Showing posts with label Favor of Assessee. Show all posts
Showing posts with label Favor of Assessee. Show all posts

Tuesday, July 24, 2012

Retrospective Amendment - Beneficial to Assessee

 
Retrospective Amendment - Beneficial to Assessee
By CA Pradeep Jain, CA Preeti Parihar & Manish Vyas

IT is said by many learned authors that the Government has used the weapon of retrospective amendment to nullify the Court's ruling. This is being used against the manufacturers. But this time the Government has proved that the same is wrong. A number of retrospective amendment has been done in this budget also but all in favour of the assessee. We are discussing these amendments in this article one by one:-

Issue

Amendment

According to Rule 6(1) of the Cenvat Credit Rules, 2004, the Cenvat credit is not allowed on such quantity of input which is used in or in relation to the manufacturer of exempted goods or for provision of exempted services. If common inputs/input services are used for providing both exempted and taxable services or manufacturing both dutiable or exempted goods; credit will be allowed if separate records are maintained or proportionate reversal is done or an amount @ 6%/5% is paid at the time of removal of exempted goods or providing of exempted services.

But as per Rule 6 (6) of Cenvat Credit Rules, the provision of Rule 6 is not applicable in cases of some exempted clearances/services, for e.g. clearance to 100% EOU. Services provided to SEZ without payment of service tax were added in rule 6(6) w.e.f. 1.4.11. As such, prior to this date, provisions of rule 6(6) are not applicable in the case of services provided to SEZ. Hence the reversal is to be done prior to this date. The department has demanded duty from the service providers in this regard. But this was not the intention. Hence the Rule 6(6) was amended by the Board. But the department said that the aforesaid notification is applicable from the date of issue. Hence the demand for the prior period is sustainable and the service provider should reverse the cenvat credit.

Now retrospective amendment is made in respect of services provided to SEZ. With this amendment, "Providing of taxable service without payment of service tax" will be exempted from the formalities of rule 6 even before 1.4.2011. Hence the demand issued by the department will be dropped.

2. Issue

Amendment

With effect from 25 July, 2011 the exemption is given to the service related to setting of common facilities for treatment and recycling of effluents and solid waste vide notification no. 42/2011-ST. This exemption was highly appreciated as it was in public interest. The Gujarat High Court has also held in case of Green Environment services co-operative society Limited v. Union of India [2009(3)STR250(Guj.)] that the work undertaken by the party is of public interest and they should approach the central government for exemption and the government should consider the same. Thereafter, the Board has given the exemption from this date. But again the department said that the same is applicable from the date of its issue and it is not applicable for the earlier period.

Now, government has brought a retrospective amendment in the said notification. Now the benefit of this notification is available in respect of services provided after 16 June 2005. After passing of the budget, the department will drop the proceedings initiated in this regard. This is also welcome step on the part of Government which shows that the Government is not pro-revenue as is normally said.

3. Issue

Amendment

The construction of road was excluded from the purview of service tax under Commercial construction service. As the definition of commercial construction does not include the road construction. But it was in the dispute whether the repairs of Road will chargeable to service tax when the construction of road itself is excluded. A lot of litigation went on the same. Even the Board has clarified vide circular number 110/4/2009-ST dated 23.2.2009 on the same point that certain work done will be treated as construction of road and other will be treated as repairing of road. The repairing of road will fall under Management, maintenance and repair service and there is no exemption under the aforesaid service. Hence the same is chargeable to service tax. But this was not the intention of the Government. Hence, exemption under notification 24/2009-ST dated 27 th July 2009, amendment was made and Repairs of Road was excluded from levy of service tax. But the litigation continued for the past period.

Now, retrospective amendment has been made in respect of services provided in relation to repairs of road. The effect of this amendment is that the service related to repairs of road provided before 27 th July 2009 and after 16 th June 2005 will also be exempted now. Once again Government has proved that they are trade friendly.

4. Issue

Amendment

The earlier dispute was that whether the exemption will allowed on the service related to Management, Maintenance or repair service in relation to non-Government Buildings?

Retrospective amendment has been made in this regard and now service related to Management, Maintenance or repair service in relation to non-Government Buildings provided after 16 th June 2005 will be exempt. However, this amendment has limited affect till the new scheme of service tax by negative list is implemented. The new scheme will exempt this service by some another notification. But all these amendments have changed the face of Government and it is proved that they do the things which are right whether these are in favour of assessee or the revenue.

With all these retrospective amendments in service tax whereby the relief is granted to the service providers, it is proved that the Government will do the right thing. These all steps of present Government have increased the faith in the minds of the service industry. We welcome these steps. The field formation should also take a lesson from these steps and amend their approach and become friendly with trade and industry. They should not raise the huge demands on assessee on small technical points.

Monday, January 2, 2012

S. 2(22)(e): “Trade Advances” are not “loans & advances”

 
CIT vs. Arvind Kumar Jain (Delhi High Court)

S. 2(22)(e): "Trade Advances" are not "loans & advances"

The assessee held 50% of the shares of a closely held company. The assessee's books showed that he had taken an "unsecured loan" of Rs. 47 lakhs from the company. The AO assessed the said amount as "deemed dividend" u/s 2(22)(e) though the CIT (A) & Tribunal deleted it on the ground that there was a running business relationship between the assessee and the company and the said amount was not a loan but was the result of those business transactions. The department filed an appeal before the High Court. HELD dismissing the appeal:

(i) S. 2(22)(e) provides that any "loan or advance" by a closely held company to a substantial shareholder shall be assessed as "deemed dividend". The purpose is to tax accumulated profits distributed in the form of loans. Bearing this purpose in mind, the word "advance" has to be read in conjunction with the word "loan". The attributes of a loan are that it involves a positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries interest and there is an obligation of re-payment. The term "advance" may or may not include lending. The word "advance" if not found in conjunction with the word "loan" may or may not include the obligation of repayment. If it does then it would be a loan. Applying the doctrine of noscitur a sociis, the word "advance" means such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to a commercial transactions do not fall within the ambit of s. 2(22)(e) (CIT Vs. Raj Kumar 318 ITR 462 followed);

(ii) The fact that the assessee has himself shown the amount in his books of accounts as "unsecured loan", is not determinative of the true nature of transaction. (India Discount Co Ltd 75 ITR 191 (SC) followed).

Related Judgements
CIT vs. Parle Plastics Ltd (Bombay High Court) S. 2(22)(ii) excludes loans and advances where (a) the loan or advance was made by the lending-company in the ordinary course of its business and (ii) lending of money is a "substantial part" of the business of the lending-company. The first condition was satisfied as the business of the…
CIT vs. Ankitech Pvt Ltd (Delhi High Court) U/s 2(22)(e), any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be "dividend" on the presumption that the loans or advances would ultimately be made available to the…
CIT vs. M/s Khemchand Motilal Jain (Madhya Pradesh High Court) While kidnapping is an offense, paying ransom is not; Bar in Explanation 1 to s. 37(1) not attracted The assessee, engaged in manufacture and sale of bidis, sent its whole-time director to a forest area for purchase of tendu leaves. There, the director was kidnapped by dacoits and…

Wednesday, October 12, 2011

TDS u/s 192

(2010) 34 (II) ITCL 546 (Bang `A'-Trib)

TRO v. Sagar Apollo Hospital

ORDER

All these appeals pertain to same assessee on similar point of TDS under section 192, so these are being disposed of by a common order for the sake of convenience and brevity.

2. The facts of the case are that the assessee, a hospital in the name and style of M/s Sagar Apollo Hospitals, and is a division of the Trust M/s Mahatma Gandhi Vidya Peetha Trust. The TDS wing of the Income-tax department conducted verification on 21-8-2007 in the hospital to check the compliance with the TDS provisions. The hospital paid professional charges to various categories of doctors like duty doctors, visiting consultants and consultant doctors on retainership basis. For all the category of doctors tax has been deducted at source regularly as per the provisions of sec.194J applicable to professional payments and duly paid to the credit of the central government. However, the assessing officer while completing the assessment under section 201(1) held that there exists employee - employer relationship between the duty doctor and the assessee and hence the provisions of sec.192 should have been applied while deducting the tax at source from the doctor's payments. The assessing officer observed that as per the provisions of sec.17 of the Income Tax Act, salary is defined as ;

(1) Salary includes

(i) Wages

(ii) Any annuity or pension

(iii) Any gratuity

3. The assessing officer concluded that for few of the doctors under the category of duty doctors, tax should have been deducted at source as per the provisions of sec.192 which is applicable to salary payments. Accordingly, the assessing officer has made demands of Rs.131,398/- Rs.496,113/- and Rs.4,70,253/- being the shortfall in the tax deducted at source by the hospital. Further, levied interest of Rs.85,127/- Rs.247,474/- & Rs.1,83,705/- under section 201(1A) for the assessment years 2003-04, 2004-05 & 2005-06 respectively. The same was deleted by the Commissioner (Appeals), which has been opposed before us by the revenue. On the other hand, learned AR supported the order of the Commissioner (Appeals) on the issue.

4. After going through the rival submissions and material on record, we find that the question before us is whether the doctors are paid professional fees or salary by the assessee hospital. The question whether it is a contract of service or contract for services. This issue can be decided from the nature and extent of control to establish the relationship of employer and employee. The nature of relationship varies from business to business and it is difficult to define with precise nature of control required to establish the relationship of employer and employee. There are set of procedure and rules. Depending on case to case basis the doctors have to decide how to treat patient. Hence, there is no employer employee relationship. The doctors are discharging only professional services as and when the patients require particular specialized treatment. Taking over all view of the situation, the Commissioner (Appeals) was justified in holding that there exists no employer-employee relationship between duty doctors and assessee. The action of the assessing officer in treating only 20 doctors out of 288 doctors as employees and demanding TDS under section 192 was not based on cogent reasoning. The assessee has rightly treated the payments made to duty doctors as professional fees and deducted tax under section 194J which is upheld. Similar issues arise in other two appeals as well. Facts being same, so following the same reasoning, the order of Commissioner (Appeals) in al cases are upheld.

5. In the result, all these appeals filed by the revenue are dismissed.
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Sunday, October 9, 2011

No addition can be made , the unexplained investment on the basis of the DVO findings

CIT and Anr Vs. R Hanumaiah Associates [ITA Nos 3225, 3224 of 2005, dtd. 12.07.2011]
No addition can be made on account of the unexplained investment on the basis of the DVO findings when the assessee satisfactorily explains that the difference was on account of the construction expenditure incurred, which was not considered by the DVO.
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Wednesday, September 21, 2011

Whether when someone else deducts tax at source from payments made on beha

I-T - Whether when someone else deducts tax at source from payments made on behalf of assessee, it can be said that assessee has discharged its liability u/s 194C - NO, rules ITAT

THE issues before the Tribunal are - Whether, for attracting the provisions of Sec 194C, the presence of an express agreement vis-à-vis transportation charges, is a condition precedent; Whether liability of section 194C can be said to have been discharged if someone else deducts tax at source from payments made on behalf of the assessee and whether when assessee has diverted interest bearing funds to its sister concerns without charging any interest, disallowance of interest after allocation of interest bearing funds to tax free unit and non tax free unit is tenable, particularly for the period when the commercial production has not commenced. And the verdict goes against the assessee.

Facts of the case

Assessee company is engaged in the business of manufacturing pharmaceuticals products - filed its ROI, claiming deduction of certain expenses - it also paid interest on interest bearing funds and at the same time advanced interest free funds to its sister concerns – A.O. disallowed both these expenses on the grounds that expenses were incurred without deducting TDS and the interest bearing funds were diverted to sister concern without charging any interest. In respect of second issue it was observed by the AO that the assessee was having two units one was tax free and other was not - accordingly, the AO allocated the interest bearing funds among the units and disallowed the interest pertaining to that period during which commercial production was not commenced – CIT (A) affirmed the order of the A.O. – Before the ITAT, the AR of the assessee pleaded that the payments to the transporters were made on behalf of distributor and there was no written agreement between those transporters and the assessee.

After hearing the parties ITAT held that,

++ the distributors were acting merely as agents of the assessee and making the payment of freight charges on behalf of the assessee. Besides, the very fact that the assessee had claimed the impugned expenses as deduction shows that the assessee-company was not only liable to meet the same but had also actually met the same. It cannot therefore be accepted that the assessee was not required to pay freight charges or that it had not paid them. The mere fact that the payment was made by the distributors on behalf of the assessee will not alter the true nature, character and substance of the transaction. All the requirements of section 194C are fulfilled. Therefore it was the statutory responsibility of the assessee to deduct tax at source out of such payments and pay the same to the Government. In this view of the matter, the submission made on behalf of the assessee that the distributors were required to deduct tax at source out of impugned payments is rejected;

++ the submission made on behalf of the assessee that the distributors had deducted tax at source out of such payments and therefore the AO was not justified in making the impugned disallowance does not carry any force for several reasons. One, section 40(a)((ia) fixes the responsibility on the assessee (and none else) claiming deduction of expenses to deduct tax at source and deposit the same with the Government. The aforesaid statutory condition is not satisfied in the present case and therefore the assessee is not entitled to claim deduction of the impugned expenses. Two, as held by the CIT(A), distributors have not deducted tax at source. Three, the judgment in Transmission Corporation of AP Ltd. v. CIT (2002-TII-01-SC-INTL) referred to by the ld. authorized representative is inapplicable to the facts of the case and also for the reason that it has not been rendered in the context of section 40(a)(ia);

++ in CIT v. Abhishek Industries (2006-TIOL-314-HC-P&H-IT), the jurisdictional High Court has held that entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc. do not have any different colour. Whatever are the receipts in the business; they have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. Though the aforesaid judgment has been rendered in the context of section 36(1)(iii), the observations of the Hon'ble High Court as referred to above are quite apposite on the facts and in the circumstances of the case before us. Baddi unit and Dera Bassi unit are sister units of the same assessee. Dera Bassi unit has diverted part of its funds including interest-bearing funds to Baddi unit. The funds so transferred have cost. If the funds diverted are borrowed funds, then the cost is interest paid by the unit diverting its funds. If it is its own money (e.g., internal accruals, etc.), the cost is the amount of interest foregone by the unit diverting its funds. Quite obviously, not only the funds so transferred by Dera Bassi unit to Baddi unit but also interest thereon would need to be allocated to Baddi unit otherwise the profits of Baddi unit, which are exempt from tax, would stand inflated while the profits of taxable unit being Dera Bassi unit would stand artificially suppressed. In this view of the matter, the action of the AO/CIT(A) in allocating the impugned funds and interest thereon to Baddi unit and thereby capitalizing the same in terms of the proviso to u/s 36(1)(iii) is held to be in order. Ground No. 4 taken by the assessee is dismissed.

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If two views are possible than A.O. should take the one favourable to the Assessee


CIT Vs Mahavir Irrigation Pvt Ltd
[ITA No.1266/2009, dtd. 03.08.2011]

If two views are possible than Assessing Officers should take the one favourable to the Assessee and penalty for concealment cannot be levied

Where there is no finding that any details supplied by the assessee in its Return is incorrect or erroneous or false, there would be no question of inviting the penalty under Section 271 (1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
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Sunday, September 18, 2011

Section 115-O(5) did not, in any way, restrict allowability of claim u/s 80 M

Section 115-O(5) did not, in any way, restrict allowability of claim under section 80M - [2011] 10 taxmann 135 (Bom.)

Wednesday, April 6, 2011

S. 54 Relief available to multiple sales & purchases of residential houses


Rajesh Keshav Pillai vs. ITO (ITAT Mumbai)

(732.4 KiB, 275 DLs)
Download: rajesh_pillai_multiple_house_54.pdf

S. 54 Relief available to multiple sales & purchases of residential houses

The assessee sold two separate flats and earned long-term capital gains of Rs. 1.74 crores. The assessee bought two different flats for a consideration of Rs. 1.77 crores and claimed that the LTCG of Rs. 1.74 crores was exempt u/s 54. The AO & CIT (A) followed the judgement of the Special Bench in ITO vs. Sushila Jhaveri 292 ITR (AT) 1 and held that the benefit of s. 54 was available in respect of only one flat and not two flats. On appeal to the Tribunal, HELD allowing the appeal:

(i) Though s. 54 refers to capital gains arising from "transfer of a residential house", it does not provide that the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemption u/s 54 is available in respect of all houses if the other conditions are fulfilled;

(ii) The decision of the Special Bench in ITO vs. Sushila Jhaveri 292 ITR (AT) 1 is distinguishable. There the issue was whether if one house is sold and the proceeds are invested in several houses, the exemption u/s 54 is available and it was held that the exemption was available only for one house. But, if more than one house is sold and more than one house is bought, a corresponding exemption u/s 54 is available;

(iii) However, the exemption is not available on an aggregate basis but has to be computed considering each sale and the corresponding purchase adopting a combination beneficial to the assessee.

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