SC : RE-OPENED ON AUDIT OBJECTION, ACCEPTED BY DEPARTMENT IS VALID RE-OPENING.

CST & VAT: 'Audit Objections' raised by an audit team of Auditor General can be construed as 'information'. If information was given by the audit team to the Assessing Authority that a part of turnover has escaped assessment and the authority was satisfied that reasonable ground exists to believe that a part of the turnover of the appellant-Company has escaped assessment, in that case it can re-open the assessment. However, if there was direction issued by Audit Team to re-open assessment and assessing authority was not satisfied from that information, then the re-assessment order was invalid and without jurisdiction

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[2017] 79 taxman 267 (SC)

SUPREME COURT OF INDIA

Larsen & Toubro Ltd.

v.

State of Jharkhand
MADAN B. LOKUR AND R.K. AGRAWAL, JJ.

CIVIL APPEAL NO. 5390 OF 2007

MARCH  21, 2017

P.H. Parekh, Sr. Adv., Sumit Goel, Ms. Rukhmini Bobde and Ms. Ritika Sethi, Advs. for the Appellant. Anil K. Jha and Priyanka Tyagi, Advs. for the Respondent.

JUDGMENT



R.K. Agrawal, J. - The present appeal has been filed against the final judgment and order dated 17.11.2006 passed by the Division Bench of the High Court of Jharkhand at Ranchi in W.P. (T) No. 2630 of 2006 whereby the High Court dismissed the petition filed by M/s Larsen & Toubro Ltd.-the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur.

2. Brief facts:
(a)         The appellant-Company, having its registered office at Mumbai, is a public limited company and is involved in manufacturing, trading, leasing and construction business throughout the country. At the relevant time, the appellant-Company was involved in the execution of civil work contracts for its client, viz., Tata Iron & Steel Company Ltd. (TISCO) and had been filing its returns under the Bihar Finance Act, 1981 (hereinafter referred to as 'the State Act') and also under the Central Sales Tax Act, 1956 (hereinafter referred to as 'the Central Act') in the Commercial Taxes Department, Urban Circle, Jamshedpur.
(b)         For the Assessment Year (AY) 1991-92, the appellant-Company filed returns under the State Act. However, the assessment proceedings in relation to the above period, i.e., AY 1991-92 was completed in the year 1996 and an assessment order dated 24.01.1996 was passed by the assessing authority.
(c)         After the assessment proceedings, an audit team of the Auditor General, Bihar, audited the assessment order dated 24.01.1996 and found that the dealer was allowed exemption of Rs. 3,12,47,916/-, being the amount of goods consumed by the appellant-Company during the course of execution of works contract. The appellant-Company claimed that such goods were purchased on payment of tax but no declaration in Form IX-C along with other evidence was submitted whereas the production or declaration of Form IX-C was mandatory, hence, the claim was not allowable and the said fact was conveyed to the assessing authority.
(d)         On 28.09.2000, the office of Commissioner of Commercial Tax, Urban Circle, Jamshedpur, served a show cause notice to the appellant-Company to state as to why tax should not be levied on it for the amount of Rs. 3,12,47,916/- which was wrongly exempted from being taxed under the provision of the State Act.
(e)         After affording an opportunity of hearing to the appellant-Company, a re-assessment order dated 27.02.2006 was passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur whereby an additional demand of Rs. 35,72,475/- was created against the appellant-Company.
(f)         Being aggrieved by the re-assessment order dated 27.02.2006, the appellant-Company preferred a writ petition being W.P. (T) No. 2630 of 2006 before the High Court. A Division Bench of the High Court, vide order dated 17.11.2006, dismissed the petition filed by the appellant –Company while upholding the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur.
(g)         Aggrieved by the order dated 17.11.2006, the appellant-Company has preferred this appeal by way of special leave.

3. Heard the arguments advanced by Mr. Pravin H. Parekh, learned senior counsel for the appellant-Company and Mr. Amarendra Saran and Mr. Ajit Kumar Sinha, learned senior counsel for the respondent-State and perused the records.

Point for consideration:

4. The only point for consideration before this Court is whether on the information given by the audit team of the Auditor General, Bihar, the Assessing Authority was satisfied that reasonable ground exists to believe that a part of the turnover of the appellant-Company has escaped assessment within the meaning of Section 19 of the State Act based on which the assessing officer can re-open the assessment?

Rival contentions:

5. Learned senior counsel for the appellant-Company contended that an 'audit objection' cannot be construed as 'information' within the meaning of Section 19 of the State Act, based on which the assessing officer can change his opinion and re-open the assessment. The 'audit objection' relates to tax levied on turnover relating to 'consumables' wherein there is no sale/deemed sale involved. Consumables by its very nature are goods used for own consumption. The assessment order dated 24.01.1996 rightly records the said fact.

6. Learned senior counsel further contended that the original assessment order specifically considered whether purchase tax is to be paid under the State Act on the disputed items and the same was decided in negative and hence taxing the items later on is a mere change of opinion by the Assessing Authority on the very same set of facts that were available on the date of passing the assessment order dated 24.01.1996.

7. Learned senior counsel further contended that non-filing of Form IX-C under Section 11 of the State Act read with Rule 12 of the Bihar Sales Tax Rules, 1983 (hereinafter referred to as 'the Rules') does not attract the levy in the facts of the present case as the goods are used for 'own consumption' and there is no sale or 'deemed sale' of the said goods involving a transfer of property in the said goods to anybody.

8. It was further contended that Section 19 of the State Act read with Rule 20 and Form XIV of the Rules specifically requires the satisfaction of the Prescribed Authority regarding requirement of re-assessment before the issuance of the notice in this regard. The initiation of the re-assessment proceedings and the subsequent re-assessment order dated 27.02.2006 are illegal as there was no satisfaction on the part of the Prescribed Authority about existence of reasonable grounds to believe that turnover has escaped assessment. Hence, the same are liable to be set aside.

9. Learned senior counsel further contended that it is relevant to note the circumstances under which the appellant-Company was unable to produce the relevant records. The assessment year (AY) in question is 1991-92. The assessment order in relation to the same was passed on 24.01.1996. The show cause notice proposing to re-open the assessment was served on the appellant-Company on 28.09.2000 which was replied in detail by the appellant-Company vide letter dated 13.11.2000. Thereafter, for a period of five years, there was no communication from the side of the respondents and the appellant-Company, under the bonafide belief that the letter dated 13.11.2000 had satisfied the requirements of show cause notice, forwarded all the records to their dumping yards at Chennai. Learned senior counsel contended that owing to the above circumstances the failure of the appellant-Company to produce the aforesaid records was not at all willful.

10. Learned senior counsel finally contended that the order of re-assessment dated 27.02.2006 is illegal and the assessment proceedings cannot be re-opened on the basis of audit objection, as the same does not amount to 'information' as contemplated under Section 19 of the State Act. The impugned order amounts to change of opinion on the same set of facts and law which were available even at the time of passing the order of assessment.

11. In support of the above contentions, learned senior counsel has relied upon the following decisions, viz., M/s Indian & Eastern Newspaper Society, New Delhi v. Commissioner of Income Tax, New Delhi [1979] 4 SCC 248, Bhimraj Madanlal v. State of Bihar and Another [1984] 56 STC 273, Usha Sales (Pvt.) Ltd. v. The State of Bihar [1985] 58 STC 217 and Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s Thomas Stephen & Co. Ltd. Quilon [1988] 2 SCC 264.

12. Per contra, learned senior counsel for the respondent-State submitted that the assessing authority has not revised the assessment on the basis of the audit report only rather it had satisfied itself before revising and the same can be seen from the fact that it had rejected part of the audit opinion and applied its mind before passing the order impugned.

13. Learned senior counsel for the respondent-State further submitted that the 'audit objection' in the present case is an 'information' within the meaning of Section 19 of the State Act and the competent authority has rightly re-assessed the turnover and demanded legally payable valid tax which was escaped. He further submitted that the word 'information' used in the Section is of the widest amplitude and comprehends variety of factors including information from external sources of any kind including discovery of new facts or information available in the record of assessment not previously noticed or investigated.

14. Learned senior counsel for the respondent-State submitted that if there is obvious mistake apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment. He finally submitted that there is no illegality in the re-assessment order dated 27.02.2006 as well as in the order dated 17.11.2006 passed by the High Court and the claim of the appellant-Company is liable to be rejected.

15. In support of his submissions, learned senior counsel has relied upon the following decisions, viz., Commissioner of Income Tax v. P.V.S. Beedies Pvt. Ltd. [1998] 9 SCC 272, Anandji Haridas and Co. (P) Ltd. v. S.P. Kasture and Others AIR 1968 SC 565, Commissioner of Customs, Mumbai v. Virgo Steels, Bombay and Another [2002] 4 SCC 316, Supreme Paper Mills Limited v. Assistant Commissioner, Commercial Taxes, Calcutta and Others [2010] 11 SCC 593 and Chatturam & Ors. v. CIT, Bihar AIR 1947 FC 32.

Discussion:

16. In the instant case, an audit team of the Auditor General, audited assessment order dated 24.01.1996 and found that the dealer was allowed an exemption of Rs. 3,12,47,916/- being the amount for goods consumed by the appellant-Company during the course of execution of works contract. It is the claim of the appellant-Company that those goods were purchased on payment of tax but no declaration in Form IX-C along with other evidence was submitted. The same fact was brought to the notice of the assessing authority which in furtherance thereof issued a show cause notice to the appellant-Company. The production of Form IX-C was held to be mandatory and the claim of the appellant-Company was disallowed and an order of re-assessment dated 27.02.2006 was passed by the competent authority for an additional amount of tax of Rs. 35,72,475/- after following the due procedure of law.

17. The point arises for consideration is as to whether an 'audit objection' can be construed as 'information' within the meaning of Section 19 of the State Act based on which the assessing officer was satisfied that reasonable grounds exist to believe that any part of the turnover of the appellant-Company had escaped assessment under Section 19 of the State Act.

18. Learned senior counsel for the appellant-Company argued that it is mere a change of opinion which resulted in re-assessment order and is not information as contemplated under Section 19 of the State Act. Learned senior counsel for the respondent-State submitted that 'audit objection' in the present case is definitely 'information' within the meaning of Section 19 and the High Court has rightly uphold the re-assessment order dated 27.02.2006.

19. In view of the above, it is relevant to quote Section 19 of the Bihar Finance Act, 1981 which is as under:-

"19. Turnover of registered dealer escaping assessment – (1) If upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused under the third proviso to sub-section (2) of Section 14, in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer or a dealer assessed under sub-section (5) of Section 17 has been under-assessed or assed at a rate lower than that which was correctly applicable or any deductions therefrom has been wrongly made, the prescribed authority may, subject to such rules may, be made by the State Government under this part, and –
(a)         Within eight years from the date of the order of the assessment or reassessment where the said authority has reasons to believe that the dealer has concealed, omitted or failed to disclose willfully the particulars of such turnover or has furnished incorrect particulars of such turnover and thereby returned figures below the reason amount,
(b)         Within eight years' from the date of the order of the assessment or reassessment in any other case.

Serve on the dealer a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 17 and proceed to assess or reassess the amount of tax due from the dealer in respect of such turnover, and the provisions of this part shall, so far as may be, apply accordingly as if the notice under this sub-section was a notice under sub-section (2) of Section 17:

Provided that the amount of tax shall be assessed or re-assessed after allowing such deductions as were permissible during the said period and at rates at which it would have been assessed had the turnover not escaped assessment or full assessment, as the case may be.

Explanation: - Production before the prescribed authority of accounts, registers or documents from which material facts could, with due diligence, have been discovered by the said authority, will not necessarily amount to full disclosure within the meaning of this section.

(2) (a) The prescribed authority shall, in a case falling under clause (a) of sub-section (1), direct that the dealer shall pay by way of penalty a sum not exceeding three times but not less than an amount equivalent to the amount of tax which is or may be assessed on the escaped turnover.

(b) The penalty imposed under clause (a) shall be in addition to the amount of tax which is or may be assessed on the escaped turnover, and the order imposing penalty may precede the assessment of escaped turnover.

(c) For determining the amount of penalty under clause (a), where the penalty precedes assessment under clause (b) the prescribed authority shall quantify the amount of suppression and tax thereon provisionally in the prescribed manner.

(d) No order shall be passed under this sub-section without giving the dealer an opportunity of being heard in the prescribed manner.

(3) Any assessment or reassessment made and any penalty imposed under this section shall be without prejudice to any action which is or may be taken under section 49."

Sub-Section (1) of Section 19 very clearly prescribes that the competent authority, upon information, if satisfied that reasonable ground exists to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer assessed under sub-Section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable, may, within eight years from the date of order of assessment, proceed to assess or reassess the amount of tax in respect of such turnover.

20. For ready reference, the relevant portion of the assessment order dated 24.01.1996 is also extracted hereunder:-

"The Company has used the following work under its Tender work on its level and if we separate the both, then it is like this.
     Camp equipments    Rs. 227301.00
     Electric goods for work site    Rs. 773223.00
     Electrode Welding Cable and Accessories    Rs. 871294.00
     Fuel & Lubricants    Rs. 3189205.00
     General Consumables    Rs. 2945086.00
     (Handgloves) contenvest   
     Oxygen & D.A. Gas    Rs. 21223.00
     Plywood for Shuttering    Rs. 2826674.00
     Safety Appliances    Rs. 408392.00
     Spares    Rs. 8232442.00
     Staging Materials    Rs. 3888798.00
     Shuttering & Walk-way (For Timber)    Rs. 4191982.00
     Tools and Tackles    Rs. 3672296.00
     Total    Rs. 3,12,47,916.00"

21. It is also pertinent to understand the meaning of the word 'information' in its true sense. According to the Oxford Dictionary, 'information' means facts told, heard or discovered about somebody/something. The Law Lexicon describes the term 'information' as the act or process of informing, communication or reception of knowledge. The expression 'information' means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment. We agree that a mere change of opinion or having second thought about it by the competent authority on the same set of facts and materials on the record does not constitute 'information' for the purposes of the State Act. But the word "information" used in the aforesaid Section is of the widest amplitude and should not be construed narrowly. It comprehends not only variety of factors including information from external sources of any kind but also the discovery of new facts or information available in the record of assessment not previously noticed or investigated. Suppose a mistake in the original order of assessment is not discovered by the Assessing Officer, on further scrutiny, if it came to the notice of another assessor or even by a subordinate or a superior officer, it would be considered as information disclosed to the incumbent officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Officer in such circumstances is in one sense extraneous to the record. It will be information in his possession within the meaning of Section 19 of the State Act. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment or under-assessment or wrong assessment.

22. There are a catena of judgments of this Court holding that assessment proceedings can be reopened if the audit objection points out the factual information already available in the records and that it was overlooked or not taken into consideration. Similarly, if audit points out some information or facts available outside the record or any arithmetical mistake, assessment can be re-opened.

23. In P.V.S. Beedies (supra), this Court has held as under:-

"3. We are of the view that both the Tribunal and the High Court were in error in holding that the information given by internal audit party could not be treated as information within the meaning of Section 147(b) of the Income Tax Act. The audit party has merely pointed out a fact which has been overlooked by the Income Tax Officer in the assessment. The fact that the recognition granted to this charitable trust had expired on 22-9-1992 was not noticed by the Income Tax Officer. This is not a case of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent."

(emphasis supplied)

24. Similarly, in Commissioner of Income Tax, U.P., Lucknow v. M/s Gurbux Rai Harbux Rai [1971] 3 SCC 654, this Court has held as under:-

"6. Section 15 of the Act provides that if in consequence of definite information which has come into the possession of the Excess Profits Tax Officer he discovers that profits of any chargeable accounting period have escaped assessment, etc., he may at any time serve a notice containing all or any of the requirements which may be included in a notice under Section 13 and may proceed to assess or reassess the amount of such profits liable to excess profits tax. The power so conferred can be exercised in the course of the original assessment or reassessment. It is essential, according to the law laid down by this Court, that before any action can be taken or an order made under Section 10-A there should be a proceeding which should be pending for assessment or reassessment of excess profits tax….."

"7. On the first question the submission of Mr M.C. Chagla for the assessee is that there was no definite information which had come into possession of the Tax Officer from which it could be said that he had discovered that profits of the relevant chargeable accounting period had escaped assessment. We are unable to agree. The Appellate Assistant Commissioner had made an order on October 10, 1947, in the proceedings relating to the assessment of income tax of the assessee that there had been only a partial partition in respect of the movable property business of Gurbux Rai. That was certainly an information which came into the possession of the Excess Profits Tax Officer not because of any change of opinion by himself but because of the decision of the Appellate Assistant Commissioner in the income tax proceedings. This Court has consistently held that the Income Tax Officer would have jurisdiction to initiate proceedings under Section 34(1) (b ) of the Income Tax Act, 1922, which is in pari materia with Section 15 of the Act if he acted on information received from the decision of the superior authorities or the court even in the assessment proceedings. (See R.B. Bansilal A birchand Firm v. CIT 1 and Assistant Controller of Estate Duty , Hyderabad v. Nawab Sir Osman Ali Khan Bahadur , H.E.H. The Nizam of Hyderabad and others . It has next been urged that the alleged object of having a partial partition, namely, of reducing the liability to excess profits tax had never been examined by the Appellate Assistant Commissioner in the income tax proceedings and therefore it could not be said that there had been escapement of income as a result of information derived from his order. The Appellate Assistant Commissioner apparently did not go into that question because the proceedings before him related to assessment of income tax. Section 10-A of the Act is a special provision which deals with the transactions designed to avoid or reduce liability to excess profits tax. The information which came into possession of the Excess Profits Tax Officer of partial partition having been effected was relevant for the purpose of Section 15 and once he had initiated proceedings under that section he was perfectly competent and had jurisdiction to examine for the purpose of Section 10-A whether partial partition had been effected for avoidance or reduction of liability to excess profits tax. The first question, therefore, should have been answered against the assessee and in favour of the Revenue."

(emphasis supplied)

25. In M/s Phool Chand Bajrang Lal and Another v. Income Tax Officer & Another [1993] 4 SCC 77 this Court has held as under:-

"25….. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information….."

26. The contention whether finding the information from the very facts that were already available on record amounts to information for the purpose of Section 19 of the State Act, it would be sufficient to refer to a judgment of this Court in Anandjiharidas & Co. v. S.P. Kasture AIR 1968 SC 565 wherein it was held that a fact which was already there in records doesn't by its mere availability becomes an item of "information" till the time it has been brought to the notice of assessing authority. Hence, the audit objections were well within the parameters of being construed as 'information' for the purpose of section 19 of the State Act.

27. The expression 'information' means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or after bearing on the assessment. We are of the clear view that on the basis of information received and if the assessing officer is satisfied that reasonable ground exists to believe, then in that case the power of the assessing authority extends to re-opening of assessment, if for any reason, the whole or any part of the turnover of the business of the dealer has escaped assessment or has been under assessed and the assessment in such a case would be valid even if the materials, on the basis of which the earlier assessing authority passed the order and the successor assessing authority proceeded, were same. The question still is as to whether in the present case, the assessing authority was satisfied or not.

28. At this stage, we deem it appropriate to reproduce the matter dealt with between the audit team and the assessing authority which led to the initiation of re-assessment proceedings under Section 19 of the State Act which is as under:-

"Part – II

Section – 'A'
     Para 1. Non levy of purchase tax    Rs. 24,19,385.31
     Name of the dealer    M/s Larsen & Toubro Ltd., ECC Construction Group, Jamshedpur
     Registration No.    JU 848 ®
     Nature of Business    Works Contract
     Asstt. Year    1991-92
     Date of Order    24.01.1996
     G.T.O. Determined    Rs. 17,57,01,372.00
     Less: Sale of tax paid goods    Rs. 1,31,75,779.63
          Rs. 16,25,25,592.37
     Less: Works done by sub-contractor    Rs. 27,17,304.00
         Rs. 15,98,08,208.37
     Less: Labour charges and overhead charges    Rs. 11,91,66,742.38
         Rs. 4,06,41,465.99
     Tax was levied   
     @ 4% on Rs. 17,48,096.90    Rs. 69,923.00
     @ 8% on Rs. 1,96,71,099.14    Rs. 15,73,678.93
     @ 9% on Rs. 1,45,34,488.10    Rs. 13,08,103.92
     @ 10% on Rs. 2,048.00    Rs. 204.80
     @ 11% on Rs. 4,82,125.70    Rs. 53,033.86
     @ 12% on Rs. 42,03,608.15    Rs. 5,04,432.97
         Rs. 35,09,387.36
     Add: Tax @ 1% on Rs. 5,55,08,612.25    Rs. 5,55,086.12
         Rs. 40,64,473.48
     Surcharge @ 10% on Rs. 39,94,549.60    Rs. 3,99,454.00
         Rs. 44,63,928.44
     Penalty U/S 16 (8)    Rs. 920.00
         Rs. 44,64,848.44

The Scrutiny of assessment order revealed that the dealer was allowed exemption of Rs. 11,91,66,742.38 on account of labour charges and overhead charges claimed as detailed below:
     Labour Charges    Rs. 7,02,77,549.00
     Overhead charges    Rs. 1,87,15,545.00
     Goods consumed in course of execution of work    Rs. 3,12,47,916.00
         Rs. 12,02,41,010.00

Out of the above claim, a sum of Rs. 10,74,267.62 to us disallowed as below:
     Tax paid claim disallowed    Rs. 3,50,698.37
     Recovery of cement taxable    Rs. 2,20,972.50
     Amount of plant hire charges    Rs. 5,02,596.75
         Rs.10,74,267.62

The dealer had furnished the statement of material utilized in the contract work and goods consumed for own use. Scrutiny of assessment order revealed that the dealer was allowed exemption on Rs. 3,12,47,916.00 being the amount of goods consumed or used itself in course of execution of work, details of which were discussed in the assessment order. It had been stated by the assessing authority that such goods were purchased on payment of tax, but no declaration in form IX C along with other evidences were kept on record. Production of declaration form in IX C was mandatory one and hence the claim was not allowable.

The entire materials received from outside the State or purchased within the State without payment of tax was normally leviable to tax at specified rates under section 12 of B.F. Act 1981. Under section 4 of the Act ibid, every dealer liable to pay under section 3 of the Act, if otherwise disposes the goods in any manner other than by way of sale in the State was also liable to purchase tax. In this connection a reference to the judgement of Hon'ble Karnataka High Court and duly confirmed by the Hon'ble Supreme Court in the case of Chevvabbo v. State of Karnataka [1986] 62 STG 194 Se) is invited ……. Disposal of goods in this section (Similar to those Karnataka) was clarified as transfer of title over the goods otherwise than sale, included gifts, own use or consumption section 4 of the Act (B.F. Act) is similar to section 7 A of Tamil Nadu General Court in the case of the State of Tamil Nadu v. M.K. Kandaswami (1975 36 STC 191) where it was held that (1) this Section is a separate charging provision in the Act and is not subject to section 3 and (ii) brings to tax goods, the sale of which would normally have been taxed at the same point or other in the State but could not be taxed even due to destroying them or other reasons. Thus the purchase tax was leviable on goods consumed for own use. Since cost price/purchase price was reflected as value of goods consumed for own use of the dealer, the tax at the rate specified in section 12 of the Act ibid was leviable. In this case, even if same charges like Electrodes, Welding Cables, welding appliances, fuel and lubricants, oxygen and P.A. Gas safety, safety appliances valued at Rs. 44,90,114.00 was not considered as taxable, the consumable goods worth Rs. 2,67,57,802.00 attracted levying of tax at specified rates.

The case may please be re-examined in the light of above observation and levying of purchase tax amounting to Rs.24,19,385.31 (including additional tax and surcharge) as calculated below may be considered under intimation to audit.
     S. No.    Name of Goods    Purchase value of goods    Rate applicable    Non-levy of purchase tax
     1.    Camp Equipment, general consumable, plywood for shuttering spares and staying material    Rs. 1,81,20,301.00    8%    Rs. 14,49,624.08
     2.    Electrical Goods and Timber    Rs. 49,65,205.00    12%    Rs. 5,95,824.60
     3.    Tools & Tackles    Rs. 36,72,296.00    4%    Rs. 1,46,891.84
                     Rs.21,92,340.52
                     Rs. 20,454.48
                     Rs.22,12,795.00
         Addl. Tax @ 1% on 20,45,448.68            Rs. 2,06,590.31
                     Rs.24,19,385.31
          Surcharge @ 10% on 20,65,903.16             

The use of fuel and lubricants may please be bifurcated and value of lubricants only may be levied to tax.

On being pointed out in audit, it was stated that since the goods had not been transferred to contractee co-under the provisions of works contract, but it had been consumed and so it does not come under the purview of taxation. The reply is not tanable in view of the above judgements and hence the case needed to be reviewed."

(emphasis supplied)

29. From a perusal of the last paragraph of the aforementioned report of the audit party, it is clear that the Assessing Officer was of the opinion that as the goods had not been transferred to appellant-Company but had been consumed, so it does not come under the purview of taxation. In other words, the Assessing Officer was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment so as to invoke Section 19 of the State Act. From the above, it also appears that the assessing officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law.

30. In view of the above discussion, we are of the considered view that the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur is without jurisdiction and the High Court was not right in dismissing the petition filed by the appellant-Company. We, therefore, allow the appeal and set aside the order dated 27.02.2006 passed by the Deputy Commissioner, Commercial Taxes, Urban Circle, Jamshedpur as well as the order dated 17.11.2006 passed by the Division Bench of the High Court of Jharkhand. However, the parties shall bear their own costs.

Hon'ble Mr. Justice R.K.Agrawal pronounced the Reportable judgment of the Bench comprising Hon'ble Mr. Justice Madan B.Lokur and His Lordship.

The appeal is allowed in terms of the signed Reportable judgment.

Pending application, if any, stands disposed of.

HC (BOM) : Taxing the bogus share holders are IT Department's job, company cannot be taxed.

IT : Where revenue urged that assessee company received share application money from bogus shareholders, it was for revenue to proceed by reopening assessment of such shareholders and assessing them to tax and not to add same to assessee's income as unexplained cash credit

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[2017] 80 taxmann.com 272 (Bombay)

HIGH COURT OF BOMBAY

Commissioner of Income-tax- 1

v.

Gagandeep Infrastructure (P.) Ltd.*

M.S. SANKLECHA AND A.K. MENON, JJ.

IT APPEAL NO. 1613 OF 2014†

MARCH  20, 2017 

Section 68 of the Income-tax Act, 1961 - Cash credit (Share Capital) - Assessment year 2008-09 - Whether proviso to section 68 introduced by Finance Act 2012 with effect from 1-4-2013, would not have retrospective effect - Held, yes - Whether where assessee-company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit - Held, yes - Whether where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit - Held, yes [Para 3] [In favour of assessee]

FACTS

■		During the previous year relevant to subject assessment year the assessee had increased its share capital from Rs. 2.50 lakhs to Rs. 83.74 lakhs. The asessee had collected share premium to the extent of Rs. 6.69 crores and charged share premium at Rs. 190 per share. The assessee furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form No. 2 filed with the Registrar of Companies.
■		The Assessing Officer invoked section 68 to treat the amount of Rs. 7.3 crores, i.e., the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of section 68.
■		On appeal, the Commissioner (Appeals) deleted the addition made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made was not genuine. He observed that if the amounts have been subscribed by bogus shareholders it was for the revenue to proceed against such shareholders. Therefore, the Assessing Officer was not justified in adding the amount of share capital subscription including the share premium as unexplained credit under section 68.
■		On further appeal, the Tribunal observed that the assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares and upheld the findings of the Commissioner (Appeals).
■		In instant appeal to the High Court, the revenue contended that proviso to section 68 which was introduced with effect from 1-4-2013 would apply in the facts of the present case even for assessment year 2008-09.

HELD

■		The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-4-2013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to section 68 is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.
■		In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre-amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit. [Para 3]

CASES REFERRED TO

CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) (para 3).

Suresh Kumar for the Appellant. Percy Pardiwala, Senior Counsel and Atul Jasani for the Respondent.

JUDGMENT

1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 23rd April, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 2008-09.

2. Mr. Suresh Kumar, the learned counsel appearing for the Revenue urges the following re-framed questions of law for our consideration:—

"(i)		Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs.7,53,50,000/- under Section 68 of the Act being share capital/share premium received during the year when the Assessing Officer held the same as unexplained cash credit?
(ii)		Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restricting the disallowance under Section 14A of the Act only to the amount of expenditure claimed by the assessee in the absence of any such restriction under Section 14A and/or Rule 8D?"

3. Regarding question no.(i):—

(a)		During the previous relevant to the subject Assessment Year the respondent-assessee had increased its share capital from Rs.2,50,000/- to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at Rs.190/- per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the respondent-assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act.
(b)		Being aggrieved, the respondent carried the issue in appeal. By an order dated 24th May, 2011 the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition of Rs.7.53 crores made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made (inclusive of premium) was not genuine. This inspite of evidence being furnished by the respondent in support of the genuineness of the transactions. Further he held that the appropriate valuation of the shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. Finally he relied upon the decision of the Apex Court in CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 to hold that if the amounts have been subscribed by bogus shareholders it is for the Revenue to proceed against such shareholders. Therefore it held the Assessing Officer was not justified in adding the amount of share capital subscription including the share premium as unexplained credit under Section 68 of the Act.
(c)		Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent-assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P.) Ltd. (supra) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal.
(d)		Mr. Suresh Kumar, the learned counsel appearing for the Revenue contends that proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. The basis of the above submission is that the de hors the proviso also the requirements as set out therein would have to be satisfied.
(e)		We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
(f)		In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.

4. (a) Admit the substantial question of law at (ii) above.

(b) The issue arising in question no. (ii) is essentially whether application of Rule 8D(2)(iii) of the Income Tax Act Rules would permit the Revenue to disallow expenditure not claimed i.e. much larger than the expenditure / debited in earning its total income. The Counsel inform us that there is no decision on this issue of any Court available and it would affect a large number of cases where similar issues arise. Therefore, this issue would require an early determination. In the above view, at the request of the Counsel, the appeal is kept for hearing on 17th April, 2017 at 3.00 p.m., subject to overnight part-heard.

5. Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court.

6. Stand over to 17th April, 2017.

Penalty leviable even if assessed income is equal to returned income.

[2010] 3 taxmann.com 99 (Mum. - ITAT)

Penalty is imposable under main provisions of section 271(1)(c) and there is no need to refer to any Explanations

·         ·        Merely because case of the assessee is not covered by any particular Explanation to section 271(1)(c), does not mean that penalty cannot be imposed when there is no difficulty in determining tax sought to be evaded

ITAT, MUMBAI BENCHES 'F' : MUMBAI

Harish P. Mashruwale HUF

v.

ACIT

ITA No. 4996/Mum/2007

March 30, 2010

RELEVANT EXTRACTS:

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6.       The assessee has challenged the levy of penalty on three grounds. Firstly, the assessee has argued that the penalty proceedings have been initiated for concealing the particulars of income but the penalty has been imposed for furnishing inaccurate particulars of income and, therefore, penalty is legally invalid. Reliance has placed on several judgments of Hon'ble High Court of Gujarat, as mentioned in Para 4 earlier. We are unable to accept the argument advanced because the Hon'ble High Court of Gujarat in the judgments cited held that penalty imposed on the ground different from the ground on which it was initiated was not proper because in such a case it could not be said that the assessee had been given reasonable opportunity of hearing in relation to the ground on which penalty had been imposed. The position in the present case is different. In this case the assessee had been given opportunity. In fact, the assessee had itself raised this ground before the Assessing Officer during the proceedings u/s 271(1)(c) and, therefore, it cannot be said that the assessee had no opportunity in the matter. Secondly, it has been argued that Explanation 1 to section 271(1)(c) and is not applicable as there is no addition to the total income and thirdly it has been submitted that the Explanation 4 relating to computation of tax sought to be evaded is also not applicable as the returned income and assessee income remained the same. On careful consideration we do not find any merit in these arguments. We agree with the view taken by the CIT (A) that the various Explanations only explain the ambiguity in the provisions relating to imposition of penalty and merely because the case of the assessee is not covered by any particular Explanation, does not mean that penalty cannot be imposed when there is no difficulty in determining tax sought to be evaded. Under the provisions of section 271(1)(c) penalty is prescribed for concealing the particulars of income or for furnishing inaccurate particulars of income and quantum of penalty is based on tax sought to be evaded. In this case, tax sought to be evaded is very clear as the tax rate applicable is 30% whereas the assessee has paid 20%. The tax sought to be evaded was because of the lower rate of tax paid and not because of any addition to the income and, therefore, provisions of Explanation 1 are not applicable. The penalty is imposable under the main provision and there is no need to refer to any Explanations. As regards the merit of the case, the claim of the assessee that amount paid for receiving the gift was from the cash received on surrender of tenancy right is not supported by any evidence. The gifts had also been received much before the surrender of tenancy. The amount has therefore been rightly assessed as income from other sources attracting tax rate of 30 %, which has also been affirmed by the Tribunal in the quantum appeal. The assessee has sought to evade tax by paying tax at lower ate. The penalty in our view is imposable as held earlier under the main provisions of section 271(1)(c).

7.       In view of the foregoing discussion, we see no infirmity in the order of CIT (A) in confirming the penalty and the same is, therefore, upheld.

MACHINE TO MACHINE COMMUNICATIONS

 

MACHINE TO MACHINE COMMUNICATIONS

Machine to Machine (`M2M' for short) communications, in which data is transferred among communicating machines with little or no human intervention. It refers to technologies that allow both wireless and wired systems to communicate with other devices of same ability. It has been emerged around for some time before. The industry has come into prominence because of widespread availability of wireless networks.

M2M uses a device, such as a sensor or meter, to capture an event such as temperature, inventory level, etc. which is relayed through a network (wireless, wired or hybrid) to an application (software program), that translates the captured event into meaningful information. This is accomplished through the use of telemetry, the language machines use when in communication with each other. Such communication was originally accomplished by having a remote network of machines relay information back to a central hub for analysis, which would then be rerouted into a system like a personal computer.

The origin of M2M communications is cloudy because of the many different possibilities of its inception. It began around the year 2000, possibly earlier, when cellular technology first began to learn to connect directly to other computer systems. In 2009 the technology witnessed its development in U.S. and in Europe. In early 2010 in the U.S., some telecom companies began to work together in the creation of a M2M site, which will serve as a hub for developers in the field of M2M communication electronics. In March 2010, Sprint and Axeda Corporation announced their strategic alliance for global M2M solutions. In January 2011, Aeris Communications Inc. announced that it is providing M2M telematics services for Hyundai Motor Corporation. Partnerships like these make it easier, faster and more cost-efficient for businesses to use M2M. In June 2010, mobile messaging operator tyntec announced the availability of its high-reliability SMS services for M2M applications.

However, modern M2M communication has expanded beyond a one-to-one connection and changed into a system of networks that transmits data to personal appliances. The expansion of wireless networks across the world has made it far easier for M2M communication to take place and has lessened the amount of power and time necessary for information to be communicated between machines. These networks also allow an array of new business opportunities and connections between consumers and producers in terms of the products being sold.

Personal health monitoring, tracking and tracing in supply chain management, fleet management and tracking, remote security sensing, smart electricity and gas meters, smart grids, intelligent traffic control, all involve M2M. M2M is strengthened by availability of mobile networks. Mobile operators are showing interests in M2M to improve their revenues and profit margins.

M2M applications have four components which are as follows:

1) Collection of data

2) Transmission of selected data through a communication network

3) Assessment of the data

4) Response to the available information.

Machines are new subscribers of the cellular networks. It is estimated that the world would have 50 billion connected machines in the year 2020. This would far exceed the connected humans even if the entire world predicted population 7.5 billion by the year 2020 are to be connected. M2M networks need to be reliable, scalable, secure and manageable. The possibility of number of devices connected increasing exponentially requires optimizations to avoid network congestion and system overload. The network would need to support many types of M2M devices having different characteristics and requirement for running different applications. It has to be ensured that the M2M services and devices at a low cost level for mass market acceptance. These challenges can be resolved by standardization. Various bodies are current engaging in this work.

M2M has various applications. Some of the applications are as follows:

City Automation:

Sensors, pumps, valves, meters;
Power, light, elevator control;
Grid control;
Waste management;
Billing of utilities.
Sales & Payment:

Point of sales;
Vending machines;
Loyalty concepts;
Gaming and entertainment.
Home:

Smart meters;
Alarms and security;
Surveillance cameras;
Heating, gas, water;
Garbage and garden.
Security & Surveillance:

Access control;
Alarm system;
Public surveillance;
Congestion and movement monitoring;
Urban management.
Health:

Patient monitoring;
Remote diagnostics;
Activity monitoring;
Web access telemedicine;
Personal security.
Tracking & Tracing:

Fleet management;
Order management;
Vehicle diagnostic;
Navigation;
Traffic/weather information;
Location service;
Emission control;
Toll collections.
The above are only examples. There are many applications in it. Machine-to-machine communication appears to have a bright future. It's a flexible technology that uses common equipment in new ways. Every day, businesses, engineers, scientists, doctors and many others are finding new ways to use this new communications tool.

By: Mr. M. GOVINDARAJAN
Dated: - December 16, 2011

TAX EVASION VIA SHELL COMPANIES

 

TAX EVASION VIA SHELL COMPANIESEnron showed the world the trick of hiding accounting losses in special purpose vehicles (SPV). Subsequent accounting standards have ensured that interests in SPVs are at least disclosed if not morphed into the accounts of the company that controls the SPV. It was not long before the ingenious conjured up ways of using SPVs as a tax planning vehicle. SPVs had an unlikely ally in double tax avoidance agreements (DTAA) which did their best to ensure that income from cross-border transactions are taxed only in one country. Difficulties arose in deciding which. The Authority for Advance Rulings (AAR) recently ruled on the tax impact on what they perceived to be a shell company created with the lone purpose of enabling an acquisition. Muriex Alliance (MA) and Groupe Industrial Marcel Dassault (GIMD) were two French companies that joined hands to create a subsidiary named "ShanH". MA got into a Share Purchase Agreement (SPA) to acquire the shares of Shantha Biotechnics Ltd, based out of India with ShanH being the permitted assignee. Share transactions were continued with GIMD acquiring 20 per cent of the shares from MA in ShanH. Soon, they found a partner to offload their stake in ShanH to a French multinational Sanofi. After the kerfuffle created by the Vodafone case, GIMD decided to play it safe and approached the AAR for a ruling on whether the sale of shares would be taxable in India or France. Normal logic coupled with the provisions of the DTAA would give an impression that the transaction would be taxable in France since all the companies involved were in France. They did not consider the fact that the underlying asset is an Indian company.

AAR RULING

The AAR summed up the issue at hand. A company in France, invests in acquiring shares in an Indian company. Ultimately it acquires a controlling interest. For this purpose, it creates a fully-owned subsidiary. The shares are taken in the name of the subsidiary. Subsequently, another company also comes in and acquires a part of the shares in the subsidiary. The only asset of the subsidiary is the shares in the Indian company. It has no other business. The two shareholders of the subsidiary then decide to sell the shares of the subsidiary to another company. By that process, what really passes is the underlying assets and the control of the Indian company. This transaction generates a profit. By repeating the process, the control over the Indian assets and business can pass from hand to hand without incurring any liability to tax in India, if the transaction is accepted at face value. It ruled that a DTAA has to be construed on its terms.

TRANSFER OF SHARES

A literal construction of paragraph 5 of the DTAA would lead to the position that the transfer of shares of ShanH, in this case, can be taxed only in France. The contention of the Revenue was that the situs of the underlying assets cannot be ignored and the underlying assets and controlling interest are that of a company incorporated in India and a resident of India. The AAR found that what is involved in this transaction, is an alienation of the assets and controlling interest of an Indian company. It will logically follow that the transactions gone through are part of a scheme for avoidance of tax and the scheme has to be ignored, that the gain from the transaction is taxable in India. A literal interpretation of the DTAA would show that it is not the alienation of the shares of an Indian company but a purposive construction of the said paragraph of the treaty that led the AAR to the conclusion that the capital gains arising out of the transaction is taxable in India. The essence of the transaction takes within its sweep, various rights including a change in the controlling interest of an Indian company having assets, business and income in India. The AAR concluded that the capital gains would be taxed in India, though the privileges of the DTAA would not be denied. The decision of the AAR will be a wake-up call to entities that use shell companies as investment vehicles. The age-old accounting rule of substance over form will come into play and one can no longer quote liberally from the ratio of the decisions of the Supreme Court in McDowell and Co Ltd and Azadi Bachao Andolan which blessed tax planning measures as long as they are within the four corners of the law. Entities interpreted both the tax planning measures and the four corners of the law very liberally. While it would be appropriate to interpret the former liberally, the latter has to be interpreted extremely rigidly. - www.thehindubusinessline.com

LtT & ST gains from PMS transactions taxable as business profits (ITAT Delhi)

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M/s. Radials International vs. ACIT (ITAT Delhi)

Long-term & short-term gains from PMS transactions taxable as business profits

The assessee offered LTCG & STCG on sale of shares which had arisen through a Portfolio Management Scheme of Kotak and Reliance. The investments were shown under the head "investments" in the accounts and were made out of surplus funds. Delivery of the shares was taken. The AO & CIT (A) held that as the transactions by the PMS manager were frequent and the holding period was short, the LTCG & STCG were assessable as business profits. On appeal by the assessee, HELD dismissing the appeal:

In a Portfolio Management Scheme, the choice of securities and its period of holding is left to the portfolio manager and the assessee has no control. Only the portfolio manager can deal with the Demat account of the assessee. While, at the time of depositing the amount, the assessee will make entry in his books of account as investment in PMS, he is not aware of the transactions in the shares being entered into by the portfolio manager on his behalf as his agent. Since the assessee comes to know about the purchase and sale of shares under PMS after the expiry of the quarter, the accounting treatment in the books of the assessee in respect of shares purchased/sold by the portfolio manager under PMS cannot be entered in the books of the assessee. It is at the end of the year the shares available in the DEMAT account can be entered. Therefore, at the time of deposit of amount, the intention of the assessee was to maximize the profit. As the purchase and sale of shares under PMS is not in the control of the assessee at all, it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment. The portfolio manager carried out trading in shares on behalf of his clients to maximize the profits. Therefore, it cannot be said that shares were held by the assessee as investment. The fact that the transactions were frequent and its volume was high indicated that the portfolio manager had done trading on behalf of the assessee. The fact that the shares remaining at the end of the year were shown under the head `investment' makes no difference. Even the LTCG is assessable as business profits and s. 10(38) exemption is not available. The fact that the AO took a contrary view in the preceding year is irrelevant. There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. There is, however, a difference between investment in a mutual fund and PMS.

Note: See the contrary view in Radha Birju Patel (Mum) ARA Trading & Investments (Pune). See also KRA Holding & Trading (Pune) & Homi K. Bhabha (Mum)

Related Judgements
ARA Trading & Investments Pvt Ltd vs. DCIT (ITAT Pune) On facts, as the assessee had engaged a portfolio manager to look after its' investments and all decisions to buy and sell were taken by the portfolio manager and not by the asessee, the assessee cannot be called a "dealer"
ITO vs. Radha Birju Patel (ITAT Mumbai) Transactions carried out via Portfolio Management Scheme are clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares. The very nature of Portfolio Management Scheme is such that the investments made by the assessee are protected and enhanced…
ACIT vs. Vinod K. Nevatia (ITAT Mumbai) Primarily, the intention with which an assessee starts his activity is the most important factor. If shares are purchased from own funds, with a view to keep the funds in equity shares to earn considerable return on account of enhancement in the value of share over a period then…

S. 132: Cash seized in search has to be adjusted against Advance Tax (itat, rAJKOT)

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Ram S. Sarda vs. DCIT (ITAT Rajkot)

S. 132: Cash seized in search has to be adjusted against "Advance Tax"

Pursuant to a search u/s 132, cash was seized from the assessee and third parties and assessed as the assessee's income. Though the assessee requested that the said seized cash be treated as payment of "advance tax", the AO ignored the same and levied interest u/s 234A, 234B & 234C on the basis that advance tax had not been paid. On appeal, the CIT (A) relied on Central Provinces Manganese 160 ITR 961 (SC) and held that the ground was not maintainable. It was also held that cash seized from third parties could not be treated as the assessee's payment of advance tax. On appeal by the assessee, HELD allowing the appeal:

(i) S. 246 permits an appeal to be filed when the assessee "denies his liability to be assessed". The levy of interest u/s 234A to 234C is a part of the process of assessment. The expression "denies his liability to be assessed" does not mean a total denial of liability. Even a partial denial of the assessment i.e. of the liability to pay interest is covered and the appeal is maintainable (C. P Manganese 160 ITR 961 (SC) explained, Kanpur Coal Syndicate 53 ITR 225 (SC) & JK Synthetics 119 CTR 222 (SC) followed);

(ii) On merits, s. 132B (1) provides that the assets seized u/s 132 may be adjusted against the amount of any "existing liability" and the liability determined on completion of the assessment. The expression "existing liability" cannot be ascribed a restricted meaning. The liability to pay advance tax is an "existing liability" and so the cash seized ought to have been adjusted against that liability. The cash seized from third parties, having been assessed in the assessee's hands, retains the same character as cash seized from the assessee (Sudhakar Shetty 10 DTR (Mum) 173 followed).

Related Judgements
Atma Ram Properties Pvt Ltd vs. DCIT (Delhi High Court) S. 147: AO must specify what facts are failed to be disclosed. Lapse by AO no ground for reopening if primary facts disclosed In AY 2001-02, the AO assessed advances of Rs. 1.56 crores received from a group concern as "deemed dividend" u/s 2(22)(e). In appeal, the CIT…
Vineetkumar Raghavjibhai Bhalodia vs. ITO (ITAT Rajkot) S. 56(2)(v) exempts gifts from a "relative". Though the definition of the term "relative" does not specifically include a Hindu Undivided Family, a `HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. As all these persons fall in…

tongue twister

 

English is a rich language in every sense of the term. Its already-staggering wealth of words is ever-expanding, thanks to the open arms with which it welcomes words from other languages. The official website of the Oxford English Dictionary tells us that the second edition of the 20-volume dictionary contains full entries for 171,476 words in current use, and 47,156 obsolete words.

Yet, there are occasions when one feels the language falls short of an apt word or phrase to describe a situation, person or emotion. Mercifully, other languages can fill this gap. Imagine someone says something to you that leaves you so outraged that you're at loss for words to return the compliment. Later, thinking about it, the words come to you but by then the moment is gone. English has no term to convey such slow-to-respond wit. French has. It's called l'esprit de l'escalier (literally, staircase wit).

Of course, one always has the option to forget and forgive. As they say in Gujarati, "Manav matra/bhool ne patra" (to err is human)... One could go a step further and turn the other cheek. We all know the word for that: Gandhigiri. However, two cheeks are all one has. So, would it not be fair to hit back the third time? Well, there is one language which has the ready word for such a policy. The word Ilunga comes from Tshiluba, a branch of Bantu language spoken in the Democratic Republic of Congo. Actually, after the third insult, the aggrieved person could be forgiven for thinking that the aggressor's face is backfeifengesicht - in German, that means 'a face badly in need of a fist'.

Talking of faces, there's a word in Arabic for resolving a dispute without any party losing face: tarradhin. It isn't the same as 'compromise' but a positive win-win for the two sides. Unfortunately, there's no dearth of bystanders who hate such outcomes. Not only because it robs them of a piece of precious schadenfreude - German for pleasure derived from the misfortune of others - but also because it may verily send them into deep missgunst (German word conveying the feeling of not liking it when something good happens to someone you don't like).

Indians can claim credit for the ultimate terminological jugaad called 'miskaal' ( missed call). But while miskaal says a lot without saying anything, for the exact sense in which we use it we have to turn to the Czech word prozvonit. This means calling a mobile phone and disconnecting after the first ring so that the other person calls back. Naturally, that saves the first caller the outgoing call charge.

The point is obvious. In the age of Twitter, the key word is not economy (of words) but freakonomy. We need words and phrases that can pack in a whole lot of quirky sense. In fact, wordsmiths would do well to coin new words for some situations and behaviours which are being reported frequently.

For example, we need a word for the newly revealed practice of claiming the full airfare despite travelling on a concessional ticket so as 'to use the surplus for the benefit of the poor and downtrodden'. Similarly, one commonly hears celebrities say by way of self-defence, 'I was quoted out of context'. Could we not find a single word for that? Ditto for someone doing a semi-nude scene because 'the story demanded it'. Or for inviting someone to one's wedding and hoping that he doesn't turn up.

Last but not least, we need a word for a frequently reported eventuality in India. It has to do with a high and mighty personality developing chest pain on being arrested for a crime, so much so that he requires immediate admission in a swanky hospital. How about creating a neat four-letter word for such a tragic circumstance?

HC(DEL) : No time limit prescribed for filing an application for compounding of an offense

Vikram Singh vs. UOI (Delhi High Court)

S. 279: As there is no time limit prescribed for filing an application for compounding of an offense, the CBDT is not entitled to reject an application on the ground of 'inordinate delay'. The CBDT has no jurisdiction to demand that the assessee pay a 'pre-deposit' as a pre-condition to considering the compounding application. The larger question as whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules is left open

The Court finds nothing in Section 279 of the Act or the Explanation thereunder to permit the CBDT to prescribe such an onerous and irrational procedure which runs contrary to the very object of Section 279 of the Act. The CBDT cannot arrogate to itself, on the strength of Section 279 of the Act or the Explanation thereunder, the power to insist on a ‘pre-deposit’ of sorts of the compounding fee even without considering the application for compounding. Indeed Mr Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above Circular by the Department, then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court, accordingly, clarifies that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits

S. 37(1): Distinction between capital & revenue expenditure explained

 

Airport Authority of India vs. CIT (Delhi High Court Full Bench)

January, 04th 2012
S. 37(1): Distinction between capital & revenue expenditure explained

The assessee incurred expenditure on removal of encroachments and claimed the same as a revenue deduction on the ground that the expenditure was incurred in the normal course of the business. The AO, CIT (A) & Tribunal rejected the claim on the basis that the assessee had acquired an advantage of an enduring nature. The High Court (for an earlier year, Airport Authority of India vs. CIT 303 ITR 433) upheld the view of the authorities that the expenditure was capital in nature. For the present year, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities:

The question that has to be considered is whether the expenditure is incurred for initiating the business or for removing an obstruction to facilitate an existing business. Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure. The aim and object of the expenditure determines its character and not the source and manner of its payment. The fact that the expenditure is once and for all is not conclusive. While expenditure for acquisition of a source of income would ordinarily be capital expenditure, expenditure which merely enables the profit making structure to work more efficiently would be in the nature of revenue expenditure. Expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. On facts, the land belonged to the assessee and the amount paid for removal of encroachers was not for acquisition of new assets. The payment was made to facilitate its smooth functioning of the business i.e. in relation to carrying on the business in a profitable manner (Airport Authority of India 303 ITR 433 (Del) reversed; Bikaner Gypsum vs. CIT 187 ITR 39 (SC) followed)

269SS 269 T

 

INCOME TAX APPELLATE TRIBUNAL , KOLKATA

Addl. C.I.T., R-V(C) -vs.- M/s. J.A. Land & Housing Development India Limited

INCOME TAX APPELLATE TRIBUNAL, KOLKATA
Addl. C.I.T., R-V(C) -vs.- M/s. J.A. Land & Housing Development India Limited
I.T.A No. 1116/Kol/2011 – Assessment Year : 2004-05
Addl. C.I.T., R-V(C) -vs- M/s. J.A.M. Chemical Works Limited
I.T.A Nos. 1117, 1118 & 1140/Kol/2011 – Assessment Years: 2005-06, 2006-07 & 2007-08
Date of Pronouncement: 02.01.2012

ORDER

PER BENCH

All the four appeals are by the Department for assessment years 2004-05, 2005-06, 2006- 07 & 2007-08 directed against the order of Ld. CIT(A)-III, Kolkata dated 23.06.2011. The first three appeals i.e. ITA Nos. 1116 to 1118/Kol/2011 are against deletion of penalty levied under section 271D and the last one also i.e. ITA No. 1140/Kol/2011 relates to penalty levied under section 271E. All the four appeals are heard together and disposed of by this common order for the sake of convenience.

2.Inspite of sufficient notice none appeared on behalf of the assessee. After hearing the Ld. Departmental Representative, we proceed to decide the appeals ex parte assessee by considering the statement of facts filed by the assessee before the 1st Appellate Authority. For the purpose of discussion, we will take ITA No.1116/Kol/2011 for assessment year 2004-05.

3.Assessing Officer levied penalty under section 271D for the assessment year 2004-05 in respect of M/s. J.A. Land & Housing Dev. India Limited and also in assessment years 2005-06 & 2006-07, as well as under section 271E of the Income Tax Act for the assessment year 2007-08 in the case of M/s. J.A.M. Chemical Works Limited. Assessing Officer was of the view that violation of Section 269SS which defines `loan or deposit' & Section 269T defines `loan or deposit' and the common word "loan" means lending a sum of money by one party to another upon agreement to repay. Hence, Assessing Officer was of the view that though in the Companies Act "deposit" does not include share application money which is given to a Company by an applicant for allotment of shares. The fact that under the given set of facts, according to Assessing Officer, the amount so deposited with the assessee-company in the name of share application money attracts Sections 269SS & 269T. In other words, these financial transactions should be through banking channels by abiding cash transactions. Therefore, Assessing Officer was of the view that assessee has violated Section 269SS in ITA Nos. 1116 to 1118/Kol/2011 and there is violation of Section 269T in respect of ITA No.1140/Kol/2011. He, therefore, levied penalty. On appeal to the Ld. CIT(A), Ld. CIT(A) found that I.T.A.T., Kolkata Benches, "C" Bench in ITA Nos. 141 & 142/Kol/2011 have decided the issue vide order dated 19.04.2011 by following the decision of Hon'ble Madras High Court in the case of CIT vs. Rugmini Ram Raghav Spinners (P) Ltd. [2008] 304 ITR 417 (Mad.) that the share application money and repayment thereof will not violate Sections 269SS & 269T of the Act which attracts levy of penalty under section 271D & 271E of the Act.

4.After considering the argument of Ld. Departmental Representative who relied decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. vs. CIT [2005] 275 ITR 399 (Jharkhand). However, we are unable to agree with the contention of the Ld. Departmental Representative as the Tribunal has already decided the issue in other group concern cited (supra) by following the decision of Hon'ble Madras High Court in the case of Rugmini Ram Raghav Spinners (P) Ltd. (supra). Hence, we agree with the findings of Ld. CIT(A) rightly deleted the penalty levied under section 271D in assessment years 2004-05, 2005-06 & 2006-07 and in assessment year 2007-08 deleted the penalty under section 271E of the Act.

5. In the result, all the four appeals of the Department are dismissed.

Order pronounced in the open Court on 02.01.2011.

TRANSPORT OF GOODS THROUGH PIPELINE SERVICES

 

TRANSPORT OF GOODS THROUGH PIPELINE SERVICES

Service tax has been imposed on transport of goods through pipeline or other conduit services rendered to any person by any other person engaged in provision of such services by the Finance Act, 2005 with effect from 16th June, 2005. The gross amount charged to or total consideration received from any person in relation to transport of goods through pipeline services shall be chargeable to service tax.

Meaning of Transport of Goods through Pipeline or Other Conduit

The statutory provision of service tax does not define what is meant by transport of goods through pipeline or conduit.

With the levy of service tax on goods being transported through a pipeline or conduit, now only goods transportation by train is out of service tax net. Transportation of goods by air and by road are already covered. Transportation of goods through pipeline or conduit should meet the following tests:

(a) transportation of goods should take place.

(b) such transportation should be through a pipeline or other conduit.

(c) service must be provided by any person to another person.

Taxable Service

Section 65(105)(zzz) defines taxable service as under —

"any service provided or to be provided to any person, by any other person in relation to transport of goods other than water, through pipeline or other conduit".

To be covered under a taxable service, following conditions must be satisfied—

(a) transportation of goods should take place.

(b) goods transported should be through any pipeline or other conduit.

(c) transportation of water is excluded.

(d) transportation of goods should be on behalf of other person.

(e) service rendered should be for a consideration and not a free service.

It appears that what could be transported through pipeline or conduit are generally gases or liquids. Since water has been specifically excluded, all types of gases and fuels, other chemicals and liquids etc. shall be covered. Though milk is specifically exempt under road transportation, no specific exemption of milk exists in case of transportation through pipeline or conduit. Examples of goods may include petrol, diesel, other liquid fuel, Piped Natural Gas (PNG), Compressed Natural Gas (CNG), Liquefied Natural Gas (LNG) etc. It may be noted that service tax is not on goods sold through pipeline (like cooking gas) but is on transportation done or undertaken through a pipeline, on behalf of other person for a consideration. Pipelines or conduits are generally laid on or under the surface. Service provider could be any person including an individual.

The taxable service would not include transportation of water in tankers as water has been specifically excluded from its scope. However, if water is transported and freight is paid to goods transport agency say, in case of industrial water or otherwise, service tax shall be payable on such freight.

In Oil India Ltd v. CCE, Dibrugarh 2008 -TMI - 30942 - (CESTAT KOLKATA), where transportation of crude oil was done through pipeline and taxable service under (zzz) clause was brought into force w.e.f. 16.6.2005, taxation under any other category (clearing & forwarding service) or (business auxiliary service) prior to 16.6.2005 was held to be inconceivable.

Departmental Clarification

Circular No. B1/6/2005-TRU dated 27.7.2005 clarifies as under –

"Transport of goods through pipeline or other conduit [see sub-clause (zzz) of section 65(105) of the Finance Act, 1994]

Transportation of goods, other than water, through pipeline or conduit is generally employed to transport petroleum and other petroleum products, natural gas, LPG, chemicals, coal slurry and other similar products. Such transport services are liable to service tax under sub-clause (zzz) of section 65(105) of the Finance Act, 1994. Consideration for the said transportation service provided may be payable periodically or from time to time. The service provider is required to pay service tax as and when payment is received for the services provided or to be provided."

Person Liable

Any person (including individuals) providing transportation services by pipeline or conduit to any other person shall be liable to pay service tax and shall be treated as an assessee for service tax purposes.

By: Dr. Sanjiv Agarwal
Dated: - January 11, 2012

__,_._,___

RIGHT TO INFORMATION A FUNDAMENTAL RIGHT?

 RIGHT TO INFORMATION – A FUNDAMENTAL RIGHT?

Section 2(j) of the Right to Information Act defines the terms `Right to information' as the right to information accessible under this Act which is held by or under the control of any public authority and includes the right to-

Inspection of work, documents, records;
Taking notes, extracts, or certified copies of documents or records;
Taking certified samples of material;
Obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through print outs where such information is stored in a computer or in any other devise.
Section 3 of the Act provides that subject to the provisions of this Act, all citizens shall have the right to information. It is to be discussed in this article whether such right is a fundamental right to the citizens.

Lord Action said on one of his speech that everything secret degenerates, even the administration of justice; nothing is safe that does not show how it can bear discussion and publicity. It is thus clear that a society which adopts openness as a value of overarching significance not only permits its citizens a wide range of freedom of expression, it also goes further actually opening up the deliberative process of the Government itself to the sunlight of public scrutiny.

Justice Frankfurter opined that the ultimate foundation of a free society is the binding tie of cohesive sentiment. Such a sentiment is fostered by all those agencies of the mind and spirit which may serve to gather up the traditions of a people, transmit them from generation to generation and thereby create that continuity of a treasured common life which constitutes a civilization.

The concept of active liberty, which is structured on free speech means sharing of a nation's sovereign authority among its people. Sovereignty involves the legitimacy of a governmental action. Sharing of sovereign authority suggests intimate correlation between the functioning of the Government and common man's knowledge of such functioning.

On the emerging concept of an `open government' the Constitution Bench of Supreme Court in `State of UP V. Raj Narain' – AIR 1975 SC 865 held that the people of this country have a right to know every public act, everything, that is done in a public way, by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. The right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should made on wary, when secrecy is claimed for transactions which can, at any rate, have no repercussion on public authority. To cover with veil of secrecy, the common routine business is not in the interest of the public. Such secrecy can seldom be legitimately desired.

In `S.P Gupta V. President of India' –AIR 1982 SC 149 the Supreme Court Constitution Bench held that the concept of an open government is the direct emanation from the right to know which seems to be implicit in the right of free speech and expression guaranteed under Article 19(1)(a). Therefore disclosure of information in regard to the functioning of Government must be the rule and secrecy an exception justified only where the strictest requirement of public interest so demands. The approach of the court must be to attenuate the area of secrecy as must as possible consistently with the requirement of public interest, bearing in mind all the time that disclosure also serves an important aspect of public interest.

From the above judgment it can be inferred that the right to information is basically founded on the right to know which is an intrinsic part of the fundamental right to free speech and expression guaranteed under Article 19(1)(a) of the Constitution.

In `Reliance Petrochemicals Limited V. Properties of Indian Express Newspapers Bombay (P) Limited' – (1988) 4 SCC 592 the Supreme Court held that the right to information is a fundamental right under Article 21 of the Constitution. It was further held that we must remember that the people at large have a right to know in order to able to take part in participatory development in the industrial life and democracy. Right to know is a basic right which citizens of a free country aspire in the broader horizon of the right to live in this age in our land under Article 21 of the Constitution. That right has reached new dimension and urgency. That right puts greater responsibility upon those who take upon themselves the responsibility to inform. In `Secretary, Ministry of Information and Broadcasting, Government of India V. Cricket Association of Bengal' – (1995) 2 SCC 161, the Supreme Court held that right to acquire information and to disseminate it is an intrinsic component of freedom of speech and expression.

In `People's Union for Civil Liberties V. Union of India' – (2004) 2 SCC 476 the Supreme Court held that right to information is a facet of the right to freedom of speech and expression as contained in Article 19(1)(a) of the Constitution of India. It was also held that right to information is definitely a fundamental right. In coming to the conclusion the Supreme Court traced the origin of the said right from the Universal Declaration of Human Rights, 1948 and also Article 19 of the International Covenant on Civil and similar enunciation or principle in the Declaration of European Convention for the Protection of Human Rights and found that the spirit of the Universal Declaration of 1948 is echoed in Article 19(1)(a) of the Constitution.

The preamble to the Right to Information Act shows that the Act was enacted to promote transparency and accountability in the working of every public authority in order to strengthen the core constitutional values of a democratic public. It is thus clear that the Parliament enacted the said Act keeping in mind the rights of an informed citizenry in which transparency of information is vital in curbing corruption and making the Government and its instrumentalities accountable. It is to harmonize the conflicting interests of Government to preserve the confidentiality of sensitive information with the right to citizens to know the functioning of the governmental process in such a way as to preserve the paramountcy of the democratic ideal.

The Supreme Court is also conscious that such a right is subject to reasonable restrictions under Article 19(2) of the Constitution. In `Dinesh Trivedi, M.P., V. Union of India' – (1997) 4 SCC 306 it was held that sunlight is the best disinfectant. But it is equally important to be alive to the dangers that lie ahead. It is important to realize that undue popular pressure brought to bear on decision makers in Government can have frightening side effects. If every action taken by the political executive functionary is transformed into a public controversy and made subject to an enquiry to soothe popular sentiments, it will undoubtedly have a chilling effect on the independence of the decision who may find it safer not to take any decision. It will paralyze the entire system and bring it to a grinding halt. So we have two conflicting situation almost enigmatic and the Court thought the answer is to maintain a fine balance which would safe public interest.

By: Mr. M. GOVINDARAJAN

DIVIDEND TAX A PEEK BEHIND THE SMOKE SCREEN

 

DIVIDEND TAX — A PEEK BEHIND THE SMOKE SCREEN

Why are dividends exempt from taxation?

According to the Companies Act, since dividends are technically a share in the profit received by the investor for investing share capital in the company, he should enjoy such income only from profits after taxes. Therefore, by the same logic, if the investor is asked to include dividend income as a part of his total individual income for taxation, it would amount to "taxing an already taxed income", or "double taxation". Thus, dividend income from domestic companies was made exempt from taxation. This is more or less a globally embraced concept. But are they REALLY? The other side of the smoke screen. However, this is just one side of the smoke screen. On the other side is the concept of dividend distribution tax (DDT). Section 115-O of the Income Tax Act states: "In addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends shall be charged to additional income-tax at the rate of 15 per cent." Thus, even though dividend is not taxable in the hands of the shareholder, it has not exactly escaped double taxation. While it's only fair that a company should be free to distribute its profits after income tax amongst its members, as per the provisions of Section 115-O, it cannot do so unless it has paid an additional tax called the Dividend Distribution Tax (DDT) at the rate of 15 per cent. Consequently, the net dividend distributed is less by that much. The DDT was introduced with the Finance Bill, 1997, and justified in the Memorandum to the Finance Bill, 2003, as: "It has been argued that it is easier to collect tax at a single point, i.e., from the company, rather than compel the company to compute the tax deductible in the hands of the shareholder." The double taxation effect that is caused by the DDT has not been clearly rationalised till date.

TRIPLE TAXATION?

Besides, the dividend received from non-domestic or foreign companies is taxable in the hand of the shareholder separately. With the unfortunate existence of DDT almost globally (known as just "Dividend Tax" in most countries), the recipients of dividends from foreign companies undergo a worse fate "triple taxation". First, the foreign company pays Income Tax or Revenue Tax on operating profits to the government of its country. Then it again pays Dividend Tax (same as Indian DDT) to its government. Finally, when the investor in India receives his "doubly taxed" dividend, he has to again pay Income Tax, as tax received from non-domestic companies is not exempt under the Income Tax Act. To add to this jarring irrationality, in some countries like China, while Chinese citizens in Mainland China are victim to the cruelty of a Dividend Tax as high as 50 per cent, Chinese citizens in Hong Kong completely escape tax liability!

SOMETHING TO LOOK INTO

Some other countries such as Canada and Australia have, however, worked out a tax credit system on dividend tax which can be studied and implemented, mutatis mutandis. Additionally, bilateral tax exemption agreements should be considered with stock exchanges such as London Stock Exchange or NYSE where there is a lot of mutual interest in terms of investments. – www.thehindubusinessline.com

Voluntary disclosure scheme under Sec. 115BBE - 20 things to know

Voluntary disclosure scheme under Sec. 115BBE - 20 things to know

1.	Voluntary disclosure of undisclosed income by assessee enabled by disclosure in a return filed under section 139.
2.	Tax rate increased from 30% to 60% with effect from assessment year 2017-18. Cess of 25% is introduced, also with education cess. Effective rate shall be 77.25%.
3.	Voluntary disclosure scheme under section 115BBE has no expiry date. It will be an "On-Tap Scheme" from assessment year 2017-18 unless in future section 115BBE is amended again to prohibit voluntary disclosure.
4.	Voluntary disclosure must be accompanied by deposit of 77.25% of the undisclosed income on or before the end of the relevant previous year. Relevant previous year means previous year in the return of which voluntary disclosure is intended to be made. If tax is not deposited by the end of previous year (i.e., by 31-3-2017, in case of current financial year, ending on 31-3-2017), penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)] will apply, taking the effective tax rate to 83.25%.
5.	No deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in section 115BBE(1)(a).
6.	Voluntary disclosure should be made before any notice is issued by the Department or before any search or seizure is carried out. This is important as disclosure has to be in a return filed under section 139 be it original return or revised return or belated return.
7.	If voluntary disclosure is not made and undisclosed income is detected in scrutiny assessment or reassessment or through survey (i.e., any manner other than search), then penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)] will apply under proposed new section 271AAC, taking the effective burden to 83.25% of the undisclosed income.
8.	Filing of return in response to notice under section 142 or after survey is conducted will not be regarded as voluntary disclosure. Nor will disclosure in any return filed under section 148 be regarded as voluntary disclosure. In such a case assessee will be able to avail section 115BBE with penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)].
9.	If undisclosed income is detected in any search which takes place on or after the date the Bill receives Presidential Assent, then penalty of 30% or 60% will be levied under proposed new sub-section (1A) of section 271AAB taking the effective rate to 107.975% or 137.975%.
10.	If undisclosed income is detected in any search which takes place before the date of Presidential Assent, then, penalty of 10% or 20% or 30% to 90% will be levied, taking the effective tax rate to 87.25% or 97.25% or 107.25% to 167.25%.
11.	No penalty is imposable under section 270A.
12.	Substaintive law stated under sections 68 to 69D has not been changed.
13.	Scheme of section 115BBE applies to all income covered under sections 68 to 69D, whether in form of cash, bank deposits, jewellery, property, etc.
14.	Cash may or may not be in form of demonetized notes.
15.	Scheme of section 115BBE also applies to crime monies.
16.	Income chargeable under Black Money Act, 2015 cannot be declared.
17.	Scheme applies to all categories of assessee be it individual, HUF, BOI, AOP, Trust, Companies, etc.
18.	Scheme applies to both resident and non-resident.
19.	Scheme applies to assessees covered under Presumptive Taxation Scheme (Sections 44AD, 44ADA, 44AE).
20.	Scheme applies to assessment years 2017-18 and onwards.

271(1)(c): disclosure after 142(1) / 143(2) can not be said to "voluntary disclosure"

S. 271(1)(c): A disclosure of income, or withdrawal of claim for deduction, by the assessee after a specific s. 142(1)/ 143(2) notice is issued cannot be said to be a "voluntary disclosure" so as to avoid the levy of penalty. The argument that the earlier non-disclosure of income/ wrong claim for expenditure was due to "mistake" is not an acceptable defense (Mak Data 358 ITR 593 (SC) followed, Price Waterhouse Coopers 348 ITR 306 (SC) distinguished)