Supreme Court Quarterly Tax Digest 2023

Building Tax Act 1975 (Kerala); Explanation to Section 3(1) - 'Charitable purpose' not limited to 'free medical relief'- The Explanation goes to indicate that ‘charitable purposes’ includes and is, therefore, not confined to the relief of the poor and free medical relief. Consequently, the decision in SH Medical Centre Hospital vs State Of Kerala & Ors (2014) 11 SCC 381 to the extent of the interpretation which is placed on the Explanation to Section 3(1)(b) of the Kerala Building Tax Act 1975 does not correctly reflect the position in law which is clarified above. The decision in SH Medical Centre Hospital is, therefore, overruled to the above extent. (Para 10) Lisie Medical Institutes v. State of Kerala, 2023 LiveLaw (SC) 118

Building Tax Act 1975 (Kerala); Explanation to Section 3(1) - Section 3(1)(b) provides that nothing in the Act shall apply to buildings which are used ‘principally’ for specific purposes, including among them, ‘charitable purposes’. The expression “principally” conveys the meaning of that which is the dominant purpose. The interpretation placed by the two-Judge Bench on the expression “principally used for charitable purposes” does not call for interference in view of the statutory language used in Section 3(1). Principal use refers to the dominant substantive use as distinguished from an ancillary use. (Para 9) Lisie Medical Institutes v. State of Kerala, 2023 LiveLaw (SC) 118

Central Goods and Services Tax, 2017; Section 130 - Observing that it was "premature" on the part of the High Court to quash a show-cause notice issued under Section 130 of the Central Goods and Service Tax Act by invoking Article 226 jurisdiction, the Supreme Court set aside an order passed by the Punjab and Haryana High Court. State of Punjab v. Shiv Enterprises, 2023 LiveLaw (SC) 56

'Charitable purpose' not limited to 'free medical relief': Supreme Court on Kerala Building Tax exemption; Overrules 2014 Judgment. Lisie Medical Institutes v. State of Kerala, 2023 LiveLaw (SC) 118

Constitution of India, 1950; Article 14, 15, 21 - Income Tax Act, 1961; Section 10(26AAA) - The exclusion of Old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is hereby held to be ultra vires to Article 14 of the Constitution of India and is hereby struck down. (Para 13- 17) Association of Old Settlers of Sikkim v. Union of India, 2023 LiveLaw (SC) 28

Constitution of India, 1950; Article 14, 15, 21 - Income Tax Act, 1961; Section 10(26AAA) Proviso - Proviso to Section 10(26AAA) inasmuch as it excludes from the provision of exemption a Sikkimese woman merely because she marries a non-Sikkimese after 01.04.2008 is totally discriminatory and violative of Articles 14, 15 and 21 of the Constitution of India - A woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take away that identity. (Para 15-17.1) Association of Old Settlers of Sikkim v. Union of India, 2023 LiveLaw (SC) 28

Constitution of India, 1950; Article 226 - Dismissal of a writ petition by a high court on the ground that the petitioner has not availed the alternative remedy without, however, examining whether an exceptional case has been made out for such entertainment would not be proper - Mere availability of an alternative remedy of appeal or revision, which the party invoking the jurisdiction of the high court under Article 226 has not pursued, would not oust the jurisdiction of the high court and render a writ petition “not maintainable" - Where the controversy is a purely legal one and it does not involve disputed questions of fact but only questions of law, then it should be decided by the high court instead of dismissing the writ petition on the ground of an alternative remedy being available. (Para 4-8) Godrej Sara Lee Ltd. v. Excise and Taxation Officer Cum Assessing Authority, 2023 LiveLaw (SC) 70 : AIR 2023 SC 781

Constitution of India, 1950; Article 226 - It was premature for the High Court to opine anything on whether there was any evasion of the tax or not. The same was to be considered in an appropriate proceeding for which the notice under section 130 of the CGST Act was issued. Therefore, High Court has materially erred in entertaining the writ petition against the show cause notice and quashing and setting aside the same. State of Punjab v. Shiv Enterprises, 2023 LiveLaw (SC) 56

Constitution of India, 1950; Article 226(2) - Tax has been levied by the Government of Goa in respect of a business that the petitioning company is carrying on within the territory of Goa- Such tax is payable by the petitioning company not in respect of carrying on of any business in the territory of Sikkim- Merely because the petitioning company has its office in Gangtok, Sikkim, the same by itself does not form an integral part of the cause of action authorizing the petitioning company to move the High Court. (Para 16) State of Goa v. Summit Online Trade Solutions (P) Ltd, 2023 LiveLaw (SC) 184 : AIR 2023 SC 1536

Constitution of India, 1950; Entry 35 of List III of Seventh Schedule - The power on the Parliament as also the State Legislatures to make laws relating to mechanically propelled vehicles of all kinds and also to lay down the principles on which taxes on such vehicles are to be levied -The central enactment i.e. the law made by the Parliament has not laid down any principles for levy of taxes. The State Legislatures has the power to levy taxes not only under Entries 56 and 57 of List II but also to lay down the principles under Entry 35 of List III. (Para 46) State of Himachal Pradesh v. Goel Bus Service Kullu, 2023 LiveLaw (SC) 27 : AIR 2023 SC 390

Exclusion of 'Old Indian Settlers' from definition of Sikkimese in Section 10(26AAA) Income Tax Act unconstitutional. Association of Old Settlers of Sikkim v. Union of India, 2023 LiveLaw (SC) 28

Goods manufactured on “diversification” must be “different”, “distinct” & “separate” in nature to claim exemption u/sec 4-A (5) UP Trade Tax Act. AMD Industries Ltd; v. Commissioner of Trade Tax, 2023 LiveLaw (SC) 18 : AIR 2023 SC 362 : (2023) 4 SCC 231

Income Tax Act - Date of panchnama last drawn starting point of limitation for completing block assessment proceedings. Anil Minda v. Commissioner of Income Tax, 2023 LiveLaw (SC) 246

Income Tax Act - For block assessment, normals procedure not applicable; Interest can be levied without sec 158bc notice. K.L. Swamy v. Commissioner of Income Tax, 2023 LiveLaw (SC) 54 : AIR 2023 SC 431 : (2023) 4 SCC 274

Income Tax Act | Writ Petition can be entertained to examine if conditions to issue Section 148 notice are satisfied. Red Chilli International Sales v. ITO, 2023 LiveLaw (SC) 16

Income Tax Act 1961 - Chapter XIVB is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be- for assessment of undisclosed income for the block period, the normal assessment proceedings under Section 140 of the Income Tax Act would not be applicable. (Para 10.6) K.L. Swamy v. Commissioner of Income Tax, 2023 LiveLaw (SC) 54 : AIR 2023 SC 431 : (2023) 4 SCC 274

Income Tax Act 1961 - Revenue justified in levying interest under Section 158BFA(1) of the Income Tax Act for late filing of the return for the block period even in absence of any notice under Section 158BC of the Act and for the period prior to 01.06.1999. (Paras 10.3, 10.7) K.L. Swamy v. Commissioner of Income Tax, 2023 LiveLaw (SC) 54 : AIR 2023 SC 431 : (2023) 4 SCC 274

Income Tax Act 1961 - the date of the Panchnama last drawn can be said to be the relevant date and can be said to be the starting point of limitation of two years for completing the block assessment proceedings. Anil Minda v. Commissioner of Income Tax, 2023 LiveLaw (SC) 246

Income Tax Act, 1961 - Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963; Rule 11 - Age of retirement of the Members of the Income Tax Appellate Tribunal (ITAT) - In terms of the provisions, a member of ITAT to continue in the post till the age of 62 years. Madras Bar Association v. Union of India, 2023 LiveLaw (SC) 178

Income Tax Act, 1961 - The Supreme Court grants relief to ITAT member whose appointment was delayed for not filing income tax returns and allowed to continue in the post till the age of 62 years as per the provisions of the Income Tax Act 1961. Although she had applied in pursuance of a notification issued in 2013, she was given appointment only in 2018, as there was a dispute regarding non-filing of income tax returns by her with respect to the relevant assessment year (2010-11). In June 2017, the Calcutta High Court had granted her relief by holding that she cannot be excluded merely on the ground that she had not filed income tax returns. In the meantime, the Centre had brought in new rules for appointment to Tribunals, namely Tribunal, Appellate Tribunal and Other Authorities (Qualifications, Experience and Other Conditions of Service of Members) Rules 2017. The letter of appointment was issued to her in terms of the 2017 Rules, fixing her term as three years. The bench held that the right of the applicant to appointment had been crystallized even before the 2017 Rules. Therefore, the appointment of the applicant would be governed by the position as it existed prior to the 2017 Rules. In other words, her tenure shall be extended until she attains the age of 62 years. Madras Bar Association v. Union of India, 2023 LiveLaw (SC) 178

Income Tax Act, 1961; Section 10(26AAA) - Sikkim Subject Rules, 1961 - Sikkim Subjects Regulations, 1961 - All Indians/old Indian settlers, who have permanently settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, irrespective of whether his/her name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. (Para 17) Association of Old Settlers of Sikkim v. Union of India, 2023 LiveLaw (SC) 28

Income Tax Act, 1961; Sections 148 and 148A - Writ petition can be entertained to examine if conditions for issuance of notice under Section 148 have been satisfied. Red Chilli International Sales v. ITO, 2023 LiveLaw (SC) 16

Interest Tax Act, 1974 - Non-banking finance and leasing companies are not liable to pay tax on the interest component included in the hire-purchase instalment paid under the hire purchase agreement. Muthoot Leasing and Finance Ltd. v. Commissioner of Income Tax, 2023 LiveLaw (SC) 7 : AIR 2023 SC 239

KVAT Act | Dealer claiming input tax credit must prove transaction beyond reasonable doubt. State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., 2023 LiveLaw (SC) 187

Levy of additional special road taxes not a penalty, but regulatory: Supreme Court upholds Section 3A(3) HPMVT Act. State of Himachal Pradesh v. Goel Bus Service Kullu, 2023 LiveLaw (SC) 27 : AIR 2023 SC 390

Motor Vehicles Taxation Act, 1972 (Himachal Pradesh); Section 3A (3) - Levy of Additional Special Road Tax - Constitutional Validity upheld - The tax imposed under Section 3A(3) is regulatory in character and is not a penalty - No repugnancy or conflict of the State enactment with the central enactment - Provision is regulatory in nature and therefore within the competence of the Legislature of State of Himachal Pradesh - Object of the additional special road tax to make it work as a deterrent from the transport operators in plying vehicles without permit and in contravention of the terms of the permit. (Para 42-48) State of Himachal Pradesh v. Goel Bus Service Kullu, 2023 LiveLaw (SC) 27 : AIR 2023 SC 390

Non-banking finance & leasing companies not liable to pay interest tax on instalments paid under hire purchase agreement. Muthoot Leasing and Finance Ltd. v. Commissioner of Income Tax, 2023 LiveLaw (SC) 7 : AIR 2023 SC 239

'Premature for High Court to opine on tax evasion': Supreme Court sets aside HC order which quashed notice under Section 130 CGST Act. State of Punjab v. Shiv Enterprises, 2023 LiveLaw (SC) 56

Section 138 NI Act - Accused relies on income tax returns to show complainant did not have financial capacity; Supreme Court affirms acquittal. Rajaram Sriramulu Naidu v. Maruthachalam, 2023 LiveLaw (SC) 46 : AIR 2023 SC 471

Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 - Object behind enacting the Act, 1976 is to provide for forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators, and at the same time to ensure effective prevention of smuggling activities and foreign exchange manipulation - It is necessary to deprive persons engaged in such activities and manipulations of their ill-gotten gains. It also provides that such persons have been augmenting such gains by violations of wealth tax, income tax or other laws or by other means and have thereby been increasing their resources for operating in a clandestine manner and to nail such persons who are holding the properties acquired by them through such gains in the name of their relatives, associates and confidants. (Para 9) Platinum Theatre v. Competent Authority, 2023 LiveLaw (SC) 226

Supreme Court overturned a bail condition imposed by the High Court that a person accused of illegally claiming Input Tax Credit must deposit Rs. 70 lakhs, the alleged amount of improperly claimed ITC - Centre conceded that such a condition is unsustainable when final assessment has not taken place. Subhash Chauhan v. Union of India, 2023 LiveLaw (SC) 61

Tax authorities should maintain discipline to follow decisions of higher authorities. Godrej Sara Lee Ltd. v. Excise and Taxation Officer Cum Assessing Authority, 2023 LiveLaw (SC) 70 : AIR 2023 SC 781

Tax Laws - Non-service of assessment orders inconsequential if assesee had knowledge about them otherwise - if the appellants had the knowledge of the order passed against them, then so-called irregularity in the manner of effecting the service of the order on them, etc. was of no consequence and cannot be termed as illegal. (Para 16,17 18) Commercial Tax Officer v. Neeraja Pipes Pvt. Ltd., 2023 LiveLaw (SC) 199

Taxation - Lumpsum Taxation - . Levy of lumpsum tax has been upheld in State of Tamil Nadu vs. M. Krishnappan (2005) 4 SCC 53 - No reason to take a different view. (Para 49) State of Himachal Pradesh v. Goel Bus Service Kullu, 2023 LiveLaw (SC) 27 : AIR 2023 SC 390

Taxing Statutes - In case of an exemption notification/exemption provision, the same is required to be construed literally and the person claiming the exemption must satisfy all the conditions of exemption provision. (Para 8.2) AMD Industries Ltd; v. Commissioner of Trade Tax, 2022 LiveLaw (SC) 18 : AIR 2023 SC 362 : (2023) 4 SCC 231

Taxing Statutes - Validity is to be ascertained on the following three aspects: (1) Whether it is manifestly unjust or glaringly unconstitutional; (2) Whether it is regulatory or compensatory in nature; and (3) Whether there is any repugnancy with the provisions in the Central enactment - Any tax legislation may not be easily interfered with. The Courts must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional. Taxing statutes cannot be placed or tested or viewed on the same principles as laws affecting civil rights such as freedom of speech, religion, etc. The test of taxing statutes would be viewed on more stringent tests and the law makers should be given greater latitude. (Para 25, 41) State of Himachal Pradesh v. Goel Bus Service Kullu, 2023 LiveLaw (SC) 27 : AIR 2023 SC 390

The Supreme Court grants relief to ITAT member whose appointment was delayed for not filing income tax returns. Madras Bar Association v. Union of India, 2023 LiveLaw (SC) 178

Trade Tax Act (UP); Section 4A - In a case of “diversification”, the effect has to be that the quality and quantity of the product should have been improved and/or increased but if the ultimate use is the same, the product manufactured on use of modern and/or advanced technology cannot be said to be manufacturing the different goods for claiming the exemption from payment of trade tax - “Diversification” can be considered only in a case where “goods of different nature” are produced, and only then the exemption shall be available. The goods manufactured on “diversification” must be a “different”, “distinct” and a “separate” good in nature. (Para 8-9) AMD Industries Ltd; v. Commissioner of Trade Tax, 2022 LiveLaw (SC) 18 : AIR 2023 SC 362 : (2023) 4 SCC 231

Value Added Tax, 2003 (Karnataka); Section 70 - Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003 - The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc -the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. (Para 9.1) State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., 2023 LiveLaw (SC) 187

'Woman not a chattel, has identity of her own; marriage won't take away her identity': Supreme Court strikes down income tax provision. Association of Old Settlers of Sikkim v. Union of India, 2023 LiveLaw (SC) 28