessees are that there is no luxury in hospitals and that therefore, nothing can be taxed under the Act. This contention is further sought to be invigorated by them avouching that hospitals provide nothing intended to be luxury and that by artificially defining 'luxury provided in a hospital', as is done by the impugned amendments, the legislature has professed contrary to the field of legislative power under Entry 62 List II of VII Schedule of the Constitution. The appellants would, however, concede, when asked pointedly, that if there is any luxury, within its meaning as is defined under the Act, provided by hospitals, then it would be within the constitutional ambit of the legislature to bring it to the sweep of the Act. The Act defines luxury in Section 2(ee) of the Act to mean a 'commodity or service that ministers comfort or pleasure'. One of the earliest cases where the meaning of 'luxury' was attempted to be answered was Abdul Kadir (A.B.) v. State of Kerala, wherein the Supreme Court observed that tobacco was an article of luxury. However, later in case of Godfrey Phillips India Ltd. v. State of U.P, the Apex Court held that the word 'luxuries' in Entry 62 List II means the activity of enjoyment or an indulgence, which is generally recognised as being beyond the necessary requirements of an average person and that it does not mean an article of luxury. The specific entry, ad rem the impugned amendments, in VII Schedule of List II in Entry 62 is "Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling". The competence of the State Legislature to enact on the matter of 'luxuries' is, therefore, incontestable since Article 246 of the Constitution grants exclusive power to make laws with respect to any of the matters enumerated in List II to the State Legislature. The function of the Lists in Schedule VII of the Constitution is not to confer a power but to merely demarcate the legislative field and so must, as far as possible, be given a broad and comprehensive interpretation;
Whether the attempt made by Legislature to tax the luxury of accommodation with adscitious amenities which are not intended for treatment of patients but are intended for better comfort, can be treated as unsustainable - NO: HC
Whether the Legislature is competent to propose wide interpretation of the term 'luxury' so as to take in all such experience which ministers comfort or pleasure, by exercising powers under Entry 62 of Schedule 7 to the Constitution - YES: HC
++ the impugned amendments, even on an ex facie examination, would show that what is sought to be taxed as 'luxury' in a hospital is only the accommodation for residence and for use of amenities and services provided, excluding the charges of food, medicine and professional services. However, the provisions do not treat all such accommodations and amenities as 'luxury', but only those, the charges for which is one thousand rupees per day or more. Similarly, for the purpose of levy of tax on such luxury, registration of the hospital is mandated only if such hospital has five or more rooms to be rented for accommodation of which the gross charges excluding food, medicine and professional charges is rupees one thousand or more per room. We see that what is attempted by the Legislature is not to tax the fundamental and inherent services of a hospital like food, medicine and professional charges, but only the luxury of accommodation with adscitious amenities, and that too, the gross value of which per day is more than rupees one thousand. These amenities and facilities are not intended for recovery, healing or treatment of the patients but are obviously intended for better comfort and pleasure of both the patient and bystander in a room. As already stated, the word 'luxury' has been defined in the Act itself and, therefore, that definition would prevail and it is competent on the part of the legislature to give it a wide meaning so as to take in all such experience which ministers comfort or pleasure. This is completely and wholly within the competence of the Legislature to enact upon under Entry 62 of the VII Schedule of the Constitution, the matter being intrinsically and irreparably related to 'luxuries' as obtaining in the said Entry. The legislature obviously thought that such accommodation and amenities beyond the pecuniary limit of Rupees one thousand can be classified as luxury and it is not something that the courts can interfere with merely because the perception which it holds, even it does, that such pecuniary limits are too low in order to classify as a luxury. The legislature must surely be given the credit of being aware of the developments on the subject from time to time and be credited with the capacity to control and exercise the purposes and requirements for which the power was committed to it under the Constitution. This is what is recognised as the doctrine of 'generic interpretation' meaning the entitlement to execute the power, with respect to new developments of the same subject that arise from time to time, under the control of the Authority to which the power is vested. In view of the above, this court holds that the impugned amendments to the Act have been enacted by the legislature within its competence and therefore, is intra vires of the Constitution of India.
Assessee's appeal dismissed
2017-TIOL-59-HC-DEL-IT
SKIN INSTITUTE AND PUBLIC SERVICES CHARITABLE TRUST Vs CIT: DELHI HIGH COURT (Dated: January 2, 2017)
Income tax - Sections 10(22A), 12A & 264
Keywords - charitable purpose - revisional order - receipt of significant amount & withdrawal of exemption
The assessee institution was established by late Dr. P.N. Behl. Upon the establishment of the society, entirety of the hospital set up by Dr. Behl was made over to it to be run for entirely charitable purposes. Subsequently, a certificate u/s 12A was granted to the assessee and the Memorandum of Association was duly registered. The assessee thereafter was also granted exemption certificate from inception. The assessee's hospital treats those suffering from illness and also provides convalescence to those requiring medical attention and rehabilitation. Consistently for the period 1974-75 to 1992-93, the assessee's claims of the income and receipts being charitable were accepted and not brought to tax. However, during one of the earlier years i.e. 1975-76, the assessee's income was sought to be taxed; and on that occasion its revision u/s 264 was accepted. For the first time in 1992-93 the AO formed the opinion that the society was disentitled to the benefit u/s 10(22A). He did so based upon the fact that Dr. Behl, the settler, had received Rs. 3,09,370/- for that assessment year.
On appeal, the HC held that,
Whether I-T Authorities are permitted to import disqualifications applicable to categories of income that may otherwise be eligible to exemption, into amounts which are per se entitled to be treated as not forming part of the total income - NO: HC
++ it is to be noted that Section 10(22A) excluded income received by hospitals or other institutions, for the reception and treatment of persons suffering from illness. The Tribunal in this case was influenced by the text of Section 13 which contains conditions imposed upon income which is otherwise excluded by virtue of Section 11 or Section 12 from taxation. A plain reading of section 13 which sets out rules of exclusion, as it were (from the entitlement or eligibility of certain income the immunity of taxation) opens with the exception "Nothing contained in section 11/12 shall operate". What is immediately apparent is that the exclusion of amounts received by virtue of section 10(22A) is not the subject matter of section 13(1) or any of its further conditions. In other words, the disqualification which attaches in absolute terms by virtue of provisions of section 13(1) especially through section 13(3) to the income out of which some benefit flows to a settler/ founder, does not per se apply to institutions covered by section 10(22A);
Whether receipt of significant amounts by the owner of a hospital, would undermine its entire charitable nature by reason of Section 13 - NO: HC
++ Section 13 was brought into force in its present form on April 01, 1989. Concededly, the provision refers to all manner of charitable income which would otherwise be not subject matter of exclusion u/s 10. The later provision specifically deals with receipts, that should not bear the character of income at all. Like section 10(22A), the Parliament provided for other receipts which would otherwise have fallen in the category of income, but which are deemed not to be part of the total income, such as Sections 10(1), 10(2), 10(2A), 10(3), 10(4), 10A, 10B and so on. These provisions operate in a sui generis manner, so to speak. There is no window for the tax administrator to import disqualifications applicable to categories of income that may otherwise be eligible to exemption, into these amounts which are per se entitled to be treated as not forming part of the total income. In this Court's opinion, this fundamental error led the Tribunal to hold that since Dr. Behl received significant amounts, the entire charitable basis of the assessee stood undermined by reason of Section 13. This error persisted for the three assessment years in question. Having regard to the specific nature of the income which till Mar 31, 1999 could not be included as part of the total income, which the Parliament later subsumed through sections 10(23C) and 12A by deleting section 10(22A), in the present case there was no question of confusion the amount received by Dr. Behl as benefits that could debar the assessee to the eligibility it fundamentally had u/s 10(22A).
Assessee's appeal allowed
2017-TIOL-58-HC-MUM-IT
CIT Vs JET AIRWAYS INDIA LTD: BOMBAY HIGH COURT (Dated: January 4, 2017)
Income tax - Sections 194-I, 201(1) & 201(1A)
Keywords - facilitation component - passenger service fees - rent & tax at source
The assessee is engaged in the business of transportation by aircraft and for that purpose use and occupy airports run by Airport Operators. In the course of its business, the assessee used to collect on behalf of the Airport Operators, a Passenger Service Fees (PSF) and hand it over to the Airport Operators. However, as no tax was deducted at source while handing over the PSF to the Airport Operator, a notice u/s 201(1)/201(1A) was issued. The basis of the notice was that the PSF paid over to the Airport Operator was "Rent" falling within the scope u/s 194I. It was pointed out that the amount of PSF which was paid by the assessee to the Airport Operator consisted of two components i.e. security component and facilitation component. However, the ACIT (TDS) did not accept the assessee's submission and held the assessee liable to deduct and pay TDS and the interest thereon u/s 201(1) & 201(1A). On appeal, the CIT(A) held that the PSF collected from the passengers and paid over to the Airport Operator was not in the nature of rent as defined in Section 194-I. Consequently there was no obligation on the assessee to deduct TDS on the same.
On appeal, the HC held that,
Whether the passenger security fees which is not for use of land or building but for providing security services and facilities to the embarking passengers of the airline, attracts the provision of Section 194-I - NO: HC
++ in the present facts the assessee collects PSF from only its embarking passengers for and on behalf of the Airport Operator. In terms of Rule 88 of the Indian Aircraft Rules the Airport Operator is entitled to collect PSF which provides that: "....the licensee is entitled to collect fees to be called as Passengers Services Fees (PSF) from the embarking passengers at such rate as the Central Government may specify and is also liable to pay for security component to any security agency designated by the Central Government for providing the security services...." Thereafter attention was invited to an order dated 9th May, 2006 of the Ministry of Civil Aviation (Government of India) which entitle the Airport Operator to collect the PSF from the embarking passengers and out of Rs.200/-collected per passenger, an amount of Rs.70/-would be retained by the Airport Operator towards passenger facilitation while the balance Rs.130/-would be handed over to CISF for security arrangements. Thus this cannot be considered to be as a payment made by the Airline. It is payment made by the passenger which is only routed through the airline. For this reason the order also records the fact that the above amount handed over to the Airport Operator is not claimed as an expenditure by the assessee;
++ it is clear that the charges are not for use of the land per se and therefore it cannot be treated as rent within the meaning of section 194-I. It may be observed that the Apex Court did further observe that in view of the explanation to Section 194I, the normal/popular meaning of the word "rent" stood expanded. However, primary requirement is that the payment must be for use of the land or building and mere incidental/minor/insignificant use of the same while providing other facilities and services would not make it a payment made for use of land/buildings. This is more so as the submission of the Revenue itself is that the payment of PSF is for use of secured building and furniture. Therefore the use of land/or building in this case is only incidental. As the substance of the PSF is not for use of land or building but for providing security services and facilities to the embarking passengers the decision of the Apex Court in Singapore Airlines (supra) would cover the issue in favour of the respondent-assessee. Consequently, the proposed question of law does not give rise to any substantial question of law.
Case deferred
