TIOL Update - 2017-TIOL-INSTANT-ALL-417

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2017-TIOL-358-HC-MAD-ST

SERVICE CARE PVT LTD Vs DCST: MADRAS HIGH COURT (Dated: January 31, 2017)

Service Tax - Recovery - Tax dues owed by erstwhile proprietorship is sought to be fastened on the petitioner - the grievance of the petitioner in the instant WPs is that the garnishee order issued, qua its customers (L & T Valves Limited, and MN Dastur & Co) has been passed without any basis in law; that tax, if any due, was payable, if at all, by the erstwhile proprietorship concern; that since, the proprietor has died leaving behind no estate, no recovery could be made from the petitioner, only because L & T Valves Limited and M.N.Dastur and Company (P) Ltd., were earlier customers of the proprietorship concern.

Held: The respondents could not have passed the garnishee orders without first passing an assessment order - Admittedly, no assessment order has been passed - In these circumstances, the garnishee orders are set aside and to that extent, the prayer made in W.P.No.1468 of 2017 is modified - In so far as the prayer made in W.P.No.1469 of 2017 is concerned, the same is not pressed - Liberty, though, is given to seek refund, if any, in accordance with law, by instituting appropriate proceedings in that behalf - the respondent would be free to initiate proceedings against the estate of the proprietorship concern, having regard to the extant provisions of law [Para 5, 5.1, 6, 6.1]

WPs disposed of

2017-TIOL-357-HC-KAR-IT

CIT Vs INDIA ADVANTAGE FUND-VII: KARNATAKA HIGH COURT (Dated: February 1, 2017)

Income tax - Section 164

Keywords - formation of AOP - determinability of shares - execution of trust deed - sharing of benefits - investment made by beneficiaries

The Revenue preferred the present appeal challenging the order whereby the ITAT held that the assessee trust could not be assessed as on AOP even though the requirements of section 164(1) were not met, inasmuch as the shares of the beneficiaries were indeterminate. The Revenue therefore urged that the AO was justified in invoking the provisions of section 164(1) of the Act and make the assessee liable to be assessed at the maximum marginal rate in the status of AOP. According to Revenue, it was not relevant whether the necessary ingredients for formation of an AOP were fulfilled by the assessee or not.

On appeal, the HC held that,

Whether the question of finding of fact, would be outside the scope of judicial review - YES: HC

++ the matter should rest as the finding of fact for the simple reason that whether the Trust Deed provides for shares of the beneficiaries which are determinable or non-determinable would vary from facts to facts of each Trust including that of the deed of trust etc. Such finding of fact can be arrived at after interpretation of the terms and conditions of the Trust Deed as well as the other facts and circumstances which may be germane to reach the conclusion on the finding of fact. If the matter is to rest on the question of finding of fact, in our view, such question of finding of fact would be outside the scope of judicial review in the present appeals which would be limited to substantial questions of law. However, the counsel for the Revenue attempted to contend that such finding of fact so recorded by the Tribunal is perverse and therefore, it may fall under the judicial scrutiny in the present appeals. In his submission, what was required to be considered by the Tribunal was the exact amount of share by the beneficiaries and the quantification thereof and both should have been on the date when Trust Deed is executed or the Trust is formed. In his submission, if such conditions are not satisfied the shares of the beneficiaries would result into nondeterminable shares. He submitted that the Tribunal has not properly examined the matter and such finding of fact by the Tribunal could be said as perverse;

Whether the determinability of shares of the beneficiary is dependent upon the date on which the trust deed was executed - NO: HC

Whether a conclusion can be drawn that shares are determinable, once the benefits are to be shared by the beneficiaries in proportion to the investment made - YES: HC

Whether once such shares are determinable amongst the beneficiaries, it would meet with the requirement of the law, to come out from the applicability of Section 164 of I-T Act - YES: HC

++ it is by now well settled that the perversity can be tested in two ways. One, if any finding of fact is not supported by record and is on some hypothesis or surmises. The second test is, that the finding arrived at which any person with reasonable prudence may not record. Then it can be said that such finding is perverse. Examining the matter in the present case it appears that it is not the case of the Revenue that the findings so recorded is such, which no man with reasonable prudence would arrive at such finding. But the contention sought to be canvassed is that on the date of execution of the Trust Deed, the shares should specifically come in existence with the quantification and it need not depend upon the future share of the benefits or upon any future contingency. In our view, the contention is wholly misconceived for three reasons. One is that by no interpretative process the explanation to Section 164 of the Act, which is pressed in service can be read for determinability of the shares of the beneficiary with the quantum on the date when the Trust deed is executed and the second reason is that the real test is the determinability of the shares of the beneficiary and is not dependent upon the date on which the trust deed was executed if one is to connect the same with the quantum. The real test is whether shares are determinable even when even or after the Trust is formed or may be in future when the Trust is in existence. In the facts of the present case, even the assessing authority found that the beneficiaries are to share the benefit as per their investment made or to say in other words, in proportion to the investment made. Once the benefits are to be shared by the beneficiaries in proportion to the investment made, any person with reasonable prudence would reach to the conclusion that the shares are determinable. Once the shares are determinable amongst the beneficiaries, it would meet with the requirement of the law, to come out from the applicability of Section 164 of the Act. Once the shares of the beneficiaries are found to be determinable, the income is to be taxed of that respective sharer or the beneficiaries in the hands of the beneficiary and not in the hands of the Trustees which has already been shown in the present case.

Revenue's appeal dismissed

2017-TIOL-356-HC-MUM-IT

SESA RESOURCES LTD Vs ACIT: BOMBAY HIGH COURT (Dated: February 2, 2017)

Income tax - Section 226(3)

Keywords - attachment of bank A/c - demand notices - recovery of tax dues

The assessment for assessee company was completed raising a tax demand of Rs. 12.85 Crores and Rs.21.61 Crores receptively. The assessee thereafter moved a detailed application before the Revenue for stay of the demand for such A.Ys, inter alia, pointing out that most of the issues giving rise to the disputed demand were settled in favour of assessee. When the appeals before the CIT(A) were pending disposal, the ACIT issued a letter to the assessee stating that a demand of Rs.40.25 Crores was outstanding for various A.Ys, which included the aforesaid demand. A detailed response was filed by the assessee, inter alia, stating that the recovery of Rs.10.74 Crores had already been made, which, according to the assessee was far in excess of the 15% set by the CBDT vide its Office Memorandum. The plea of assessee was however rejected directing it to approach the PCIT though it was admitted that not more than 15% of the total demand could be recovered in terms of the Office Memorandum. Subsequent to the same, the ACIT issued notices u/s 226(3) to the Banks, attaching the Bank Accounts of assessee with the SBI, ICICI Bank Ltd., and the HDFC Bank.

On appeal, the HC held that,

Whether notices issued u/s 226(3) for attachment of bank A/cs can be sustained, when 15% of the disputed amount has already been recovered by the Revenue and such amount is covered by the Office Memorandum issued by CBDT - NO: HC

++ admittedly, 15% of the disputed amount has already been recovered by the Revenue and such amount is covered by the Office Memorandum issued by the CBDT. In such circumstances, the Revenue is not justified to pass the impugned attachment Notices u/s 226(3). The claim of assessee at this stage, seeking refund of the amounts attached pursuant to such directions, is not at all justified and cannot be granted in the present petition. The assessee's counsel has placed on record a Memo showing the actual amount in dispute for the subject assessment years, as well as the amounts recovered based on refund orders, which figures are not disputed by the Revenue's counsel. In view of the above, the impugned notices issued to the State Bank of India, ICICI Bank Ltd., and HDFC Bank u/s 226(3) in respect of the A.Ys 2011-12 and 2012-13 are quashed and set aside.

Assessee's petition allowed

2017-TIOL-349-HC-AHM-CUS

CC Vs LD TEXTILES INDUSTRIES LTD: GUJARAT HIGH COURT (Dated: February 1, 2017)

Customs - DEEC - Respondent obtained two advance licenses for man madefibres - One of the conditions of these licenses was that the licence holder should effect export as envisaged by the DEEC Scheme - Imports were cleared duty free under the licenses, but the corresponding export obligation could not be met - They thus paid the duty of Rs. 62,84,656.54 by bank draft drawn in favour of Veraval Customs - the Customs Authorities of Ahmedabad Collectorate received information that the respondent had imported large quantities of polyester staple fibres under the advance licence scheme and they were selling the same in the open market through misdeclaration of goods as non-cellulosic synthetic waste - The check of the accounts revealed that the books of accounts showed Nil balance of the raw materials imported by them; contrary to physical stock of polysterfibre of different makes, including that imported by respondent- the Customs Officers seized unaccounted goods and records relevant to the enquiry, recorded statements and conducted investigations - absolute confiscation of polyester fibres and polyester staple fibre seized was adjudicated; duty demand in respect of impugned imports confirmed with interest and penalties - By the impugned common judgment and order, the Tribunal upheld confiscation of the goods seized, however, has set aside the demand of duty on the goods seized and thereafter confiscated under Section 111 [m] and 111 [o] of the Act, now agitated by Revenue herein.

Held: The liability to pay duty has nothing to do with confiscation of the goods under Section 111 and/or under Section 125 of the Act - Under the circumstances, the Tribunal has materially erred in setting aside the demand for duty on the goods solely on the ground that they were seized after the customs clearance and absolutely confiscated under Section 111 [m] of the Customs Act - Identical question came to be considered by the Apex Court in the case of Security & Finance [P] Limited, wherein it was held inter alia that the levy of duty and the order of confiscation both operate in different fields; that the import duty has to be paid inevitably by the importer; that Confiscation or fine in lieu thereof is an infliction on the offender or circle of offenders; that sometimes, the burden in both the cases, falls on the same person and at the other times, they may fall on different person - the questions raised in the present Tax Appeal are required to be answered in favour of the Revenue and against the assessee - impugned order passed by Tribunal quashed and set-aside [Para 8, 9, 10]

Appeal allowed