Tax Quarterly Digest: July To September 2024
Pankaj Bajpai
17 Nov 2024 9:40 AM IST
The Allahabad High Court has held that a registered dealer cannot withhold the tax realised by him from a purchasing dealer only because he had deposited an excess amount of tax at the time of the transaction.
The Court held that he cannot escape the liability of depositing the tax realized under the U.P. Trade Tax Act, 1948 because a refund is due to him from assessment proceedings.
2. CENVAT Credit Can Be Availed On Input Services Of Commercial And Industrial Construction: CESTAT
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the CENVAT credit can be availed of on input services of commercial and industrial construction, fabrication and erection, manpower supply for construction, and Goods Transport Agency for construction materials, etc.
The bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the period of dispute is from April 2008 to March 2011, and hence, the definition of “input service” as it stood prior to the amendment with effect from 1.4.2011 would apply. Rule 2(l) of the Cenvat Credit Rules, 2004 (CCR), as in force prior to April 1, 2011, defined 'input service' to mean any service used for providing an output service or used by the manufacturer in relation to the manufacture of the final product.
The Telangana High Court has held that deductions cannot be availed on expenditures incurred for overseeing the project of holding a company.
The bench of Justice P. Sam Koshy and Justice Laxmi Narayana Alishetty has observed that, as per Section 37 of the Income Tax Act, 1961, the prerequisites for allowing deduction are that the expenditure should have been incurred in respect of a business carried on by the assessee and should be spent wholly and exclusively for its own business.
The Bombay High Court has held that the breakwater wall or accropode that are essential certainly do not qualify as plant and machinery. The breakwater wall can hardly be called “plant or machinery." Accropodes lose their identity when a breakwater wall is constructed using accropode.
The bench of Justice K. R. Shriram and Justice Jitendra Jain has observed that Explanation to Section 17 also provides that “plant and machinery” should be used for making outward supply of goods or services. The breakwater wall is used for protecting the vessel from tides while unloading the LNG received and not for making outward supplies of goods or services. Therefore, the petitioner does not satisfy the condition provided in the Explanation to Section 17 to be eligible for ITC.
The Calcutta High Court has held that the cellular mobile service providers are not obliged to deduct the tax at source (TDS) on income received by distributors/franchisees from customers.
The bench of Justice Surya Prakash Kesarwani and Justice Rajarshi Bharadwaj has relied on the decision of Supreme Court in the case of Bharti Cellular Limited Vs. Assistant Commissioner of Income Tax Circle-57, Kolkata and Anr, where it was held that “Assessees would not be under a legal obligation to deduct tax at source on the profit component in the payments received by the distributors/ franchisees from the customers, or while selling/ transferring the prepaid coupons to the distributors”.
6. Admission Fee Charged From Students Forms Part Of Corpus Donation: Gujarat High Court
The Gujarat High Court has held that the admission fee charged by the students forms part of the corpus donation of the trust.
The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that the donation is bound to have been given for material gain in securing admission; the same cannot be characterised as a donation towards a charitable purpose, and the appellant would not be entitled to have the benefit, but in the facts of the case, in the absence of any material on record, such a view cannot be taken in the circumstances. The Tribunal has committed an error by treating the admission fee charged from the students as not forming part of the corpus of the Trust.
7. Income Tax Addition Can't Be Made On Cash Deposits During Demonetization Period: Delhi ITAT
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the department is precluded from making any addition under Section 68 of the Income Act in respect of the cash deposits made into bank accounts during the demonetization period.
The bench of Challa Nagendra Prasad (Judicial Member) and Avdhesh Kumar Mishra (Accountant Member) has observed that there cannot be any addition under Section 69A of the Income Tax Act in respect of cash deposits made by the assessee into its bank account as unexplained income in the case of the assessee.
8. Transfer Of Depreciable Capital Assets Attracts Capital Gains Tax: Kerala High Court
The Kerala High Court has held that the transfer of the depreciable capital assets attracted capital gains tax under Section 45(4) of the Income Tax Act, in the absence of distribution of any capital asset among the partners following a dissolution of the appellant firm.
The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M., while upholding the order of the tribunal that the charge of short-term capital gains had to be in accordance with the provisions of Section 45(4) of the Income Tax Act, observed that the Appellate Tribunal did not, however, proceed to determine the tax effect, if any, that would follow pursuant to its finding as regards the charge of short-term capital gains.
9. ITSC Empowered To Make Income Tax Addition: Delhi High Court
The Delhi High Court has held that the Income Tax Settlement Commission (ITSC) does not lack jurisdiction to make an addition, which has also been duly recorded in the terms of settlement.
The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the objective of the settlement provisions is to strike a balance between the voluntary disclosure of income by the assessee and the income escaping assessment in order to expedite the closure of tax disputes.
The Bombay High Court at Goa, while upholding the order of the Income Tax Appellate Tribunal (ITAT), has held that the assessee cannot be expected to deduct tax at source from payments that became taxable owing to a retrospective amendment.
The bench of Justice M.S. Karnik and Justice Valmiki Menezes has observed that it is not open to the department to take a divergent view on the expenditure for renovation and construction of schools or temples when it has allowed the expenditure on the purchase of ambulances, which was allowed by CIT(A), based only on the reason that the expenditure was huge.
11. Activity Of Electroplating Amounts To Manufacture, No Service Tax Payable: CESTAT
The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the activity of electroplating amounts to manufacture and no service tax is payable.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that electroplating of electrical contacts by the appellant amounts to manufacture, and therefore they are not liable to pay service tax in view of the specific exclusion in the definition of business auxiliary service, which provides that if the process amounts to manufacture, no service tax would be liable to be paid.
12. Scrip Can't Be Called Penny Stock When Shares Retained For More Than 10 Years; ITAT Deletes Addition
The Mumbai Bench of Income Tax Appellate Tribunal (ITAT), while deleting the addition, held that scrip cannot be called penny stock when shares are retained for more than 10 years.
The bench of Kavitha Rajagopal (Judicial Member) and Amarjit Singh (Accountant Member) has observed that the assessee, being a SEBI-registered FPI, is engaged in investment in various companies out of which the assessee earns income and is also the only source of income for the assessee. The A.O. has failed to substantiate how the assessee is involved with Shri Naresh Jain, alleged to be an accommodation entry provider who has even otherwise not specifically mentioned the assessee as the beneficiary of accommodation entry and the scrip of International Conveyors Ltd. (ICL) as a penny stock.
The Delhi High Court has held that the loans and advances extended by the New Okhla Industrial Development Authority (NOIDA) are not commercial activities and are eligible for exemption under Section 10(46) of the Income Tax Act.
The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the respondent department has erred in holding that the loans and advances extended by the petitioner would fall within the ambit of commercial activity. The conclusion not only fails to take into consideration the directives of the state government that prompted and facilitated the action, but the grant of those loans has also not been established to have been motivated with a view to profiteering.
The New Delhi ITAT held that when the taxpayer company has utilized the service of a company outside India and payment has also been made outside India, then taxpayer company would not be liable for deduction of tax at source u/s 195.
The Bench of B.R.R. Kumar (Accountant Member) and Sudhir Kumar (Judicial Member) observed that “except in two circumstances, firstly, where the fees paid in respect of services utilized in a business carried on by the assessee outside India or secondly fee is paid for the purpose of earning any income from any source outside India, in all other cases the assessee is liable to deduct tax on the amount of technical fee paid to non-residents”.
15. SAD Refunds Can't Be Denied For Taking Away Facility Of Re-Crediting DEPB Scrips: Kerala High Court
The Kerala High Court has held that if the appellant/assessee satisfies the conditions in Notification No.102/2007-Cus dated 14.09.2007 for the purposes of refund of the 4% Special Additional Duty (SAD), then merely because the facility of re-crediting the Duty Entitlement Pass Book (DEPB) scrips has been taken away, the refund that the appellant is entitled to by virtue of the notification cannot be denied.
The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that since the Delhi High Court has already annulled the Circular dated April 29, 2013, the respondent-department is now legally obliged to consider the refund application preferred by the appellant independently, on its merits, to see whether the conditions specified in Notification 102/2007-Cus dated September 14, 2007 have been satisfied by the appellant.
The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that co-owners holding immovable property should be treated as independent service providers for the purpose of availing service tax exemption.
The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed the decision in the case of Sarojben Khushalchand versus Commissioner of Service Tax, in which it was held that the rent received by individuals owning property jointly cannot be clubbed to impose service tax.
The New Delhi ITAT held that the assessee is entitled to avail the benefit of carry forward of long-term capital loss on sale of residential property against long term capital gain computed on sale of commercial property.
The Bench of Saktijit Dey (Vice-President) and M. Balaganesh (Accountant Member) observed that “as on the date of the conveyance deed, the value of the property is more than Rs.45 lakhs. Moreover, there is direct evidence on record, which indicates that the assessee, in fact, had paid the consideration of Rs.45 lakhs to Mr. Rajan Chanana through cheques for purchasing the property. Therefore, the cost of acquisition, insofar as the assessee is concerned, has to be taken at Rs.45 lakhs and indexation benefit has to be given to the assessee based on the cost of acquisition of Rs.45 lakhs”.
The New Delhi ITAT held that for purposes of assessment u/s 153C, the date of recording of satisfaction of AO will be deemed date for the possession of seized documents.
The Bench of Challa Nagendra Prasad (Judicial Member) and Brajesh Kumar Singh (Accountant Member) observed that “the date of recording of the satisfaction will be the deemed date for the possession of the seized documents, which is 30.06.2022 in the present case and the date of search and six years period would be reckoned from this date”.
The Supreme Court recently held that any vendor who buys liquor from state manufacturers without obtaining it through auction and sells in retail at a fixed price would be excluded from the definition of 'buyer' under Section 206C of the Income Tax Act. Such a trade would be exempted from TCS (Tax Collected at Source).
"If the buyer is a public sector company or it has obtained the goods in further sale or if the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any state enactment, then such a person would not come within the ambit of “buyer” as per the definition in Explanation(a) of Section 206C," the Court stated.
The bench of Justices BV Nagarathna and Ujjal Bhuyan observed that a twin test is to be applied to be excluded from the definition of 'buyer' under S. 206 C of the Income Tax Act 1961 as provided under explanation (a)(iii). This includes (a) obtaining the goods without auction and (b) selling the goods at a price fixed by the state government.
The Court went a step further to observe that an auction of the right to sell the liquor (goods in this case) would not be considered as the auction of the liquor itself.
The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the promotion and marketing services provided by the Australian company to foreign educational universities and institutions do not fall under the category of “intermediary services,” and the assessee is eligible for the benefit of the export of services.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that Intermediary Service has been defined by Rule 2(f) of Place of Provision of Service Rules, 2012, which was introduced by Notification No. 28/2012-ST dated 20.06.2012. The term “intermediary” means a broker, an agent, or any other person, by whatever name called, who arranges or facilitates a provision of service or supply of goods between two or more persons but does not include a person who provides the main service or supplies the goods on his account.
The Delhi High Court held that a decision to reopen or reassess cannot be based or sought to be justified either on additional reasons or those which may be supplied subsequently while disposing of objections preferred by an assessee.
At the same time, the High Court clarified that the statutory scheme of reassessment neither sanctions vacillation nor can a decision to trigger reassessment be sustained based upon an attempted supplementation aimed at bolstering or buttressing the original opinion.
The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “If the ultimate decision to justify initiation of reassessment be based on entirely new or previously undisclosed material or reasoning, it would clearly result in deprivation of a right to effectively object to the proposed action”.
The Allahabad High Court has held that order Section 73 of the Goods and Service Tax Act, 2017 cannot be passed a company which is under the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016.
Observing that the order of the NCLAT could not be communicated to the assessing authority in time, the bench comprising of Justice Saumitra Dayal Singh and Justice Donadi Ramesh held that “Clearly once the petitioner was undergoing resolution before the Interim Resolution Professional and the fact of IRP appointment was communicated to the adjudicating authority, it may not have passed the impugned order during pendency of that CIRP. The umbrella of the Insolvency and Bankruptcy Code was lifted only on 15.04.2024.”
The Delhi High Court has held that the assessee to be eligible and entitled to exemptions under Section 11(1) and 11(2) of the Income Tax Act and the alleged ground of non-filing of audit report along with return of income, which was at the best procedural omission, could never be an impediment in law in claiming the exemption.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the electronic submission of Form 10B is essentially a matter of procedure as opposed to being a mandatory condition that may be recognized to form part of substantive law.
24. Bangalore ITAT Grants TCS Credit To IMFL Dealer Even Though License Was In Name Of Another Person
Referring to the case of Million Traders Bhopal Pvt. Ltd. vs. ADIT [ITA Nos. 124 & 125/Ind/2023], the Bangalore ITAT allowed TCS credit to the entity conducting the business of IMFL, irrespective of the fact that the license was in the name of another person.
The Division Bench of Beena Pillai (Judicial Member) and Chandra Poojari (Accountant Member) observed that “this issue was considered and allowed in favour of assessee based on the declaration given by Prashanth Shetty. The declaration given by Prashanth Shetty is verifiable by the authorities. The DR also could not establish any contrary to what has been stated in the declaration by Prashanth Shetty”.
The Madurai Bench of Madras High Court while quashing the detention order held that if an invoice, bill of supply, delivery challan, or bill of entry and a valid e-way bill in physical or electronic form for verification are available, then action may not be initiated.
The bench of Justice S.Srimathy has observed that the respondent department issued the notice, carried out the inspection on the same day, and also passed the order on the same day. As per the provisions prescribed, the respondents department ought to grant time for seven days to reply. Since the inspection, notice, and orders were passed on the same day, there is a clear violation of the principles of natural justice.
The Gauhati High Court has held that the State GST Authorities cannot take the benefit of Notification No. 56/2023-CE, which is also otherwise ultra vires the CGST Act, 2017.
The bench of Justice Devashis Baruah has noted that the GST Council has not made any recommendation till date, and in spite of that, the Central Board of Indirect Taxes and Customs issued a Notification bearing No. 56/2023-CE dated 28.12.2023, thereby extending the period to pass the order under Section 73(9) of the CGST Act, 2017 for the Financial Year 2018-2019 up to the 30.04.2024 and for the Financial Year 2019-2020 up to the 31.08.2024.
The Punjab and Haryana High Court has held that the construction of public libraries forms part of a charitable function and is eligible for the exemption under Section 80G of the Income Tax Act.
The bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth has observed that the ancillary work, which may be carried out by the society for the purpose of enhancing education, would also be treated as work done for charitable purposes. The amount of Rs. 30,00,000/- has been utilized for construction of the public library, and it would have to be treated as work done for charitable purposes.
28. BOI Entitled Service Tax Refund Paid On Commission Charges For Credit Facility: CESTAT
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that Bank of India is eligible for refund of service tax paid on commission charges for granting credit facility subject to verification.
The bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the appellant bank has satisfied all the conditions for treating the service as an export of service, but there is a need to verify whether the service tax paid has been recovered or not from M/s. Aban Singapore Pte. Ltd. to be eligible for refund. As per the terms and conditions, M/s. Aban Singapore Pte. Ltd. has to pay the commission quarterly in advance along with applicable service tax.
29. Trading In Securities Is Not A Service, No Service Tax Payable: CESTAT
The Chennai Bench of Customs, Excise and Service Tax appellate Tribunal (CESTAT) has held that the no service tax payable on trading in securities is not a service.
The bench of Sulekha Beevi.C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that by making an investment, the appellant does not do any activity for another for consideration. The specific exclusion from the definition of'service' is given to transactions involving 'transfer of title in goods or immovable property by the way of sale'. Since trading in securities involves transfer of title in goods, the activity of 'trading in securities' cannot therefore be said to be a service.
Recently, the Chhattisgarh High Court reiterated a settled position of law that the assessee would be liable to pay the income tax on the unexplained cash credited into its books if the assessee fails to prove the source of a sum of money found to have been received by an assessee.
The bench comprising Justices Goutam Bhaduri and Rajani Dubey said that under Section 68 of the Income Tax Act, 1961 the initial onus to prove the genuineness of the money credited into the assessee's books of account falls on the assessee, and if the assessee fails to discharge the onus than the unexplained cash credited into the assessee's books of account would be deemed as a taxable income being earned from the previous year.
While interpreting the definition of the 'Purchase Price' under the Gujarat Value Added Tax Act of 2003 (GVAT), the Supreme Court observed that the value-added tax would not be included in the definition of the purchase price.
The bench comprising Justice Abhay S Oka and Justice Augustine George Masih held that no value-added tax would be added to the purchase price to calculate tax as the same is not mentioned in the categories of tax/duties enumerated under Section 2(18) of the GVAT.
32. No Service Tax Payable On Banking Services Rendered By PNB To RBI: CESTAT
The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no service tax is payable on banking services rendered by Punjab National Bank (PNB) to the Reserve Bank of India (RBI).
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that the appellant bank is working as an agent of RBI in the discharge of sovereign functions; therefore, whatever exemption is applicable to RBI, that should also be applicable to the appellants who are working as agents in the discharge of statutory/sovereign functions.
The New Delhi ITAT held that non uploading of Form 10B within the date prescribed under the Income tax Act would not be fatal to the claim of exemption u/s 11.
Referring to the decision of Ahmedabad Tribunal in the case of ITO Vs. Takshshila Foundation (NGO) [ITA NO. 118/Ahd/2024], the Division Bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) reiterated that “requirement of filing of audit report in Form 10B was only procedural requirement of law and as long as the same was made available to the AO before the completion of assessment either u/s 143(1)/ 143(3)/ 144/ 147, the substantive claim of exemption u/s 11 cannot be denied to the assessee.”
The Telangana High Court has held that GST is not payable on consideration received towards 'works contract service of construction' executed in the Maldives.
The bench of Justice Sujoy Paul and Justice Namavarapu Rajeshwar Rao has observed that the location of immovable property is located in the Maldives or outside India. Hence, the place of supply shall determine the 'location of the recipient'. The place of supply of services is Addu, Maldives. The 'location of recipient' is already interpreted by holding that, as per Section 2(14)(b), it will be the 'fixed establishment' of National Buildings Construction Corporation Ltd. (NBCCL), which will be the location of the recipient.
The Bombay High Court recently held that contribution to public welfare fund, if connected with or related to carrying on assessee's business, or if it results in benefits to assessee's business, should be allowable deduction u/s 37.
The High Court held so while deciding on the taxability of the contribution made by the employer/assessee (Tata Engineering & Locomotive) to its workers union under a memorandum of settlement.
The Division Bench of Justice G S Kulkarni and Justice Somasekhar Sundaresan observed that “merely because commitment to continue welfare measures is recited in Memorandum of Settlement (MoS) with Workmen's Union, payments would not partake character of payments made under MoS or payment required to be made under labour law, or for that matter, payment that is made "as an employer".
36. Compensation To Discontinue Commodity Brokerage Business Chargeable To Income Tax: Kerala High Court
The Kerala High Court has held that the amount received by the assessee is under an agreement for not carrying out any activity in relation to any business that was carried on by the assessee; it would attract the provisions of Section 28(va)(a) of the Income Tax Act and make the receipt chargeable to income tax under the heading of “Profits and gains of business or profession.”.
The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that Section 28(va)(a) of the Income Tax Act does not restrict the operation of the provision to only amounts received by way of non-compete fee. So long as the amount received by the assessee was received for not carrying out any activity in relation to any business and the amount received was not on account of the transfer of the right to manufacture, produce, or process any article or thing or on account of the transfer of the right to carry on any business, which receipts would have been chargeable under the head “capital gains," there was no reason to interfere with the order of the Assessing Authority that brought the amounts received by the assessee from BNP Paribas to tax under the head “Profits and gains of business or profession”.
37. NRIs Not Exempted From Mandatory Faceless Procedure: Telangana High Court
The Telangana High Court has held that the NRIs are not exempted from following mandatory faceless procedure.
The bench of Justice Sujoy Paul and Justice Namavarapu Rajeshwar Rao has observed that the taxpayer is nowhere distinguished between NRIs and Indian citizens. The reassessment notice issued under Section 148 must comply with the requirement of the scheme whether or not the taxpayer is an NRI or Indian citizen.
38. Gift Received From Non-Resident Brother Is Exempt From Taxation In India : Mumbai ITAT
Finding that Assessee has proved identity, creditworthiness and genuineness of the gift received as well as relationship with donor, the Mumbai ITAT held that gift from brother is not chargeable to tax in the hands of the assessee being relative of the donor.
Single Bench of Prashant Maharishi (Accountant Member) observed that “the amount of Rs. 20,00,000/- received by the assessee clearly shows that above amount is not the income of the assessee. Despite above information being available with the lower authorities, an addition is made to the total income of the assessee”.
Referring to the decision of the Bombay High Court in case of Sarfaraz S. Furniturewall [Writ Petion No. 4958 of 2024], the Mumbai ITAT held that rehabilitation allowance paid by the developer to its resident customer who had suffered hardship due to dispossession on account of re-development, cannot be treated as income in hands of recipient.
Single Bench of Prashant Maharishi (Accountant Member) observed that “It is undisputed fact that assessee is also receiving the hardship allowance from the developer. Thus, the amount of hardship allowance received by the assessee of Rs. 25,21,508/- is not income of the assessee”.
Referring to the decision in case of Dinesh Kumar Pradeep Kumar Vs. Additional Commissioner [Writ Tax No. 1082 of 2022], the Allahabad High Court reiterated that even if excess stock is found at the business premises of the manufacturer, the proceedings u/s 130 of the UPGST Act cannot be initiated.
Single Judge Piyush Agrawal observed that “if excess stock is found, then proceedings under sections 73/74 of the GST Act should be pressed in service and not proceedings under section 130 of the GST Act, read with rule 120 of the Rules framed under the Act”.
41. VSV Scheme Is Non-Tax Benefit Applicable Even To Medium Enterprise, Clarifies Bombay High Court
While granting benefit under the 'Vivad Se Vishwas I-Relief for MSMEs Scheme' (VSV Scheme) to the Assessee, even when it was re-classified as 'not an MSME', the Bombay High Court held that even though the Petitioner was re-classified as “not an MSME” for a period of three years from May 09, 2023, it was entitled to avail of all non-tax benefits available to a Medium Enterprise.
Since the VSV Scheme is a non-tax benefit applicable even to a Medium Enterprise, the High Court clarified that the Petitioner was entitled to make a claim under the VSV Scheme”;
The Division Bench comprising Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla observed that the VsV scheme proposed to refund 95% of the liquidated damages deducted under contracts entered into with the Government/PSUs on the fulfilment of the specified eligibility conditions.
The Delhi High Court has quashed the reassessment proceedings initiated against the Assessee on the ground that interest income on Nonconvertible debentures (NCDs) derived from Indian AE had been mischaracterized as interest instead of dividend.
While holding so, the High Court rejected the argument put forth by the Department that although the funds were taken out in the form of interest payments, they were in fact liable to be declared as dividend and was subjected to Dividend Distribution Tax (DDT).
Pointing out that the Assessee was merely the recipient of the interest income and it was clearly not the entity which had either declared or paid the dividend, the Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that DDT is liable to be paid by the company which declares, distributes, or pays the dividend.
While emphasizing that no tax can be levied on notional income, the Delhi High Court held that Valuation Report obtained by employer could have no application to a share which was subject to a lock-in stipulation and could not be sold in the open market.
Since there was a complete embargo on the sale of those shares, the High Court held that value of shares allotted to the appellant under the Employees Stock Purchase Scheme (ESPS) cannot be treated as perquisite in terms of Section 17(2)(iiia).
The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “in light of the restriction with respect to marketability and tradability of the stock in question, the FMV could not have been recognized to exceed the face value of the shares and thus the determinative being INR 15”.
Finding that all the additions made by the Assessing Officer u/s 68 r/w/s 115BBE are in consonance with the Income Tax Statute, the Ahmedabad ITAT quashed the revisional exercise of power by the PCIT u/s 263.
The Division Bench of Suchitra Kamble (Judicial Member) and Narendra Prasad Sinha (Accountant Member) observed that “the PCIT has not pointed out the aspect of Assessment Order being erroneous and prejudicial to the interest of the Revenue”.
The Andhra Pradesh High Court stated that when the assessee files an appeal against an order of assessment, the enforcement actions that have been taken, such as property attachment and garnishment notices, should not continue.
The Division Bench of Justices R Raghunandan Rao and Harinath. N observed that the assessee has preferred an appeal and has paid 10% of the disputed tax, as required under Section 107 of the CGST Act, no further tax can be recovered from the assessee, in pursuance of the order of assessment under appeal.
The Patna High Court has held that failure on part of the customs officer to record reasons for confiscating goods under Section 110 of Customs Act, renders the provisional attachment “illegal”.
The provision empowers a customs officer to seize goods if he has 'reason to believe' that such goods are liable to confiscation under the Act, and prescribes subsequent procedure.
Bench of Justices PB Bajanthri and Alok Kumar Pandey observed, “For seizure of goods, unless there are strong and compelling reasons to believe that goods are 'imported', one cannot draw inference that officer who had seized goods believe it to be foreign goods etc. It will be an instrument of oppression, misuse, and arbitrariness clothing officers with draconian and arbitrary powers thereby rendering opinion itself violative of Article 14 of the Constitution.”
The Delhi High Court recently clarified that the TOLA [Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020] authorisation merely enables the competent authority to take action within the extended time period which would have otherwise been regulated by Sections 148 and 149, but does not amend the structure for approval which stands erected by virtue of Section 151.
“Sanction”, when used in Section 3 of TOLA caters to those contingencies where a specified Act may have prescribed a particular time limit within which an action may be approved, observed the Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja. The Bench added that once it is conceded that the notice came to be issued four or three years after the end of the relevant AY, the approval granted by the JCIT would not be compliant with the scheme of Section 151.
The Delhi High Court held that the once the relief is already accorded to assessee in the original assessment order, then Designated Authority (DA) can rectify the mistake apparent on record by allowing the assessee to file a fresh Form 3 under VSV Act.
On examination of the relevant provisions outlined under Vivad Se Vishwaas Act (VSV Act), the Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that the legislation takes into consideration the time and resources consumed on account of tax disputes, which acted as a burden for both the Government and taxpayers, and hindering the timely collection of Revenue.
Thus, the Bench opined that the objective of the VSV Act was to address the concerns, and subserve the larger public interest of settling disputes, and therefore unburden the Government from pursuing litigation.
The Bombay High Court held that deduction claimed by bank u/s 36(1)(vii) in respect of write off bad debts is allowable without any adjustment to the credit balance in the provision for bad and doubtful debts u/s 36(1)(viia) which was adjusted with the bad debts claimed in the subsequent AY.
The High Court held so after finding that the taxpayer had utilized the opening balance in the “bad and doubtful debts account” to reduce the total bad debts written off in claiming the deduction u/s 36(1)(vii).
The Division Bench of Justice G. S. Kulkarni and Justice Somasekhar Sundaresan observed that “It is inconceivable that the amount of bad debts claimed as deduction u/s 36(1)(vii) could have any bearing so as to require any deduction/ subtraction from the provision for bad debts, made by the assessee u/s 36(1)(viia)”.
50. Continuation Of Proceedings On Ceased Entity Is Not Curable U/s 292B: Delhi High Court
While following the decision of Apex Court in Principal Commissioner of Income Tax, New Delhi vs Maruti Suzuki (India) Limited [(2020) 18 SCC 331], the Delhi High Court held that the initiation or continuation of assessment or reassessment proceedings after a company cease to exist due to merger pursuant to a Scheme of Arrangement, is not sustainable, and cannot be cured by applying Section 292B.
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the factum of merger had been duly brought to the attention of the AO. The merger was taken into consideration at more than one place in the order of assessment that came to be framed. Despite the above, the AO proceeded to draw the order in the name of an entity which had ceased to exist”.
The Delhi High Court held that the right of the Holding company (source State) to allocate or attribute income to the Permanent Establishment (PE) cannot be restricted on the basis of the global income or loss that may have been earned or incurred by a cross-border entity.
If an enterprise is carrying on business through a PE situated in the other Contracting State, then its profits is liable to be taxed in the other State, subject to the extent of profits attributable to that PE, clarified the Court.
Three Judge Bench of Justice Yashwant Varma, Justice Sanjeev Narula and Justice Purushaindra Kumar Kaurav observed that “where an enterprise carries on business through a PE in the other Contracting State, profits would be liable to be attributed to that PE as if it were a distinct and separate enterprise engaged in similar activities and independent of the enterprise of which it may be a part”. Therefore, the Bench stated that the activities of a PE are liable to be independently evaluated.
Emphasizing that shares which is subject to a lock-in stipulation, could not be sold in an open market, the Delhi High Court held that valuation report obtained by the employer for ascertaining its withholding tax obligations during allotment of such shares to its employees as a perquisite, cannot be considered for purpose of Fair Market Value (FMV) of those shares.
Referring to the decision in case of Principal Commissioner of Income Tax vs. M/s Religare Securities Ltd. [ITA 311/2018], the Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja reiterated that Staff Welfare expenditure incurred by the assessee/employer in respect of Employees Staff Option Plan (ESOP) and Employees Staff Purchase Scheme Guidelines, is allowable expenditure.
The Himachal High Court held that once the corporate debtor is directed to be liquidated by the NCLT u/s 33(5) of Insolvency & Bankruptcy Code (IBC), no legal proceeding could be instituted by or against him by the Tax Authorities.
Thus, the High Court clarified that the red entry/charge created by the Revenue Department on the property of the petitioner-company during the currency of the moratorium imposed by the NCLT, would be void in law.
The Division Bench of Justice M.S. Ramachandra Rao (Chief Justice) and Justice Satyen Vaidya observed that “The plea of the respondents that the tax dues claimed by them will have priority as a “Crown Debt”, therefore, cannot be accepted, and their action in continuing the said red entry/charge on account of dues recoverable from erstwhile management of the 1st petitioner-Company under the H.P. Vat Act, 2005, HPGST Act, 2017 and the CST Act, 1956, would be clearly illegal & arbitrary”.
The Bombay High Court recently clarified that just because the verification of input-output ratio was not submitted before the export of goods, it does not mean that same cannot be verified post export of goods.
While giving such relaxation, the Division Bench of Justice K. R. Shriram and Justice Jitendra Jain observed that the procedure for submitting input-output ratio is inconsequential for claiming rebate under Central Excise Act when the claim of petitioner/ assessee is only qua excise duty paid on chassis purchased and used in the manufacture of buses which are exported.
55. Payment To Non-Employed Director As Sitting Fees Is Not Salary, Hence Liable To Service Tax: CESTAT
The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that the payment made to a non-employed director as director's sitting fees is not in the nature of salary; hence, the director's fees are liable to the levy of Service Tax.
The Bench consists of Ramesh Nair (Judicial Member) and Raju (Technical Member), considered the issue of whether the assessee is liable to pay Service Tax under reverse charge mechanism on the Directors remuneration paid to the whole time Director who are employed with the company and also non employed Directors to whom the sitting fees is paid.
Referring to the decision of Shanta Mani Hand Made Paper Industries Vs. The State of Bihar & Ors [CWJC No. 2941 of 2010], the Patna High Court reiterated that supplementary bills which are punitive in nature, cannot be raised upon taxpayer and benefit granted by State government cannot be withdrawn based on mere audit objection.
The High Court reiterated so after finding that the subsidy granted to the petitioner by the State government in the form of Industrial Incentive policy was withdrawn simply based on an audit objection.
Single Bench of Justice G. Anupama Chakravarthy observed that “the Intensive Policy, which was being extended to the petitioner cannot be withdrawn based on the audit report”.
The Delhi High Court held that fees received by the foreign branch of banking company for extending a credit line to the account holder outside India, would not be taxable in India.
While noting that the amount payable by the credit card holders would clearly be a debt incurred outside India, the Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that fee in respect of such transactions would not be taxable in India.
While explaining that Section 43A is a non-obstante provision, which positively imposes an obligation notwithstanding anything contained in the Income tax Act, the Bombay High Court held that losses due to exchange rate changes on a foreign currency loan taken for import of a capital asset must not be treated as revenue expenditure.
The Division Bench comprising Justice G.S. Kulkarni and Justice Somasekhar Sundaresan explained that just because the assets were not imported into India from abroad, any loss on exchange rate fluctuation on a foreign currency loan taken for acquiring capital assets would necessarily not be a capital expenditure.
While expounding on the positive mandate of 43A as against the negative caveat in 37(1), the Bench observed that the essential jurisdictional fact for the mandatory capitalization of such an expense u/s 43A is that the capital asset financed by the foreign currency loan in question, must have been brought into India from a country outside India.
Emphasizing that ownership is a sine qua non for availing depreciation, and roads/ bridges are public properties, the Mumbai ITAT held that an infrastructural development company which has laid down roads cannot claim depreciation over same.
The Division Bench comprising Amarjit Singh (Accountant Member) and Sandeep Singh Karhail (Judicial Member) denied depreciation claim on toll road to a company engaged in the business of infrastructure development (assessee), who, in execution of agreement with NHAI had constructed a road on BOT (build, operate and transfer) basis on land owned by the Government.
The Delhi High Court held that once the PCIT in the revisionary proceeding u/s 263, had decided in favour of assessee after having considered its reply, then AO had no authority to reassess and reopen the assessment u/s 148.
The High Court held so, after finding that the reasons for issuing notice u/s 148A(b) were exactly similar to the reasons on which the PCIT had invoked Section 263.
The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “at the time of initial assessment, as also while conducting proceedings u/s 263, the authorities were aware of shares held by the assessee for a consideration which was considered to be less than fair market value. However, Revenue still proceeded further to purpose initiation of reassessment proceedings by issuing notice u/s 148A(b)”.
The Delhi High Court has made it clear that non-payment of dues in the form of tax, interest, or penalty, by a registered entity to the account of Central/State Government beyond a period of three months after due date, is not a ground to cancel its registration under the Central Goods and Services Tax Act.
A bench of Justices Vibhu Bakhru and Sachin Datta took note of Section 29 of CGST Act which prescribes for cancellation of a tax payer's GST registration and observed that “The only reason set out in the said SCN for proposing to cancel the petitioner's GST registration is failure to pay tax, interest, or penalty within a period of three months from the date on which the said amount became due. However, non-payment of dues for a period of three months is not a prescribed ground for cancelling the petitioner's GST registration.”
The Kerala High Court held that income tax authorities have the power to seek interim custody of currency notes seized and produced before the jurisdictional magistrate by any other officer or authority if there is any reason to believe that the seized currency is part of any asset that has not been disclosed for the purpose of the Income Tax Act.
The Himachal Pradesh High Court stated that the State and Central Governments have been extended the same powers under the CGST and SGST Act and if one of the officers has already initiated proceedings, the same cannot be transferred to another and he alone is to issue process under the Act and take it to its logical end.
The Bench of Justice Tarlok Singh Chauhan observed that “where a proper officer under the CGST Act had initiated proceedings on a subject matter, no proceedings would be initiated by proper officer authorized under the SGST Act or UGST Act on the same subject matter.”
The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that merely because levy of education cess was abolished does not disqualify an assessee from availing Cenvat Credit on Education Cess and Secondary & Higher Education Cess.
The Bench of Ramesh Nair (Judicial Member) and C L Mahar (Technical Member) has observed that “the abolition of Education Cess does not affect the accumulated Cenvat credit which was availed during the time when the Cenvat credit on Education Cess and Secondary & Higher Education Cess was legally available to the assessee.”
The Madhya Pradesh High Court stated that GST authorities cannot bypass the procedural safeguards under the GST Act by directly invoking IPC provisions without first applying the penal provisions of the GST Act.
The Division Bench of Justices Sushrut Arvind Dharmadhikari and Duppala Venkata Ramana observed that “GST Act, 2017 is a special legislation which holistically deals with procedure, penalties and offences relating GST and at the cost of repetition this court cannot emphasise more that the GST Authorities cannot be permitted to bypass procedure for launching prosecution under GST Act, 2017 and invoke provisions of Indian Penal Code only without pressing into service penal provisions from GST Act and that too without obtaining sanction from commissioner under Section 132(6) of GST Act especially when the alleged actions squarely fall within the precincts of offence as enumerated under GST Act, 2017.”
The Andhra Pradesh High Court stated that National Company Law Tribunal (NCLT) order prevails over Goods and Services Tax (GST) demand, even if the state government is not notified about the pending NCLT proceedings.
The Division Bench of Justices R. Raghunandan Rao and Harinath N. observed that “the contention of the department that the order of NCLT is not binding on the State of Andhra Pradesh in view of Section 88 of the GST Act would have to be negatived in as much as Section 238 of the Insolvency and Bankruptcy Code provides for a non-obstante clause overriding all other laws.”
The Orissa High Court has held that tractor trailer/trolley is not a 'motor vehicle' as per Section 2(h) of the Orissa Entry Tax Act, 1999 ('OET Act') and therefore, not amenable to entry tax as per the said statute.
Interpreting the meaning of 'motor vehicle' as per the Motor Vehicles Act, 1988 ('MV Act') as well as the OET Act, the Division Bench of Justice Arindam Sinha and Justice Mruganka Sekhar Sahoo held that “We have already seen definition given of 'motor vehicle' and 'vehicle' in section 2(28) (Act of 1988). Section 2(h) in the Entry Tax Act defines only motor vehicle to mean the same as defined in clause (28) of section 2 (Act of 1988) excluding, inter alia, tractor.”
The Delhi High Court held that consideration received by Assessee from aircraft leasing activity is not taxable as royalty either u/s 9(1)(vi) of Income Tax Act or under India-Ireland DTAA.
Pointing out that the treaty provisions would override Income tax Act being more beneficial to the assessee, the Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “it would be wholly impermissible for the AO to invoke Section 9(1)(vi) of the Act in light of the express exemption under the DTAA”.
69. Income Tax Refund Can't Be Denied To Taxpayer For Discrepancy In Form 26AS Filed: Delhi High Court
While observing that tax was duly deducted by the Land Acquisition Collector but was not disclosed for some reasons and hence the credit was not reflected in Form 26AS, the Delhi High Court held that the assessee/ petitioner cannot be penalized for the mere reason that the Form 26AS suffered from a discrepancy.
Therefore, condoning the delay u/s 119 of the Income tax Act, the High Court quashed an order, by which the Revenue Department had rejected the Assessee's application to submit a revised return for the relevant AY. The High Court also directed the Department to take on board the revised return to be filed by the Assessee.
The Division Bench of Delhi High Court comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “where amount of tax paid or treated as paid for and on behalf of the assessee if found to be in excess of that which is chargeable, the assessee would become entitled to claim a refund”.
The Delhi High Court held that the Proper officer under Customs Act cannot detain the goods or stall the process of importation, without forming a requisite opinion regarding any forgery in import.
The High Court clarified that the proper officer does not have any unfettered power to initiate a verification process, and it is incumbent upon him to form a requisite opinion in support of a suspicion that he had regarding the issue of Country-Of-Origin (COO) certificate or the origin of the imported articles.
The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the Customs Administration of the importing Party while initiating a procedure for verification must also specify whether it is required to undertake a verification to rule out forgery, seek minimum required information or verify the determination of origin. None of these circumstances is even remotely alluded to by the respondents while passing the impugned order”.
The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that service charge collected by a medical store in the hospital is covered under “Health Care Services” and are exempted from Service Tax.
The Bench of Binu Tamta (Judicial Member) has observed that “medical aid to the patients who are admitted in the hospital, most of the time requires urgent care and treatment without any loss of time and that is the reason for having a medical store within the vicinity of the hospital. Therefore, the in-house patients are largely dependent on the medicine shop in the hospital. Hence the allegation raised by the revenue that this amount is actually the commission which the hospital is charging from the medicine store is not correct”
72. Factory Closed Due To Unavoidable Circumstances Not Liable For Excise Duty: CESTAT
The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that if a factory is closed due to unavoidable circumstances, it is not liable to pay excise duty.
The Bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that “the closure of the factory was not on the choice of the assessee whereas, they were compelled to keep the factory closed as per the direction of the Gujarat Pollution Control Board. Therefore, closing of the production was beyond the control of the assessee.”
While observing that the Assessee submitted a valid Tax Residency Certificate (TRC) which is certainly statutory evidence, the Delhi ITAT granted India-Singapore DTAA benefit under Article 13(4) on long term capital gains on sale of share of an Indian company.
The Tribunal emphasized that the burden is on the Revenue Department to establish that the entity has been formed and operated in a manner that the only intention was to take DTAA benefit without there being actual intention of an economic activity.
The transaction of sale of shares of Indian company which the AO alleged to be out of tax evasion and treaty shopping was, in fact, a long-term investment decision by the Singapore based Assessee which has sufficient managerial and operational structure to run an entity based in Singapore, added the Tribunal.
The Division Bench of Dr. B.R.R. Kumar (Accountant Member) and Anubhav Sharma (Judicial Member) observed that “the burden is on the Revenue to establish that the entity has been formed and operated in a manner that the only intention was to take DTAA benefit without there being actual intention of an economic activity”.
Since upon the completion of Corporate Insolvency Resolution Process (CIRP), the Assessee has changed hands and commenced under a new ownership and management, the Bombay High Court held that tax proceedings pertain to period prior to the CIRP, and consequent to the approval of the resolution plan, the tax proceedings stand extinguished.
The Division Bench of Justice G. S. Kulkarni and Justice Somasekhar Sundaresan observed that “provisions outlined in Section 31(1) of the Insolvency and Bankruptcy Code (IBC) stipulates that approval of resolution plan by the adjudicating authority is binding on Central Government and its agencies in respect of any statutory dues arising under any law for the time being in force, thus binding tax authorities and their enforcement actions”.
While granting exemption on agricultural income u/s 10(1), the Delhi ITAT held that assessee being an agriculturalist, is not supposed to maintain books of account as per Sec 44AA.
Finding regularity and consistency of declared agricultural income over the years and subsequent assessment years, Single Bench of S. Rifaur Rahman (Accountant Member) observed that assessee's income from agriculture falls u/s 10(1).
