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2017-TIOL-138-SC-IT

NTPC LTD Vs CENTRAL ELECTRICITY REGULATORY COMMISSION: SUPREME COURT OF INDIA (Dated: March 22, 2017)

Income tax - Section 32 - UP State Electricity Reforms Act, 1999 - Section 23 - Depreciation.

Whether depreciation under the provisions of the I-T Act is to be allowed on the purchase price of a power plant and not the sum decided by the Central Electricity Commission which restricted the same for the purpose of depreciation to a sum less than the purchase price - YES: SC

The appellant had acquired the Tanda Thermal Power Station under a Statutory Transfer Scheme notified by the Government of Uttar Pradesh at a cost of Rs 607 Crores. In pursuance of the powers vested under Section 23 of the Uttar Pradesh State Electricity Reforms Act, 1999, the State Government issued the Uttar Pradesh Reforms (Transfer of Tanda Generating Undertaking) Scheme, 2000 and by virtue of the said Statutory Scheme, the Tanda Thermal Power Station was transferred and vested in the State Government and thereafter vested in the assessee. The said clause recognized the consideration for the assets transferred as Rs.1000 Crores. However, by another transfer scheme, the Uttar Pradesh State Electricity Board (UPSEB) was re-organized and the power purchase functions of UPSEB came to be vested in Uttar Pradesh Power Corporation Limited (UPPCL). The Tariff Regulations, 2001 framed by the Central Commission under the Electricity Regulatory Commission Act deciding on the terms and conditions of tariff for determination of tariff came into force.

During the pendency of the review petition before the Commission, Memorandum of Understanding (MOU) reached between the appellant and Respondent No.2 - herein in regard to the consequences of the reduction of capital cost of Tanda Station determined by the Central Commission at Rs.607.00 Crores as against the transfer price of Rs.1000.00 Crores under the Notification dated 14-1-2000 and depreciation of an amount of Rs.175.91 Crores charged upto the date of transfer shall be considered for limiting the cumulative depreciation amount claimed to be 90% of the project cost of Rs.607.00 Crores.

The Central Commission decided the petition which was filed by the assessee and the said Commission modified the Order dated 28-6-2002 in certain aspects. While the Central Commission accepted the transfer price of Rs. 607.00 Crores but for the purpose of depreciation restricted the computation to Rs.431.09 Crores. Challenging the said Order of the Commission, the assessee approached this Apext Court.

Held that,

++ we have applied the principles of accountancy in the matter in question and further taking into consideration the decisions referred by the counsel appearing for the appellant who had pointed out that what is relevant is the purchase consideration paid by the NTPC which is admittedly Rs.607.00 Crores and not Rs.431.09 Crores. The Appellate Tribunal, according to him, has wrongly distinguished the decision of this Court relied upon by the appellant before the said Tribunal which is reported in Jogta Coal Company vs. Commission of Income Tax (2002-TIOL-1245-SC-IT-LB) and another decision reported in Guzdar Khajura Coal Mines Limited vs. Commissioner of Income Tax (2002-TIOL-1419-SC-IT-LB) wherein it has been laid down that the purchase value should be the basis for computing the depreciation;

++ the Appellate Tribunal has merely stated that the treatment for depreciation under the Income Tax Act and for determination of tariff under the Electricity Act are different. However, such point which has been decided by the Tribunal, in our considered view, cannot come within the purview of accounting principle and, therefore, it has been noted that the Judgments which have been relied upon before us substantially support the claim of the appellant and accordingly, we set aside the order so passed by the Tribunal. As a consequence thereof, whatever consequential orders are necessary to be passed in the matter, the concerned Authorities shall take necessary steps in the matter.

Appellant's petition allowed

2017-TIOL-137-SC-IT + Story

GUNJAN GIRISHBHAI MEHTA Vs DIRECTOR OF INVESTIGATION: SUPREME COURT OF INDIA (Dated: March 21, 2017)

Income Tax - Sections 132, 158BC & 158BD.

Keywords: Dead assessee - legal heir - invalid search warrant

Whether when the legal heir of the dead assessee participated in the assessment proceedings and never raised the issue of invalid search prior to issue of notice u/s 158BD, the same can be a ground before the Apex Court - NO: SC

Whether when the Revenue finds some information during a search, the same becomes irrelevant for further action in an on-going proceeding - NO: SC

Revenue issued Section 132 Notice in the name of a dead person but the same was duly received by the petitioner as the legal heir of the dead person. The petitioner had participated in the assessment proceedings after a notice u/s 158BC was served on him. Thereafter, a notice under Section 158BD of the Act was issued on the basis of information coming to light in the course of a search. A writ was filed which favoured the petitioner.

On appeal, the Apex Court held that,

++ the point urged before us is that if the original search warrant is invalid the consequential action under Section 158BD would also be invalid. We do not agree. The issue of invalidity of the search warrant was not raised at any point of time prior to the notice under Section 158BD. In fact, the petitioner had participated in the proceedings of assessment initiated under Section 158BC of the Act. The information discovered in the course of the search, if capable of generating the satisfaction for issuing a notice under Section 158BD, cannot altogether become irrelevant for further action under Section 158BD of the Act;

++ the reliance placed on the decision of the High Court of Punjab and Haryana in Commissioner of Income -tax, Karnal vs. Rakesh Kumar, Mukesh Kumar against which Special Leave Petition [SLP(C) NO...CC 3623/2009] has been dismissed by this Court and the decision of this Court in Assistant Commissioner of Income-tax, Chennai vs. A.R. Enterprises are on entirely different facts;

++ in Rakesh Kumar, Mukesh Kumar the challenge was to the proceedings of assessment under Section 158BC of the Act on the basis of a search warrant issued in the name of a dead person. The issue in A.R. Enterprises has no similarity to the issue in hand, namely, the validity of the proceedings under Section 158BD of the Act.

Petitioner's appeal dismissed

2017-TIOL-136-SC-IT + Story

BERGER PAINTS INDIA LTD Vs CIT: SUPREME COURT OF INDIA (Dated: March 28, 2017)

Income tax - Sections 35D, 143(1B)

Keywords: shares on premium - premium amount - capital employed in business of company -

Whether for the purpose of sub-section 3(b) of Sec 35D, the premium amount collected by assessee on its subscribed / issued share capital can be said to be a part of 'capital employed in the business of the company' - NO: SC

Whether non-mentioning of the words is to be interpreted that the legislative intent was not to extend benefits of Sec 35D to such sums - YES: SC

The assessee is a Limited Company engaged in the business of manufacture and sale of various kinds of paints. For the Assessment Year 1996-97, the assessee filed and then revised its total income to Rs.3,58,92,771/- and then again revised to Rs. 3,57,26,644/-. The return was then processed at an amount of Rs.3,63,03,128/-. On questioned by the AO, the assessee contended that it had issued shares on a premium which, according to them, was a part of the capital employed in their business. The appellant, therefore, contended that it was on this basis, it claimed the said deduction and was, therefore, entitled to claim the same u/s 35D of the Act.

The AO was of the view that the expression "capital employed in the business of the company" did not include the "premium amount" received by the assessee on share capital. The A.O. accordingly calculated the allowable deduction under Section 35D of the Act at Rs.1,95,049/- and disallowed the remaining one by adding back to the total income. On appeal, the CIT(A) was of the view that the share premium account, which was shown as reserve in the balance sheet of the Company, was in the nature of the capital base of the Company and hence deduction under Section 35D of the Act was admissible with reference to the said amount also. Accordingly, the Commissioner allowed the appeals, set aside the order of A.O. But the Tribunal reversed the stand. On appeal, even the High Court upheld the view of the Tribunal.

On appeal, the Apex Court held that,

++ we are in complete agreement with the view taken by the High Court as, in our considered opinion, the well-reasoned judgment/order of the High Court correctly explains the true meaning of the expression employed in sub-section3(b) of Section 35D read with Explanation (b) quoted above, calling for no interference in the appeals;

++ in our considered opinion also, the "premium amount" collected by the Company on its subscribed issued share capital is not and cannot be said to be the part of "capital employed in the business of the Company" for the purpose of Section 35D(3)(b) of the Act and hence the assessee was rightly held not entitled to claim any deduction in relation to the amount received towards premium from its various shareholders on the issued shares of the Company;

++ if the intention of the Legislature were to treat the amount of "premium" collected by the Company from its shareholders while issuing the shares to be the part of "capital employed in the business of the company", then it would have been specifically said so in the Explanation(b) of sub-section(3) of Section 35D of the Act. It was, however, not said;

++ non-mentioning of the words does indicate the legislative intent that the Legislature did not intend to extend the benefit of Section 35D to such sum. Tthese two reasons are in conformity with the view taken by this Court in the case of Commissioner of Income Tax, West Bengal vs. Allahabad Bank Ltd. (2002-TIOL-1335-SC-IT-LB). wherein the question arose as to whether an amount of Rs.45,50,000/- received by the assessee (Bank) in cash as "premium" from its various shareholders on issuing share on premium is liable to be included in their paid up capital for the purpose of allowing the assessee to claim rebate under Paragraph D of Part II of the first Schedule to the Indian Finance Act 1956;

++ the Companies Act provides in its Schedule V- Part II (Section 159) a Form of Annual Return, which is required to be furnished by the Company having share capital every year. Column III of this Form, which deals with capital structure of the company, provides the break up of "issued shares capital break up". This column does not include in it the "premium amount collected by the company from its shareholders on its issued share capital". This is indicative of the fact that such amount is not considered a part of the capital unless it is specifically provided in the relevant section;

++ similarly, Section 78 of the Companies Act which deals with the "issue of shares at premium and discount" requires a Company to transfer the amount so collected as premium from the shareholders and keep the same in a separate account called "securities premium account". It does not anywhere says that such amount be treated as part of capital of the company employed in the business for one or other purpose, as the case may be, even under the Companies Act.

++ we find no merit in these appeals.

Assessee's appeal dismissed

2017-TIOL-1036-CESTAT-MUM + Story

AXIS BANK LTD Vs CST: MUMBAI CESTAT (Dated: February 15, 2017)

ST - Rule 2(l) of CCR, 2004 - Insurance auxiliary services, Real estate agent services and Event management services are Input services – Axis Bank entitled to CENVAT credit of Rs.4.69 crores: CESTAT [para 4, 4.1, 4.2, 4.3] -

Assessee appeal allowed/Revenue appeal dismissed