Delhi High Court: Search Assessment u/s 153A Does Not Require Issue of Notice U/s 143(2)

Issue of notice u/s 143(2) before passing search assessment order has been controversial issue . This is for simple reason that  no clear provision regarding issue of notice has been given in the Income T Act in case of search proceeding u/s 153A . Therefore, among many grounds on which counsel for assessee challenge order by A.O u/s 153A is issuance of notice u/s 143(2).

Notice in Search Case u/s 153A

In recent past , Tribunals have given verdict that in case of search proceeding u/s 153A also , the notice u/s 143(2) is necessary . In fact , ITAT, Agra , in its order dt 30/11/2010 in case of Narendra Singh vs ITO 138 TTJ 615 held that notice u/s 143(2) is mandatory in case of search case u/s 153A.
However, Delhi High Court in a very recent judgment in case of Ashok Chadha vs CIT held that the notice u/s 143(2) is not mandatory for search assessment u/s 153A.
Search case issue before Delhi High Court

"(a) Whether the issue of notice under Section 143(2) of the Income Tax Act is mandatory for finalization of assessment under Section 153A? (b) Whether the findings of the authorities below upholding addition of Rs.10 lac of cash seized from Mr. D.S. Rawat in the hands of the Assessee was perverse and required to be set aside? "

The Court held on the issue of notice u/s 143(2) in case of search assessment u/s 153A as under

11. It is also to be noted that Section 153A provides for the procedure for assessment in case of search or requisition. Sub section (1) starts with non-obstante clause stating that it was 'notwithstanding? anything contained in sections 147, 148 and 149, etc. Clause(a) thereof provides for issuance of notice to the person searched under Section 132 or where documents etc are requisitioned under Section 132(A), to furnish a return of income. This clause nowhere prescribes for issuance of notice under Section 143(2). Learned counsel for the assessee/appellant sought to contend that the words, "so far as may be applicable" made it mandatory for issuance of notice under Section 143(2) since the return filed in response to notice under Section 153A was to be treated as one under Section 139. Learned counsel relies upon R. Dalmia v CIT (supra) wherein the question of issue of notice under Section 143(2) was examined with reference to Section 148 by the Supreme Court in the context of Section 147. The Apex Court held as under:
"As to the argument based upon Sections 144-A, 246 and 263, we do not doubt that assessments under Section 143 and assessments and reassessments under Section 147 are different, but in making assessment and re-assessments under Section 147 the procedure laid down in Sections subsequent to Section 139, including that laid down by Section 144B, has to be followed."
12. The case of R. Dalmia v CIT (supra) primarily was with regard to applicability of section 144B and Section 153 (since omitted with effect from 01.04.1989) to the assessment made under section 147 and 148 and thus cannot be said to be the decision laying down the law regarding mandatory issue of notice under Section 143(2).
13. The words "so far as may be" in clause (a) of sub section (1) of Section 153A could not be interpreted that the issue of notice under Section 143(2) was mandatory in case of assessment under Section 153A. The use of the words, "so far as may be" cannot be stretched to the extent of mandatory issue of notice under Section 143(2). As is noted, a specific notice was required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, no further notice under Section 143(2) could be contemplated for assessment under Section 153A.
14. No specific notice was required under section 143(2) of the Act when the notice in the present case as required under Section 153 (A) (1) (a) of the Act was already given. In addition, the two questionnaires issued to the assessee were sufficient so as to give notice to the assessee, asking him to attend the office of the AO in person or through a representative duly authorized in writing or produce or cause to be produced at the given time any documents, accounts, and any other evidence on which he may rely in support of the return filed by him.

In nutshell, the controversy regarding the issue of notice u/s 143(2) in case of search assessment u/s 153A has been set to rest by Hon'ble Delhi High Court.

Section 9(1)(vi), Mauritius

(2010) 34 (II) ITCL 508 (Bang `B' Trib)

Velankani Mauritius Ltd. & Ors. v. Dy. DIT

ORDER

These two appeals are filed by the assesses, for the common assessment year 2005-06, These appeals are directed against the orders of the Commissioner (Appeals)-IV, at Bangalore, dated. 28-8-2009 and arise out of assessment orders passed under section 143(3) row with section 147 of the Income Tax Act, 1961.

2. The assessee company M/s. Velankani Mauritius Ltd., is a company registered in Mauritius. The other company M/s. Bydesigns Inc is a company registered in USA. The assesses do not have a Permanent Establishment in India as per Article 5 of DTAA between India and Mauritius and Article 12 of DTAA between India and USA.

3. The assesses are basically involved in the supply of the software purchased from the manufacturers to the clients located in India. During the previous year relevant to the assessment year under appeal, the assesses had supplied off-the-shelf shrink-wrapped software to Infosys Technologies Ltd., (ITL) in India. The assessee did not find any reason to declare any income in India in the hands of the assesses for the reason that the software sold by the company to Indian entities were shrink-wrapped off-the-shelf software which is only the sale of copies of copyrighted articles. The assessees, therefore, assumed that the transactions did not fall within the purview of `Royalty' as defined under section 9(1)(vi) of the Income Tax Act, 1961 and filed returns declaring NIL income.

4. In the income-escaping assessments, the assessing officer took the view that the sale of the software to Indian entities generated royalties in the hands of the assessee companies and, therefore, they are liable for taxation. He, accordingly, completed the assessment by determining positive income by way of making additions which were confirmed in first appeals. Aggrieved, the assesses are in appeals before us.

5. The first common ground raised by both the assesses herein is that the Commissioner (Appeals) has erred in confirming the action of the assessing officer in reopening the assessment under section 147 r.w.s. 143(3) of the Income Tax Act, 1961. It is the case of the assesses that the reopening of the assessments under section 147 is bad in law.

6. On merits of the issue, the common ground raised by both the assesses is that the Commissioner (Appeals) has erred in confirming the action of the assessing officer in treating the sale of software as income from royalty chargeable under the Income Tax Act/DTAA and thus erred in making additions for the purpose of assessments in the hands of the assesses. It is the case of the assesses that the remittances did not fall under the purview of' Royalty' as defined under section 9(1)(vi) of the Income Tax Act, 1961/relevant DTAA.

7. We heard Shri. Arvind Sonde, the learned Advocate appearing for the assesses and Smt. Preeti Garg, the learned Commissioner of Income-tax, appearing for the Revenue, in great detail.

8. In fact, on a similar issue, the High Court of Karnataka had an occasion to decide over the question of applicability of Section 195 in the case of CIT & Ors. v. Samsung Electronics Co. Ltd. & Ors. (2010) 32 (I) ITCL 169 (Karn-HC) : (2010) 320 ITR 209 (Karn) : (2009) 185 Taxman 313 (Karn), on which decision, the Revenue has placed great reliance. In fact, the decision of the Tribunal was reversed by the Hon'ble Karnataka High Court in the above decision. But on reading through the judgement passed by the Hon'ble Karnataka High Court, we find that the Hon'ble Court has considered only the issue confining to the application of section 195 with reference to the responsibility of the assessee in deducting tax at source before making remittances to non-residents. Even though the court has held in favour of the Revenue on the application of the TDS provisions, the court has made it very clear that it has not examined the question regarding the tax liability of the non-resident assesses in respect of the payments received from the assesses in India. The court has made it clear that it was examining only the legality of the demand raised by the Revenue in terms of the provisions of Section 201 of the IT Act, 1961. An extraction from the judgement in paragraph 78 is made below :

"78. For the reasons stated above, while we refrain from answering the questions raised in these appeals relating to the actual determination of the tax liability of the non-resident assesses in respect of the payments that they had received from the resident payers figuring as respondents in all these appeals, we answer all other questions relating to the correctness or otherwise of the orders passed by the Tribunal in the negative in favour of the Revenue and against the assessee, allow the appeals, set aside the orders passed by the Tribunal and restore the orders passed by the assessing authorities and affirming orders passed by the first appellate authorities, so far as it relates to confirming the demand raised on all these respondents-assessees in terms of the provisions of section 201 of the Act for the failure of the respondents-assessees to comply with the requirement of section 195(1) of the Act"

9. Therefore, it is to be seen that the issue raised in these cases has to be considered outside the limited scope of the judgement delivered by the Hon'ble jurisdictional High Court in the case of Samsung Electronics Co. Ltd. (2010) 32 (I) ITCL 169 (Karn-HC) : (2010) 320 ITR 209 (Karn) : (2009) 185 Taxman 313 (Karn).

10. A very similar issue in similar circumstances was considered by a larger bench of the ITAT, Delhi Bench ` A' (Special Bench) in the case of Motorola Inc v. Dy. CIT (2005) 5 (II) ITCL 2 (Del `A' Trib) (SB) : (2005) 95 ITD 269 (Del `A' Trib) (SB). After considering the nature of similar sales, the Larger Bench held that the system supplied by the assessee comprising of the hardware and the software could handle a particular number subscribers. If the number of subscribers went beyond the installed capacity, then the cellular operator had a right under the supply agreement to supply additional hardware or software. The Bench continued to observe that handset which is supplied by the subscriber from the market contains several functions which perhaps the IT authorities had in mind when they stated that a part of the software itself was loaded to the handsets. It is common knowledge that a person may purchase any brand of handset from the market and still have access to mobile telephony which belies the belief of the IT authorities that a part of the software supplied by the assessee is loaded on to the handset with the subscriber. Thus, the cellular operator did not transfer or load any part of the software as to the SIM card or the handset of the subscriber. That established that the software supplied by the assessee to the cellular operator was installed on the hardware and no part of it was loaded on the SIM card or the handset of the subscriber. The Tribunal held that the crux of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for a copyright, it should be classified as `Royalty' both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment was for a copyrighted article, then it only represented the purchase price of the article and, therefore, could not be considered as Royalty either under the IT Act or under the DTAA.

[Emphasis, here printed in italics, supplied]

11. In the light of the rule declared by the larger bench as stated above in the case of Motorola Inc., we have to see in the present cases that a case of royalty does not arise because the payments were made for the sale of copyrighted articles.

12. The very same principle has been upheld by the Authority for Advance Rulings in the case of Airports Authority of India (2010) 323 ITR 211 (AAR), where they have held that the earnings of contract is only purchase of certain copyrighted software on outright basis and when there is no PE in India, royalty income does not arise either within the framework of Income-tax Act or under the realm of DTAA. In the present case, there is no doubt that both the assesses do not have any PE in India.

13. Exactly similar issue was considered by ITAT, Bangalore Bench in the case of Sonata Software Ltd. v. DCIT (2006) 6 SOT 700 (Bang-Trib), in their order dated. 28.4.2005. Here also, software packages were brought in India for the purpose of distributing to ultimate users and imports were made from non-residents. The Tribunal held that the payments partook the character of purchase and sale of goods; and as there is no PE in India, it could be concluded that no income accrued or deemed to accrue or arise in India.

14. The above decisions do in fact draw immense support from the judgement of the Hon'ble Supreme Court rendered in the case of Tata Consultancy Services v. State of Andhra Pradesh (2004) 271 ITR 401 (SC). In the said decision, the Apex Court has held that a software programme may consist of various commands which enable the computer to perform designated tasks. The copyright may remain with the originator of the programme, but the moment copies are made and marketed, it becomes goods which are assessable to Sales-tax. The Court continued to observe that even intellectual property once it is put to a media whether be in the form of books of canvas or computer disks or cassettes, would become "goods".

15. Therefore, in the facts and circumstances of the case, and in the light of the above binding decisions, we find that the sale of software cannot be treated as income from royalty either under the IT Act or under the terms of DTAA. Therefore, the addition made in the case of M/s. Velankani Mauritius Ltd., of Rs. 1,74,60,000 and of Rs.96,35,600 in the case of M/s. Bydesign Solutions Inc. are hereby deleted.

16. As these appeals have been determined on the merits of the issue, we have not adjudicated the legal ground of reopening of the assessments, as it will be only academic.

17. In the result, these two appeals filed by the assesses are allowed.

Order pronounced on Monday, the 31st May, 2010, at Bangalore.

__._,_.___

__,_._,___

Whether when agency agreement between assessee and non-resident continues

Whether when agency agreement between assessee and non-resident continues even after expiry but no royalty is paid, compensation paid for formal termination of contract is akin to loss of profit making apparatus, and thus, is capital receipt - NO: ITAT

MUMBAI, AUG 23, 2011: THE issue before the Tribunal is - Whether when the agency agreement between the assessee and the non-resident continues even after expiry but no royalty is paid during this period, compensation paid to the assessee after many years later for formal termination of the agreement is akin to loss of profit-making apparatus, and thus, is capital receipt. NO, rules the ITAT.

Facts of the case

The assessee company, engaged in the business of sales and manufacture of vibration analysing equipments, had entered into a joint venture agreement with IRD Mechananalysis Inc. USA in March 1979, renewed in October 1990, whereby the assessee was entitled to make use of the trade name / patents of IRD, USA and its associate concerns besides being licensed to manufacture for sale of certain products in India. The company had thus established its market presence in India under the name of "IRD Mechanalysis". The assessee had also entered into a separate Sales Representative Agreement with IRD, U.K. in respect of goods and products produced by the UK company, which were not manufactured by the assessee in India. The agreement had continued since January 1989, having been renewed in 1992, under which the assessee company received commission for sales. The joint venture agreement had expired in 1992 but continued thereafter without the approval of the Central Government until it was terminated in 2000-01, whereby no further royalty was paid, and the assessee was duly compensated for the termination of the joint venture. The sales representative agreement was terminated during the assessment year 2003-04.

The assessee had claimed the compensation received for termination of the joint venture as a capital receipt exempt from tax as it was for loss of capital or intangible asset. Following the cessation of collaboration, in view of the non-availability of technical assistance hitherto rendered by M/s Entek IRD UK, the assessee had made payment to its sister concern M/s Concast India Ltd, towards design engineering consultancy and technical support for submission of quotations for large value tender enquiries and claimed this amount as professional fees. The assessee had also claimed deduction on commission payments made to M/s Mistry Engineers, a proprietary concern of the relative of one of the directors.

The AO disallowed the professional fees paid to Concast India on the ground that there was no evidence to prove whether such services were taken by the assessee. It was held that the assessee merely handled Sales Representation for Entek IRD and had not obtained any consultancy from them towards designs for tender quotation in the last few years. Besides being unable to prove the genuineness of the transaction, the assessee company already employed a good enough number of engineers and technical personnel as its own employees whereby there was no business requirement for such consultancy. The entire technical fees paid to Concast India were disallowed. The AO also disallowed the sales commission paid to Mistry Engineers on the ground that the assessee failed to furnish the bills as required besides which it had its own large team of qualified personnel to carry out the job of sales and services. This payment of commission was thus unreasonable and unwarranted and disallowed under section 40A(2). The AO also disallowed the compensation received by the assessee on termination of the joint venture. The assessee being unable to file a copy of the joint venture agreement which expired in 1992, the AO held that the assessee had no joint venture with the foreign collaborator during the year 2001-02 and 2002-03, the period when the separation from M/s Entek IRD International Ltd., U.K. had occurred. Thus the assessee company had been acting as trading agent on behalf of Entek IRD International of UK and the termination was of the agency and not that of any joint venture, corroborated by the non-payment of any royalty, as required in the case of joint venture.

In appeal before the CIT(A) the assessee submitted that while the consultancy fees paid by the assessee were assessed to tax as income in the hands of Concast India, as business expenses these were disallowed. The CIT(A) allowed the claim holding that Concast India had rendered the services as there was no engineer engaged for designing in the assessee company. Payment had been made for business purpose and was hence allowable as business expenditure. Similarly, the commission paid to M/s Mistry Engineers had been allowed earlier and accepted as genuine, whereby there was no justification for making this disallowance. Both these disallowances were deleted. However, ruling in favour of the Revenue, the CIT(A) confirmed the taxability of the compensation received by the assessee towards termination of collaboration under section 28(ii), holding that there was no joint venture collaboration in existence during the relevant assessement years as no royalty had been paid by the assessee to Entek IRD of UK. Therefore the sum, received from Entek IRD U.K. was not on account of a termination of joint venture which had already expired in the year 1992.

Having heard the cross appeals, the Tribunal held that,

++ regarding the consultancy fees paid by the assessee, in response to the CIT(A)'s query, the AO had specifically stated that the evidences of services rendered by Concast India had been verified and found in order. If the AO had considered the payment as unreasonable, under sec 40A(2), he should have determined the reasonable charges, having regard to the market rate for such services. Revenue had not brought in any further evidence whereby the CIT(A) decision was confirmed regarding the allowability of the professional fees paid to M/s. Concast India;

++ regarding commission payment to M/s Mistry Engineers, the AO had accepted the evidence and similar commission payment by the assessee to the same party had also been accepted by the department. There was no further evidence to doubt the commission payment. The order of the CIT(A) deleting this disallowance was therefore upheld on account of consultancy charges paid to M/s Concast India and on account of commission paid to M/s Mistry Engineers. Thus the appeal filed by the Revenue was dismissed;

++ regarding the taxability of the compensation, the assessee had claimed that the income earning apparatus of the company had been lost on the termination of the joint venture agreement, impairing the complete manufacturing apparatus and trading structure of the assessee company from gaining any income. But the facts proved otherwise. The assessee had not renewed the collaboration agreement but taken the help of M/s Concast India for providing the technical knowhow for continuation of the business. This showed that the termination of collaboration was replaced by technical consultancy support from M/s Concast India. The royalty payable to M/s Entek IRD, UK for the technical assistance was replaced by technical fees, which had been upheld as business expenditure. Under the circumstances therefore, the joint venture had not resulted in any serious impairment of the profit making apparatus of the assessee, which had continued the business. Further, the collaboration agreements did not provide for payment of compensation on termination. Therefore, the payment made by M/s. Entek IRD was towards the termination of the agency agreement which was terminated during the year under appeal. Hence the amount received by the assessee was business income under section 28(ii). The CIT(A) order, upholding the payment as a revenue receipt, was therefore confirmed and the appeal of the assessee dismissed.

ITR HIGHLIGHTS ISSUE DATED 19-9-2011 Volume 337 Part 2

INCOME TAX REPORTS (ITR) HIGHLIGHTS

 

ISSUE DATED 19-9-2011

Volume 337 Part 2

 

    HIGH COURT JUDGMENTS

 

|->> Disclosure u/s. 132(4) : Income included in return and tax paid : Not a case of concealment of income : CIT v. Bhandari Silk Store (P&H) p. 153

 

|->> Interest on delayed payment of enhanced compensation : Inference of cash system of accounting : Taxable in year of receipt : CIT v. Karambir Singh (P&H) p. 159

 

|->> Tribunal finding transaction bogus and sustaining addition : Finding of fact : Papneja Traders v. CIT (P&H) p. 172

 

|->> Consideration not arising out of business but is long-term capital gains : S. 28(va) does not apply : CIT v. Mediworld Publications P. Ltd. (Delhi) p. 178

 

|->> Block assessment : Addition solely on basis of estimate by Valuation Officer not valid : CIT v. Kantilal B. Kansara (HUF) (Guj) p. 187

 

|->> Reassessment after four years to disallow deduction on ground it was capital expenditure not valid : Parle Sales and Services P. Ltd. v. ITO (Guj) p. 203

 

|->> No evidence that assessee had given cash to person searched or had received commission : Block assessment of assessee not valid : CIT v. Radhey Shyam Bansal (Delhi) p. 217

 

|->> Undisclosed income : Failure by assessee to prove that concession was as a result of intimidation, duress and coercion : No evidence that confession made as a result of mistaken belief of law or facts : Asst. CIT v. Hukum Chand Jain (Chhattisgarh) p. 238

 

|->> Compounding of offences not possible after filing complaint : Anil Batra v. Chief CIT (Delhi) p. 251

 

AUTHORITY FOR ADVANCE RULINGS

 

|->> Service of conducting seismic surveys and providing onshore seismic data acquisition and other associated services : Taxable u/s. 44BB : Bergen Oilfield Services AS, Norway, In re p. 167

 

|->> Employees of non-resident deputed to Indian subsidiary for performing managerial functions : Salary and benefits paid to expatriate employees by non-resident employer and reimbursed by Indian subsidiary are fees for included services accruing to non-resident : Verizon Data Services India P. Ltd., In re p. 192

 

|->> Tax resident of Norway providing sea logistics services for ONGC fall with s. 44BB : Siem Offshore Inc., In re p. 207

 

STATUTES AND NOTIFICATIONS

 

|->> C. B. D. T. Circulars :

 

    Circular No. 5 of 2011, dated August 16, 2011-Income-tax deduction from salaries during the financial year 2011-12 under section 192 of the Income-tax Act, 1961 p. 37

 

JOURNAL

 

|->> Unfair not to consider human body as plant in Income-tax assessments in business or profession (T. N. Pandey, Retd. Chairman, CBDT) p. 19

 

NEWS-BRIEF

 

|->> DTC would come into force from April next year

 

    The Finance Minister hoped that the Direct Taxes Code (DTC), which seeks to replace the Income-tax Act of 1961, would come into force from April 1, 2012. The DTC is an ambitious tax reform that will replace the half a century old direct tax laws.

 

    On the Goods and Services Tax (GST), he said, "We are on track . . . there has been some progress".

 

    He said both the Centre and the Empowered Committee of State Finance Ministers were in talks for implementation of the GST regime.

 

    Besides Parliament, the GST Bill needs to be cleared by half of the State Assemblies. Once implemented, GST would subsume most of the indirect taxes, like excise duty.

 

    On economic prospects this fiscal, the Finance Minister said agricultural output is expected to be good. Besides, a better show by the core sector industries would help the country in achieving economic growth in the coming quarters.

 

    While the Reserve Bank has pegged the economic growth for 2011-12 at 8 per cent, the Prime Minister's Economic Advisory Council has estimated it at 8.2 per cent.

 

    The Indian economy expanded at the slowest pace in six quarters by 7.7 per cent. in the first (April-June) quarter of the current fiscal. It was 8.8 per cent. in the corresponding period last fiscal.

 

    The output of eight infrastructure industries rose at its fastest pace in 15 months in July at 7.8 per cent., against 5.7 per cent. in the corresponding period last fiscal. [Source : www.economictimes.com dated September 2, 2011]

 

|->> IT-Agents carry firearms to crack tax evaders and money laundering

 

    "The Special Agents and agents will be able to carry firearms after the Directorate of Criminal Investigation (DCI) is operationalised in the Income-tax Department soon," a top officer of the Department, privy to the development, said.

 

    The Finance Ministry has recently notified bringing under one umbrella the intelligence and criminal investigation units of the Income-tax Department to effectively deal with terror financing cases and transactions that pose threat to national security.

 

    The Department will now recruit Special Agents and Agents (Criminal Investigation) under the new wing, half of whom would be recruited or brought on deputation from premier investigative agencies and police organisations of the country.

 

    The DCI will be headed by the Director General of Intelligence (Income-tax) and was notified in May this year to tackle the menace of blackmoney with cross-border ramifications.

 

    The new arrangement, first in Income-tax Department's history, will be duly notified. [Source : www.financialexpress.com dated September 7, 2011]

 

|->> India Signs DTAA with Uruguay

 

    The Agreement will provide tax stability to the residents of both countries, facilitate mutual economic cooperation and stimulate the flow of investment, technology and services.

 

    The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Oriental Republic of Uruguay for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income and on capital on September 8, 2011. The Agreement was signed by the Chairman, Central Board of Direct Taxes on behalf of the Government of India and by the Ambassador of Uruguay to India, on behalf of the Oriental Republic of Uruguay.

 

    The DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in that state. Such permanent establishment includes a branch, factory, etc. Profits of a construction, assembly or installation projects will be taxed in the state of source if the project continues in that state for more than six months.

 

    Profits derived by an enterprise from the operation of ships or aircraft in international traffic shall be taxable in the country of residence of the enterprise. Dividends, interest and royalty income will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed 5% in the case of dividends and 10% in the case of interest and royalties. Capital gains from the sale of shares will be taxable in the country of source and tax credit will be given in the country of residence.

 

    The Agreement further incorporates provisions for effective exchange of information including banking information and assistance in collection of taxes between tax authorities of the two countries in line with internationally accepted standards including anti-abuse provisions to ensure that the benefits of the Agreement are availed of by the genuine residents of the two countries.

 

    The Agreement will provide tax stability to the residents of India and Uruguay and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Uruguay. [Source : www.pib.nic.in dated September 8, 2011]

Penalty dies with deceased - no cause of recovery from legal heirs -

Penalty dies with deceased – no cause of recovery from legal heirs – As for duty liability, same is recoverable from legal representative to extent of property of deceased coming to hands of legal representative – Stay granted: CESTAT

MUMBAI, AUG 27, 2010: IN the case of Mrs. Nidhi N.Gupta vs. CCE, Mumbai-V, [2008-TIOL-597-CESTAT-MUM] the CESTAT had held thus – "Attachment of property - legal heir of the deceased Director claims that the property is in the name of the late Director and not the company & hence cannot be attached - Tribunal restrains the Dept. from taking further action ."

So also, in the case of Manjit Sethi vs. Collector of Customs, Chandigarh, the Tribunal had in its Order No. 259/94-A, dated 14-9-1994 observed thus -

"Generally penalty dies with the deceased. It is settled principle that penalty cannot be imposed after death and even if it was imposed but not recovered during his life time, the same cannot be recovered from the legal heirs. In other words, penalty cannot be imposed after death of the concerned person and if imposed the same cannot be recovered from the legal heir."

The present application/appeal consists of a mix of the aforesaid legal situations.

The original appellant died during the pendency of the appeal and his wife is now prosecuting the appeal in terms of an order passed by this Bench under rule 22 of the CESTAT (Procedure) Rules, 1982.

The present application seeks waiver of pre-deposit and stay of recovery in respect of the duty and penalty involved in this case. In adjudication of a show-cause notice, the Commissioner confirmed demand of duty of over Rs.5.46 crores against the original appellant and also imposed on him equal amount of penalty under section 114A of the Customs Act, besides a penalty of Rs.2.5 crores on him under section 112 of the Act.

The counsel for the appellant submitted that there can be no penal liability on the legal heir/representative of the deceased appellant.

To this, the Bench observed that in view of the Order of the Calcutta High Court in the case of Taraknath Gayen and others vs. CEGAT [C.O. No. 10344(W) of 1986, issued on 7-5-1987] penalty amount is not recoverable from the legal representatives of accused; imposition of penalty is intended to penalise the accused, therefore, recovery of penalty from the legal representatives would amount to punishing the legal representatives. The Bench, therefore, opined that that the appellant is entitled to waiver of pre-deposit and stay of recovery in respect of the penalties imposed by the Commissioner.

In relation to duty liability, the Counsel claimed support from a Stay Order of the Tribunal vide Raj & Co. vs. Commissioner 2006-TIOL-1607-CESTAT-MAD, wherein waiver and stay were granted to the legal representative of the deceased-assessee considering the submission of amicus curie to the effect that, where the assessee had died before the finalization of the assessment, the duty liability did not survive. It was also submitted that the present appellant (wife of the deceased) had, in an affidavit, affirmed that no estate was left by the deceased. This affidavit was filed in July, 2009. It was further submitted that the Patna High Court decision in Civil Writ Jurisdiction, Case No. 2905 of 1980, decided on 20-11-1985, Bhagwan Devi Banka & Others vs. R.B.Sinha and Others had held that duty recoverable from a person, who was no more, was recoverable from his legal representative to the extent of property of deceased coming to the hands of the legal representative. Inasmuch as since in the present case, no property of the deceased husband has come to the appellant's (wife) hands, nothing is recoverable from her towards the duty liability of the deceased. Moreover, an amount of ` 34 lakhs paid by the deceased was lying with the department and in view of the above it is prayed that waiver of pre-deposit and stay of recovery be granted in respect of the duty amount as well.

The Bench was satisfied with the submissions and while noting that no "counter" had been filed by the Revenue vis-à-vis the affidavit filed by the deceased's wife, it opined that it had no option but to grant waiver and stay of recovery in respect of the duty amount as well.

And, it was ordered accordingly.

In this world, nothing can be said to be certain except death and taxes – Benjamin Franklin, Nov, 13, 1789.

Where assessee-firm paid certain amount to retiring partners in terms of re

 

Where assessee-firm paid certain amount to retiring partners in terms of retirement deed, it did not create any tangible or intangible asset in its books of account on which depreciation under section 32(1)(ii) was allowable

Where assessee claimed deduction in respect of interest paid on funds borrowed for purpose of making payment to retiring partners of firm, in view of fact that continuing partners had taken a conscious view that retiring partners should be paid for safeguarding interests of firm and for purpose of better commercial expediency, interest in question was to be allowed under section 36(1)(iii) - [2011] 12 taxmann.com 504 (Mum. - ITAT)

Some recent past case. (Favor Revenue)

2011-TIOL-89-SC-IT + it sc story : - ITO Vs M/s Mangat Ram Norata Ram Narwana (Dated: May 5, 2011 ) Income tax - Sections 142(1), 143(3), 148, 271(1)(a) & (c), 276C, 277, 278 - Whether, for the purpose of prosecution, it is statutorily required of the partner of the assessee-firm to sign the revised return showing higher income and leading to imposition of penalty - Whether when the partner fails to raise the issue of not signing the revised return and the assessee-firm pays up the penalty imposed, such acts impliedly amounts to admission for the purpose of prosecution.- Revenue's appeal allowed: SUPREME COURT

2011-TIOL-529-HC-AHM-IT : - Dy.CIT Vs Pradip N Desai (Dated: July 6, 2011) Income Tax - Section 32 - Whethe the depreciation at the rate of 50% can be claimed in respect of vehicles given on lease. - Revenue's appeal allowed : GUJARAT HIGH COURT

2011-TIOL-533-HC-AHM-IT : - CIT, Ahmedabad Vs Gurukrupa Developers (Dated: July 27, 2011) Income Tax - Section 113 - Whether the proviso to Section 113 which is in respect to the surcharge on the undisclosed income is clarificatory in nature. - Revenue's appeal allowed: GUJARAT HIGH COURT

2011-TIOL-543-HC-AHM-IT : - CIT Vs Saurashtra Kutch Stock Exchange Ltd (Dated: August 8, 2011) Income tax – Section 12A, 13(3) – Whether once the CIT grants approval for registration of the trust u/s 12A, the AO is not required to re-examine the entire question of the object and purpose of the trust even though the approval was given with the said condition as the CIT cannot keep the very foundational issue open to be judged by the AO – Whether when there is no conclusion that any part of the funds were diverted or applied as not permitted under sub-section (3) of Section 13, the exemption cannot be denied only on the basis of some irregularities observed by SEBI in managing the funds of the trust. - Revenue's appeal dismissed : GUJARAT HIGH COURT

2011-TIOL-519-HC-DEL-IT : - CIT, Delhi Vs Industrial Finance Corporation Of India Ltd (Dated: July 11, 2011) Income tax – Sections 36(1)(viia)(c), 36(1)(vii), 41(4A) – Whether the deduction claimed for the special reserve can be disallowed for an amount which is transferred from special reserve account to other account as per the amendment in section 36(1)(viii) which required to also maintain the amount in the reserve account though it is not retrospective – Whether the assessee is entitled to claim deduction for the amount of interest offered on NPA account which is not realized. - Revenue's appeal allowed: DELHI HIGH COURT

2011-TIOL-519-HC-DEL-IT : - CIT, Delhi Vs Industrial Finance Corporation Of India Ltd (Dated: July 11, 2011) Income tax – Sections 36(1)(viia)(c), 36(1)(vii), 41(4A) – Whether the deduction claimed for the special reserve can be disallowed for an amount which is transferred from special reserve account to other account as per the amendment in section 36(1)(viii) which required to also maintain the amount in the reserve account though it is not retrospective – Whether the assessee is entitled to claim deduction for the amount of interest offered on NPA account which is not realized. - Revenue's appeal allowed: DELHI HIGH COURT

2011-TIOL-559-HC-KAR-IT : - CIT, Bangalore Vs Dr T K Dayalu (Dated: June 20, 2011) Income Tax - Section 2(47)(v), 45, 143(2) – Whether, in respect of development agreement, the relevant date for attracting capital gain is the date on which possession is handed over to the developer or the date of completion of the project. - Revenue's appeal allowed : KARNATAKA HIGH COURT

2011-TIOL-564-HC-KAR-IT : - CIT, Bangalore Vs M/s Ganjam Nagappa And Sons (HUF) (Dated: May 26, 2011) Income Tax - Sections 147, 148 - Whether the Tribunal can interfere with the concurrent findings on the question of fact when no cogent reasons are given for interfering. - Revenue's appeal allowed : KARNATAKA HIGH COURT

2011-TIOL-536-HC-MAD-IT : - CIT, Madurai Vs K A S Mathivanan (Dated: August 1, 2011) Income Tax - Whether allowance can be made merely because future payments were made out of the funds said to be kept in the suspense account - Revenue's appeal allowed : MADRAS HIGH COURT

2011-TIOL-496-HC-P&H-IT : - CIT, Chandigarh Vs Sanjay Chhabra (Dated: March 31, 2011) Income tax – Sections 69, 133A – Unexplained Investment – Whether when the assessee fails to rebut the unexplained investment in the purchase of fuits, and the CIT(A) and Tribunal fail to record the fact that such entries were made in the books, the addition made by the AO is sustainable. - Revenue's appeal allowed : PUNJAB AND HARYANA HIGH COURT;

2011-TIOL-567-HC-P&H-IT : - CIT Vs Mukta Metal Works (Dated: February 28, 2011) Income Tax – Section 158BC, 158BD - Whether the office note appended to section 158BC constitutes a valid satisfaction note within the parameter of section 158BD of the Act – Whether any inference could be drawn from the entries in the seized diary during search, so as to make additions on account of undisclosed income - Whether the Tribunal is duty bound to consider the additional evidence in the form of report of forensic science laboratory in the interest of justice if the same is authentic and necessary for the decision of the issue raised before it.- Revenue's appeal allowed : PUNJAB AND HARYANA HIGH COURT

(ITR) HIGHLIGHTS ISSUE DATED 12-9-2011 Volume 337 Part 1

INCOME TAX REPORTS (ITR) HIGHLIGHTS
ISSUE DATED 12-9-2011
Volume 337 Part 1

HIGH COURT JUDGMENTS

>> Wilful failure to file return on time not a continuing offence : J. Jayalalitha v. Asst. CWT (Mad) p. 1
 
>> Gains due to fluctuation in foreign exchange constituted capital receipt : CIT v. Jagatjit Industries Ltd. (Delhi) p. 21
 
>> Order of court to withdraw utilisation/investment and utilise/invest those funds in terms of s. 11(5) for entitlement to benefit : Assessee complying with direction : Entitled to exemption : Export Promotion Council for Handicrafts v. Director-General of I. T. (Exemptions) (Delhi) p. 26
 
>> Sale of original shares and bonus shares : Cost of acquisition to be spread over original and bonus shares : M. B. and Co. Ltd. v. Asst. CIT (Mad) p. 29
 
>> Whether assessee a real owner of that concern : To be determined and addition made only in regular assessment and not in block assessment : CIT v. Mukesh Luthra (Delhi) p. 41
 
>> Commissioner directing AO to decide year of commencement of business : Tribunal on merits holding in favour of assessee not proper : CIT v. Eastern Medikit Ltd. (Delhi) p. 56
 
>> Objection to jurisdiction cannot be raised after assessment is completed : CIT v. British India Corporation Ltd. (All) p. 64
>> Deduction for vacancy not allowable where property not let out at all : Vivek Jain v. Asst. CIT (AP) p. 74
 
>> Inclusion of winnings from television game show within definition with effect from AY 2002-03 : Winnings in earlier period not taxable : Miss Lopamudra Misra v. Asst. CIT (Orissa) p. 86
 
>> AO not entitled to tax as income from other sources while giving effect to order of Tribunal : Miss Lopamudra Misra v. Asst. CIT (Orissa) p. 92
 
>> Section 92 does not apply to royalty which is not part of regular business between resident and non-resident : CIT v. Nestle India Ltd. (Delhi) p. 103

AUTHORITY FOR ADVANCE RULINGS

>> Transaction of sale and transfer of title outside India : Receipts therefor not taxable in India : LS Cable Ltd., In re p. 35

>> Services involving field data collection, desk study and mathematical model study and technology transfer involving transfer of software : Fees for technical services taxable under DTAA : Lanka Hydraulic Institute Ltd., In re p. 47

>> Time charter vessels hired by non-resident to company carrying out offshore drilling and support services for ONGC : Income to be computed under s. 44BB : Bourbon Offshore Asia Pte. Ltd., In re p. 122

>> Non-resident responsible for offshore supplies : Sums payable to non-resident not taxable in India : Deepak Cables (India) Ltd., In re p. 127

>> Transfer of equity shares in Indian company to another non-resident by off-market mode : Lower rate of tax of 10 per cent. not available : Cairn U. K. Holdings Ltd., In re p. 131


STATUTES AND NOTIFICATIONS

>> Bills :

Benami Transactions (Prohibition) Bill, 2011 p. 1

>> Notifications :

Income-tax Act, 1961 : Notification under section 35(1)(iii) : Scientific research associations notified by the Central Government for the purpose of section 35(1)(iii) p. 35


JOURNAL

>> Circular No. 4 of 2011, relating to section 281, which deals with certain transfers to be void (S. K. Tyagi, Advocate) p. 8

>> Whether CBDT can issue Circulars/Instructions in relaxation of the provisions of the income-tax law ? (T. N. Pandey, Retd. Chairman, CBDT) p. 1
.......

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Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.

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Some recenrt case laws

2011-TIOL-540-HC-MP-IT + it story

CIT, Jabalpur Vs M/s Khemchand Motilal Jain (Dated: August 23, 2011)

Income tax – Section 37(1) – Whether when the Director of the company is on business tour and is kidnapped by dacoits; ransom money paid to get him releases is to be treated as incidential to business as per Sec 37(1) - Whether the payment made towards ransom for saving the life of the Director of the assessee-company is prohibited by law and thus, not allowable expenditure.- Revenue's appeal disallowed: JABALPUR HIGH COURT

2011-TIOL-539-HC-ALL-IT

M/s Shyam Enteprises Vs CIT, Allahabad (Dated: August 4, 2011)

Income Tax - Section 32 - Whether the depreciation on cooling chambers of the cold storage is allowable at the rate of 25%. - Assessee's appeal allowed: ALLAHABAD HIGH COURT

2011-TIOL-538-HC-KAR-IT

Sri P Dayananda Pai Vs ACIT, Bangalore (Dated: July 1, 2011)

Income tax – Sections 147, 148, 153 - Whether when the assessee did not file a return of income and a notice u/s 148 was issued to file the return and a second notice u/s 148 was made after considering the return filed before the issue of first notice u/s 148, the second notice is a valid notice as the first notice is fulfilled by the filing of return before the service of the first notice and the second notice, issued after the AO having reasons to believe that the income or profit or gains chargeable to income-tax had escaped assessment, is not a "second notice" – Whether the assessment made within two assessment years from the end of the assessment year, in which the revised return is filed in response to notice issued u/s 148 second time, is a valid assessment and is not time barred considering the date of notice issued for the first time.- Assessee's appeal dismissed: KARNATAKA HIGH COURT

2011-TIOL-533-ITAT-DEL

ITO, Faridabad Vs Shri Yashpal Gera (Dated: May 20, 2011)

Income Tax - Sections 40A(3), 153A, 153C – Whether estimated addition is permissible under the new provisions of search and seizure - Whether, under the new provisions of search and seizure, AO can spread over his estimate to that time period for which no material has been unearthed during search - Whether provisions of section 40A(3) can be invoked in a case where income has been estimated. - Revenue's appeal dismissed: DELHI ITAT

2011-TIOL-532-ITAT-DEL

DCIT, New Delhi Vs M/s Neptune India Ltd (Dated: June 30, 2011)

Income Tax - Section 41(1) - Whether AO, by invoking the provisions of section 41(1) of the Act, can add any outstanding liability without bringing any material on record to establish that the liability in fact becomes ceased - Revenue's appeal dismissed: DELHI ITAT

SERVICE TAX SECTION

2011-TIOL-1114-CESTAT-DEL

M/s A G Engineers Vs CCE, Ghaziabad (Dated: June 2, 2011)

Service Tax - Valuation - Clearing and Forwarding Service - Reimbursement of Expenses - Penalty - Reimbursed expenditure is to be included in taxable value. However, due to the confusion prevailing at the relevant period, penalty stands waived. - Appeal partly allowed: DELHI CESTAT

2011-TIOL-1113-CESTAT-DEL

M/s A G Engineers Vs CCE, Ghaziabad (Dated: May 31, 2011)

Service Tax - Maintenance or Repair Service - Authorised Agent - Assessee is a dealer of branded goods. But there is no evidence that the appellant acted under any contract or as an authorised service provider. Taxation cannot be under presumption. Demand set aside along with penalties and intertest.- Appeal allowed: DELHI CESTAT

CENTRAL EXCISE SECTION

2011-TIOL-86-SC-CX + sc story

M/s Air Liquide North India Pvt Ltd Vs CCE, Jaipur (Dated: August 30, 2011)

Central Excise- Helium Gas purchased in bulk, processed and sold in cylinders - liable to excise duty: The fact that the gas was not sold as such is further established from the fact that the gas, after the tests and treatment, was sold at a profit of 40% to 60%. If it was really being sold as such, then the customers of the appellants could have purchased the same from the appellant's suppliers. When this question was put to the officer of the appellant, he could not offer any cogent answer but merely stated that it was the customers' preference. Further, he did not give proper answer as to how the profit margin was so high. The appellant had supplied the gas not as such and under the grade and style of the original manufacturer but under its own grade and standard. Further, while selling the gas, different cylinders were given separate certificates with regard to the pressure, moisture, purification and quality of the gas. This explains the high price at which the appellant was selling the gas. Therefore, the Tribunal has rightly observed that if no treatment was given to the gas purchased by the appellant, customers of the appellant would not have been purchasing Helium from the appellant at a price 40% to 60% above the price at which the appellant was purchasing.

Marketable to the consumer: The word "consumer" in this clause refers to the person who purchases the product for his consumption, as distinct from a purchaser who trades in it. The marketability of the product to "the purchaser trading in it" is distinguishable from the marketability of the product to "the purchaser purchasing the same for final consumption" as in the latter case, the person purchases the product for his own consumption and in that case, he expects the product to be suitable for his own purpose and the consumer might purchase a product having marketability, which it did not possess earlier.- Appeal Dismissed: SUPREME COURT

2011-TIOL-1117-CESTAT-MUM + cx story

CCE, Mumbai Vs Hawkins Cookers Ltd (Dated: June 16, 2011)

Assessee claiming deductions based on CA certificate on account of dealer discounts and taxes in respect of parts of pressure cookers which are assessed in terms of s. 4 of the CEA, 1944 – apprehension of department that expenses incurred for sale of pressure cookers (valued u/s 4A) have been included for deduction is not supported by any evidence – Revenue appeal dismissed: MUMBAI CESTAT

2011-TIOL-1116-CESTAT-BANG

Mangalore Refinery & Petrochemicals Ltd Vs CCE, Mangalore (Dated: February 8, 2011)

Central Excise – Eligibility of CENVAT Credit on chequered plates, Tor steel, TMT bars – Lower authorities did not record any detailed findings on submissions made by appellants regarding usage of disputed items in factory premises – Adjudicating authority directed to reconsider issue on merits – Matter remanded without expressing any opinion on merits - Appeal allowed by remand :BANGALORE CESTAT

2011-TIOL-1115-CESTAT-MAD

CCE, Chennai Vs M/s Eveready Industries (I) Ltd (Dated: April 19, 2011)

Central Excise – Valuation of intermediate goods manufactured and stock transferred - Assessee's submission that method prescribed in CAS-4 has been followed is not controverted by Revenue - The correct method is to adopt the cost of material during the year on actual basis and not on any notional basis or on average basis. - Appeal dismissed: CHENNAI CESTAT

CUSTOMS SECTION

NOTIFICATIONS

ctariff11_083

Govt imposes Safeguard Duty on import of PX-13 (6 PPD)

cnt11_063

CBEC revises tariff value of poppy seeds + brass scraps

DGFT PUBLIC NOTICES

dgft10pn075

Amendment in Appendix 2 and Appendix 5 of Handbook of Procedure Vol.I (Appendices and Aayat Niryat Forms), 2009-2014

dgft10pn074

MODIFICATION OF SION C-1579 under Engineering Product Group

DGFT TRADE NOTICE

Trade Notice 19

Penalty for failure to export cotton yarn in terms of Policy Circular No. 27 dated 01.04.2011 and Policy Circular No. 38 dated 10.08.2011.

CASE LAW

2011-TIOL-1118-CESTAT-MUM + cus story

Godrej Hi Care Ltd Vs CC (Dated: June 9, 2011)

It is settled law that substantive statutory provisions should be strictly construed - There is nothing in the definition of "manufacturer" u/r 2(h) of SWAM Rules, 1977 to show that mere affixture of trade mark would suffice the requirement of the inclusive definition - MRP based CVD assessment applicable to importers who affix their own brand name on notified goods and supply to institutional consumers: MUMBAI CESTAT

[2011] 12 taxmann.com 503 (CUTTACK - ITAT)
IT : Interest on fixed deposits for a term exceeding more than one year would be rendered to tax only on its receipt from bank on maturity on basis of certificate of TDS issued by bank
[2011] 12 taxmann.com 502 (MUM. - ITAT)
IT/ILT : Where assessee, an Israel based company, entered into an agreement with an Indian company for supply and licence of software for operation, management and maintenance of its wireless network in India, payment made by Indian Company to Israel Company was for purchase of copyright material which did not amount to royalty within meaning of article 12(3) of India-Israel DTAA and, thus, same was not liable to tax in India


[2011] 12 taxmann.com 492 (GUJ.)
ST : Levy of service tax on renting of immovable property under section 65(105)(zzzz) as amended by Finance Act, 2010 with retrospective effect from 1-6-2007, is constitutionally valid
[2011] 12 taxmann.com 493 (UTTARAKHAND)
IT/ILT : Amendments proposed in section 44BB and 44DA would take effect from 1-4-2011 and would apply in relation to the assessment year 2011-12 and subsequent years

Brought forward unabsorbed losses and deficiencies of earlier years are to

Brought forward unabsorbed losses and deficiencies of earlier years are to be adjusted first against current year's profits and gains of an industrial undertaking before granting of deduction under sections 80-I and 80HH - [2011] 11 taxmann.com 260 (All.)