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Recent Major Judgements - December 2012

Written By Admin on Thursday, 10 January 2013 | Thursday, January 10, 2013

December 2012



CA. Paras K. Savla, CA. Deepak Tikekar
Supreme Court / High Court

S.194C contract for supply / transport of gas
The agreement essentially was for purchase and sale of gas. Transportation of gas was only a part of the entire sale transaction. Laying down the pipeline and supplying gas through such pipeline were the steps in furtherance of the terms of such a contract. Transportation of gas by GAIL was only in furtherance of contract of sale of gas. Even though purchase has agreed for separate payment for transport of gas, contract was for supply of gas and not a work contract. CIT vs. Krishak Bharati Cooperative Ltd [2012] 27 304 (Gujarat)

S. 32 Setoff of unabsorbed depreciation with other income
When unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, same can be set off against unabsorbed depreciation u/s 32(2) – CIT vs. SPEL Semi Conductor Ltd. [2012] 27 242 (Madras)

S. 43B Arrears of Salary
Aareares of salary provided in the books of accounts are not covered by the provisions of S.43B - CIT v. Hindustan Times [2012] 27 191 (Delhi)

S. 37(1) Share expenses for setting of joint venture
The assessee engaged in the business of printing and publishing of newspapers, periodicals and also production of video cassettes. During the year, the assessee claimed business expense towards its share of joint venture company. It was held that Share of expenses to set up joint venture, and the share of expenses for feasibility report, to be deductible, as it constituted part of an existing business - CIT vs. Hindustan Times [2012] 27 191 (Delhi)


Ss. 24, 48 Interest on loan for acquiring house property
Deduction under section 24(b) is claimed when assessee declares income from 'house property', whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. Accordingly it was held that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee was to include the interest amount at the time of computing capital gains under section 48. ACIT vs. C. Ramabrahmam [2012] 27 104 (Chennai - Trib.)

Ss. 28, 45 Carbon credits taxability
Carbon credit is not in the nature of profit or in the nature of income. Carbon credit is in the nature of "an entitlement" received to improve world atmosphere and environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. Carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect can be transferred to another party in need of reduction of carbon emission. It does not increase profit in any manner and does not need any expenses. It is a nature of entitlement to reduce carbon emission, however, there is no cost of acquisition or cost of production to get this entitlement. My Home Power Ltd. vs. DCIT [2012] 27 27 (Hyderabad - Trib.)

S. 37(1) – Unutilised CENVAT Credit
The write off of unutilised CENVAT credit in the books of account by the assessee is allowable as business expenditure in the year in which the manufacturing activities are closed down by the assessee - Mohan Spg. Mills 
vs. ACIT [2012] 27 332 (Chandigarh - Trib.)

S. 37(1) – Confirmation letters
Assessing Officer accepted the commission payments just on the basis of confirmation letters. Confirmation letters themselves cannot prove the genuineness of the payments and nature of services rendered - Sun Minerals vs. ACIT [2012] 27 337 (Hyderabad - Trib.)

S. 69B – Provisions of 50C are not applicable to buyers u/s 69B
Section 50C is a deeming provision where under the stamp duty rate is treated as full value of consideration for the purpose of computing capital gain under section 48. It is applicable in the case of a seller of property and therefore cannot be invoked in case of purchaser of property for the purpose of section 69B - DCIT vs. Vallabhbhai [2012] 27 306 (Ahmedabad - Trib.)

S. 54F – Year of taxability of the amount withdrawn from CGAS
When amounts deposited under Capital Gains Account Scheme (CGAS) were not utilised wholly or partly for the purchase or construction within the period specified, then such amount would be charged as income of the previous year in which the period of three years expires (starting from the date of the transfer of the asset). Section 54F does not say that the amount shall be taxed in the year of withdrawal, if such withdrawal are not utilized for the purpose of construction. Even if the amount deposited in a Capital Gain Account, is utilised for any other purpose, assessee will have to pay tax for such amount in the previous year after expiry of the three years time period - JCIT vs. B. Shivkumar [2012] 27 305 (Chennai - Trib.)

S. 32 Set of long term capital with brought forward losses
While of set off of business loss vis-à-vis is depreciation, the first preference shall be given to the business loss. The brought forward unabsorbed depreciation is treated as current years' depreciation because of the legal fiction, therefore the treatment given to the current year's depreciation is equally applicable to brought forward depreciation after the application of Finance Act, 2001. Current year's depreciation is to be allowed as set off from the Long Term Capital Gains and brought forward depreciation is to be treated as current year's depreciation as per the legal fiction of section 32(2), the same is also to be allowed to be set off from the Long Term Capital Gains - Suresh Industries (P.) Ltd. vs. ACIT [2012] 27 203 (Mumbai - Trib.).

S. 80-IB(10) Date of commencement of housing project
Initially in 1997 a lay out plan and not a building plan was approved. Subsequently the entire plan was revised and the constructed project was based on the project approved in 2002. Hence date of approval of plan is 2002 and not 1997. Assessee sold neighbouring flats to the same the assessee. However area of the combined flat was below stipulated size of 1500 sq.ft. Hence it was held that deduction cannot be denied. ITO vs. Ashray Premises (P.) Ltd [2012] 27 149 (Mumbai - Trib.)

S. 139- Date of filing of the return of income
The date of transmitting the return electronically shall be the date of furnishing of return if the Form ITR-V is furnished in the prescribed manner and within the period specified. Once assessee files ITR-V within specified or extended time, for all practical purpose, the date of filing of the return shall relate back to the date on which the return was electronically uploaded not with the date of receipt of Form ITR-V. E.K.K. & Co. vs. ACIT [2012] 27 111 (Cochin - Trib.)

S.143(3) – Assessment pursuant to AIR details
During the course of the assessment proceedings AO asked assessee to reconcile the AIR data provided by the Bombay Stock Exchange (BSE) of various transactions reflected in assessee's name. A copy of the data was given to assessee and assessee was asked to reconcile.


CA. Hinesh Doshi, CA. Vishal Gada, CA. Dolly Waghela 

• Assessee had, hired machinery from foreign company based in United Kingdom and paid hiring charges. The Assessing Officer was of the opinion that the United Kingdom company had business connected with the assessee and therefore felt that in view of Section 195 read with Section 40(a)(i), the assessee was under a responsibility to deduct tax from the hiring charges paid to the foreign company.
• The CIT (A) allowed the appeal. On appeal, Tribunal upheld the view taken by the CIT (A).The Tribunal held that there was no material on record to show that the foreign company had a PE in India and there was no material to show that the income of the payee was taxable in India in any manner and hence there was no obligation to deduct tax at source u/s 195. Accordingly, the Tribunal conformed the order of the CIT (A).
• Aggrieved, the Revenue appealed to the High Court.
• Whether when there is a concurrent finding of fact by the CIT (A) and the Tribunal that there is no PE of the foreign company in India nor did it have a business connection and such finding was not shown to have been arrived at in any unreasonable manner, any question of law arises for the consideration of the court.
• The HC held that, the finding of fact as to whether the foreign company did or did not have a permanent establishment in India and whether its relationship with the assessee was on the basis of a business connection or not, has been held against the revenue concurrently, and such findings of the fact, in the circumstances of the case have not been shown to be arrived at in an unreasonable manner having regard to the record. Consequently, no substantial question of law arises for consideration; the appeal, therefore, fails and is dismissed.

• Assessee is an Indian company. It had made payment to a Swiss based company regarding licence royalty. During assessment, the TPO concluded that no price adjustment was necessary. However, in the order passed it was stated that there was a strong nexus between brand building/ sales promotion and the benefits arriving to the overseas entity in terms of royalty. However, there was no international transaction as per the assessee under this head.
• It was evident that licence fee paid by the assessee cannot be completely attributed to have been expanded wholly and exclusively for the purpose of business. AO, in the regular assessment made, had disallowed 40% of the general licence as not incurred wholly and exclusively for the purpose of business and that the royalty was excessive in the circumstances of the case so as to attract proportionate disallowance of 40%.
• On appeal, the CIT (A) Directed the deletion of the disallowance in its entirety.
• On further appeal by Revenue, the same was dismissed by the Tribunal.
• Whether when the facts of the case are pari materia, the decision of the coordinate bench in the context of a different AY can be relied upon to arrive at a decision?
• Whether when the TPO has held that the TP adjustment was not required with respect to the brand promotion expenses incurred on behalf of the parent, the retrospective amendment done vide FA 2012 in the relevant section will have any consequence for the case?
• The HC had taken note of a similar approach – as noticed by the Tribunal and observed that as the facts and circumstances during the year under consideration are in pari-materia and a view has already been taken by the coordinate Bench in this matter, whose order is having binding precedent, respectfully following the same, this ground of Revenue’s appeal stands dismissed.
• HC is unpersuaded by the Revenue that the subsequent amendment by way of insertion of an Explanation by Finance Act, 2012 w. e. f. 1.4.2002, makes a difference. As observed earlier, the TPO after detailed analysis and examination of the material on record concluded that pricing adjustment was unnecessary; therefore, the application of this amendment, made later, to the facts of this case especially in a context in which they have arisen, is academic. This Court sees no reason to differ with the view taken by it in Nestle India Ltd. No substantial question of law arises; in these circumstances the appeal is dismissed.

DIRECTOR OF INCOME TAX vs. CARGIL TSF PTE LTD (2012-TII-61-HC-DEL-INTL) dated November 19, 2012
• The assessee is a tax resident of Singapore. It used to provide financial services, including subscription, buying, underwriting or otherwise acquire, own, hold, sell or exchange securities or investments of any kind. In assessment, the AO was of the opinion that the assessee had earned discounting charges by discounting bill of exchange in favor of the Indian companies which it had claimed as discounting charges and not part of its business income. The AO treated the bill discounting fees earned by the assessee as interest income on the loans extended by the assessee to its customers.
• In appeal, the CIT (Appeal) confirmed the order of the AO.
• In further appeal, the Tribunal analysed the nature of discounting services provided by the assessee to its customers and applied the ratio of its ruling in M/s. Cargil Global Trading India (P) Ltd. and set aside the order of the CIT (Appeal) and the AO.
• Aggrieved, the Revenue appealed to the High Court.
• Whether discounting charges earned by the assessee from Indian parties by discounting bills of exchange and promissory notes amount to interest as defined under Section 2(28A) of the Income-tax Act.
• The High Court held that discounting charges does not amount to interest and was not subject to tax. The Court deleted the disallowance under Section 40(a) (i) of the Income-tax Act.

• The dispute in the present case relates to the taxability of the off shore services and offshore supply made by the assessee during the assessment year.
• The Income Tax Appellate Tribunal following the decision of the Apex Court in the assessee's own case reported in (2007) 288 ITR 408 (SC) = (2007-TII-01-SC-INTL) has held that the amount receivable by the assessee in respect of offshore supply of equipments and offshore services cannot be taxed under Section 9(1) of the Act.
• According to the Revenue in view of the explanation, added to Section 9 by Finance Act, 2010 with retrospective effect from 1st June 1976, the assessee is liable to pay tax in respect of the offshore supply of equipments and offshore services.
• Whether in view of the insertion of Explanation to Sec. 9 by Finance Act, 2010, assessee is liable to pay tax on income with respect to offshore supply of equipments and offshore services.
• Whether when such income is covered under the provisions of Art 8 of the DTAA, it is not taxable in India notwithstanding the Explanation being added to Sec. 9 of the I-T Act.
• The High Court held that, in view of the insertion of Explanation to Sec. 9 by Finance Act, 2010, the income arising on account of offshore services and offshore supply of equipments would not be taxable.
• If the assessee is not liable to tax in view of the Article 8 o


CA. A. R. Krishnan, CA. Girish Raman

Business Auxiliary Services
(i) Referral fees received by the appellant, a dealer of motor vehicles, from various banks for recommending customers is liable for service tax under the category of “business auxiliary services”.
(ii) Where the appellant, a dealer in motor vehicles identified customers for an insurance company and also incurred cost of advertisement, sales campaign, souveniers, etc., which cost was reimbursed in part by the insurance company, it was held that the reimbursement was a consideration for marketing the services of the insurance company and hence liable for service tax under the category of “Business Auxiliary Services” [TVS Motor Co. Ltd. vs. CCE (2012) 28 STR 127 (Tri. – Chennai)].

Courier Services
The appellant through its network of branches provided money transfer services. If the remitter at one branch deposited cash to be given to an intended recipient outside the city, the branch would instruct its closest branch at the recipients end to dispense cash to the recipient from its corpus. In such a scenario there is no actual transportation of cash from the branch by another, and hence such services would not be liable for service tax under the category of “courier services” [C.C.C. vs. Patel Vishnubhai Kantilal & Co. (2012) 28 STR 113 (Guj.)].

Intellectual Property Right service
On facts, the Tribunal held that permitting a person to use the trademark of the assessee in perpetuity for a consideration is liable for service tax under the category of 'intellectual property right' services [Eicher Good Earth Ltd. vs. CST (2012) 28 STR 279 (Tri.-Del.)].

Storage and Warehousing service
The Apex Court in case of R.D. Saxena vs. Balram Prasad Sharma AIR 2000 SC 912 held that the 'case files' of banks retained by an advocate would not be considered as 'goods' as they are not 'saleable' and do not have any marketability. The Tribunal relying on the aforesaid judgment held that the service of storage of old records and files provided by the assessee to various banks and corporate houses would not be considered as storage and warehousing of 'goods' and hence not liable for service tax under the category of 'storage and warehousing service' [CST vs. P.N. Writer & Co. Ltd. (2012) 28 STR 264 (Tri.-Mumbai)].

Cenvat credit
• The appellant booked cargo space in airline and resold the space to its customers. It took cenvat credit of the tax charged by the airline for utilising against the tax paid on its output services on the basis of the following documents which were held to be inadmissible under Rule 9(1) of the Cenvat Credit Rules, 2004 -
(i) photocopies of the receipts of service tax issued by the airline;
(ii) certificate indicating receipt and deposit of service tax amount by the airline; and
(iii) the appellant's bank statement showing debit of payment made to the airline.
[Aanex Services vs. CCE 2012 (28) STR 139 (Tri. – Del.)]
• The cenvat credit in respect of construction service and other services availed for construction of a mall whose units are subsequently rented out is admissible as being used for providing output services, since without utilisation of the said input services the construction of mall and its renting would not have been possible [Navaratna S.G. Highway Prop. Pvt. Ltd. vs. CST (2012) 28 STR 166 (Tri.- Ahmd.) relying on CCE vs. Sai Samita Storages (P) Ltd. (2011) 23 STR 341 (A.P.) contra Venus Investments vs. CCE (2012) 28 STR 174 (Tri. – Ahmd.) (Single member bench decision)].
• Since the definition of 'output service' [Rule 2(p) of Cenvat Credit Rules, 2004] specifically excluded GTA services w.e.f. 1.3.08, the appellant was held to be liable to pay service tax towards GTA services by making payment in cash only and not by utilising the cenvat credit [Topland vs. CCE (2012) 28 STR 177 (Tri. –Ahmd.)].
• The Cenvat credit taken by the appellant's factory was allowed even though the invoices were raised in the name of registered office, in view of the fact that the appellant had only one factory and there was no allegation in the showcause notice that the said factory had not received the input services [Bloom Dekor Ltd. vs. CCE (2012) 28 STR 182 (Tri. – Ahmd.)].
• When the cenvat credit wrongly taken is reversed before its utilisation it amounts to not taking the credit at all and hence no duty would be payable. Consequently the question of demanding interest for delayed payment of duty would not arise [CCE vs. Gokaldas Images (P) Ltd. (2012) 28 STR 214 (Kar.)].
• Where the appellant debited the cenvat credit account for discharging duty liability though on wrong advice of the departmental officers suo motu re-credit of the same was held to be inadmissible in law and only a refund claim was held permissible. However, it was further held that the refund claim if any also would be time barred since more than 1 year had elapsed since debiting the Cenvat credit account [Vighnahar SSK Ltd. vs. CCE (2012) 28 STR 219 (Tri. – Mumbai)].

Import of Service – valuation
Where the price to be paid to the foreign service provider was stated in the contract to be 'net of income tax' the value of taxable service was held to include the income tax [T.V.S. Motor Co. Ltd. vs. CCE, Chennai – III (2012) 28 STR 150 (Tri. – Chennai)].

The appellant, a manufacturer and exporter of excisable goods, claim refund of service tax paid on input services viz., inland haulage charges, terminal handling charges, bill of lading charges, processing fee, terminal services etc., under notification no. 41/2007 dated 6.10.2007 on which the service provider had charged service tax under the category of 'port services'. The department denied refund on the ground that the said services are not classifiable under 'port services'. The Tribunal upheld the refund claim on the basis of the following:
(i) The person rendering the service to the appellant was registered for rendering 'port service' and bill was issued classifying the service as 'port service'. The classification of the service cannot be changed at the service recipient's end.
(ii) The opening para of the notification does not make any reference to 'classification' [column (2)] but only to the 'nature of the service' i.e., 'service provided for export of said goods'[column (3)] which seems to be a serious lacuna, the omission cannot be supplied by the Tribunal which only interprets a notification. Thus, the situation is to be judged with reference to the expressions actually used.
(iii) Subsequent amendment in the definition of 'port service' to cover any service rendered in the port area shows the intention of the government in this regard. Though it operates prospectively a beneficial notification must be construed liberally. [Max India Ltd. vs. CCE (2012) 28 STR 248 (Tri.-Del.)].

The Tribunal relying on judgment in case of Nizam Sugar Factory vs. CCE (2008) 9 STR 314 (SC) held that the extended period of limitation cannot be invoked where a showcause notice on the same ground and on the basis of same facts was issued for the previous period [Bhavana Motors vs. CCE (2012) 28 STR 268 (Tri.-Del.)].

Where the assessee in spite of having service tax registration did not pay the service tax due to financial difficulties but on being pointed out by the department paid the service tax alongwith interest before issuance of show cause notice and informed the department the Tribunal held that penalty u/s. 76 & 78.

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