Case BriefsHigh Courts

Calcutta High Court: Md. Nizamuddin, J. allowed a petition which was filed challenging the impugned assessment order under Section 147 read with Section 144B of the Income Tax Act, 1961 relating to assessment year 2013-2014 on the ground of violation of principle of natural justice by not providing the petitioner with an opportunity to file reply to the show-cause-notice.

The show cause notice asked the petitioner to give his reply/show-cause-notice to the proposed draft assesment through Department’s Register e-filing account by 23:17:59 hours IST of 30-03-2022, on the ground that before expiry of such time granted to file such reply/objection to the aforesaid showcause- notice/draft assessment. Respondent/Assessing Officer passed the impugned assessment order on 30-03-2022 at 15:17:08 IST and it is the specific case of the petitioner that the petitioner could not file reply or objection to the aforesaid show-cause-notice due to technical glitches in the portal of the Department.

The Court was of the view that the impugned assessment order which had been passed before the expiry of the time granted by the Assessing Officer to the petitioner to file reply to the aforesasid show- cause-notice relating to the draft assessment in question and further in view of the technical glitches in the portal of the Department by which petitioner could not file his aforesaid objection.

The Court found that the impugned assessment order is not sustainable in law and the same was set aside and the case was remanded back to the Assessing Officer concerned to pass a fresh assessment order in accordance with law after giving an opportunity to the petitioner to file reply to the aforesaid show-cause-notice which shall be filed by the petitioner within seven days from date and shall pass a reasoned and speaking order and by observing principle of natural justice.[Bhadrish Jayantilal Sheth v. Income Tax Officer, WPA 8232 of 2022, decided on 17-05-2022]


Mr Avra Majumder, Sk. Md. Bilwal Hossain : For the Petitioner.

Mr Om Narayan Rai :  For the Respondents


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT): The Coram of Shamim Yahya, Accountant Member and Narender Kumar Choudhary, Judicial Member, observed that under the Income Tax Act penalty can’t be invoked without relevant documents which substantiate business activities.

Factual Background

M/s GSA Gestions Sportives Automobiles provides the rights to services of qualified motor racing drivers to teams participating in the Federation One 211 Championship. For AY-2012-13, the AO referred to various letters/notes issued to the assessee which remained unresponded.

The AO noted that the assessee is in receipt relating to Indian Grand Prix which was received in connection with business liable to tax @ 40%. Further, he opined that the facts and material indicate to the existence of Permanent Establishment of assessee in terms of Article 5 of India-Switzerland Double Taxation Avoidance Agreement.

Analysis and Decision

Coram had put up a question to counsel for the assessee as to whether the racing car driver in the case before the Tribunal is a driver simplicitor or is he a technical expert. The Counsel could not give a cogent reply, nor he could rebut the proposition that the racing car driver was not a technical expert person.

Moreover, the reference by DRP to OECD commentary in the context of the model tax treaty that the formula one driver was athlete was also germane and had to be considered.

Coming to the AO order passed pursuant to the DRP order, Tribunal noted that there are two limbs. In the first limb, the DRP had accepted that the assessee had no PE existence and the DRP had accepted that the racing car driver came and performed for only three days in India.

Further, a query was raised as to the actual duration of the drivers’ stay in India, the time taken for preparation, finalization and conclusion and the certificate of the said drivers’ arrival in India and departure in relation to the event. But the counsel for assessee was not able to provide any such detail.

Tribunal found that the aforesaid was a crucial aspect and had not been examined by the Revenue authorities below, hence the Coram deemed it proper to remit the file to the AO to examine the issue.

Further, the Tribunal while allowing the appeal granted an opportunity to give the submissions before the AO.

The above-said order applies mutatis mutandis to AY-2013-14. [GSA Gestions Sportives Automobiles SA v. DCIT, ITA No. 1950/Del/2016, decided on 13-5-2022]


ASSESSEE BY: Shri Jay Savla, Sr. Advocate

REVENUE BY: Ms. Meenakshi Singh, CIT DR

Case BriefsSupreme Court

Supreme Court: The Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., reversed the impugned order of the Rajasthan High Court whereby the High Court had directed  Income Tax Department to grant grace marks to the applicant and treat him as a person belonging to general category.

Restoring the findings of the Central Administrative Tribunal, the Court held that the CBDT had introduced a grace marks policy to enable marginally failing candidates to pass the examination and the purpose of benefit was not to allow the reserved category candidate to switch over to the general category. The Court held,

“…once the respondent – original applicant passed in his own category, there was no question of allowing/granting him any further grace marks.”

Background 

The original applicant, who belonged to the Scheduled Tribes (ST) category, was working as a lower Division Clerk in the Department of Income Tax. Later on, he was promoted to the posts of Tax Assistant, Sr. Tax Assistant and Office Superintendent.

With a view to regulate the departmental examination for Income Tax Inspectors, the competent authority introduced modified rules for Departmental Examination for Income Tax Inspectors – 1998. As per the modifications, a candidate securing a minimum of 45% marks in five subjects except in Hindi was entitled to be declared as pass. For the members of SCs and STs, the minimum qualifying mark was 40%. Further, for the benefit of those candidates who marginally failed to secure minimum marks, irrespective of their category, on falling short of passing up to five marks, the Central Board of Direct Taxes (CBDT) introduced the ​​​​​policy of awarding grace marks.

It was the case of the original applicant that he had secured more than 45% marks in each subject except the subject of “Other Taxes”. Hence, he was entitled to grace marks in the subject of “Other Taxes”, but the same was not given to him as he was treated qualified in the category of Scheduled Tribes. The applicant contended that since he had got 43 marks in “Other Taxes” had he been given two grace marks, he would have been declared eligible for promotion against general vacancies.

Findings of the Tribunal and the High Court 

The Tribunal, by a reasoned and detailed judgment and order, dismissed the application preferred by the applicant by observing that the CBDT circular providing grace marks cannot be interpreted to mean that a person, who has passed in his own category can be given further grace marks to enable him to move in the general category on his own merit.

However, the said order was reversed by the High Court of Judicature for Rajasthan at Jodhpur. The High Court had directed the Income Tax Department to extend the grace marks to the applicant in the subject of “Other Taxes” by treating him as a person belonging to general category.

Analysis and Conclusion  

Observing that the CBDT had introduced the grace marks policy with the purpose of enabling the marginally failing candidates to pass in the examination, the Court opined that once the respondent – original applicant passed in his own category, there was no question of allowing/granting him any further grace marks.

The Court explained that only in a case where any candidate belonging to any category is marginally failing to pass the examination, he is/was to be allowed the grace marks so as to allow him to obtain the minimum passing marks required and that too by allowing up to five grace marks.

Therefore, the Court opined that the Tribunal had rightly not accepted the arguments of the applicant. Further, the Court held that the High Court, while passing the impugned judgment and order,​​​​​ had not at all appreciated and/or considered in its true spirit the object and purpose of grace marks policy introduced by CBDT.

Consequently, the impugned judgment and order were quashed and set aside. The judgment and order passed by the Tribunal dismissing the O.A. was restored.

[Union of India v. Mukesh Kumar Meena, 2022 SCC OnLine SC 525, decided on 28-04-2022]


*Judgment by: Justice M.R. Shah


Appearance by: 

For Union of India: Advocate Nachiketa Joshi

For the Applicant: Advocate Sumant Bhardwaj


Kamini Sharma, Editorial Assistant has put this report together 

Case BriefsHigh Courts

Orissa High Court: A Division Bench of S. Muralidhar CJ and R. K. Pattanaik J. dismissed the appeal filed by the assessee and upheld AO’s decision to disallow part of the payment towards commission.

The background facts are that the Appellant during the AY in question was engaged in the business of manufacturing and sale of P.P. woven sacks meant for packing of fertilizer and cement etc. It filed its return of income and while examining the claims, the AO raised a query regarding payment of commission and asked the Appellant to justify it. It was claimed that the commission was entirely paid through banking channels after deducting Tax at Source (TDS). Each of the commission agents had disclosed the said commission amount in their respective returns and paid tax thereon. In the assessment order dated 8-03-2013, the AO partly allowed the commission expenses to the tune of Rs.23,41,245/- and disallowed Rs.30,08,545/- which was then added to the returned income of the Appellant. The Appellant filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was dismissed as the persons to whom the commission was paid were Directors of the appellant or the relatives of such Directors. Thereafter, the Appellant went before ITAT. The Appellant failed to bring on record their expertise to render services and also what services had in fact been rendered to enhance the business of the Appellant. Merely because TDS had been deducted, would not justify allowing the entire amount as claimed towards commission. Accordingly, the appeal was dismissed, and the instant appeal was filed.

Counsel for the appellants Mr. RP Kar submitted that the commission paid could not be termed as excessive or unreasonable and had been duly accounted for. He insisted that with the TDS having been deducted at the time of paying such commission, and with the recipients of commission having disclosed it in their respective tax returns and having paid tax thereon, again subjecting such payment at the hands of the Appellant would amount to double taxation, which is impermissible in law.

Counsel for respondents Mr. RS Chimanka and A Kedia submitted that the concurrent orders of the AO, the CIT (A) and the ITAT and submits that they call for no interference.

The Court observed that in the given case claiming that each of the seven persons to whom commission was paid actually had the expertise to help the Appellant procuring the IOF from different sources appears to be stretching things a bit too far, and hence the AO appears to be justified in disallowing the commission insofar as it was paid to the said seven persons.

The Court relied on J.K. Woollen Manufacturing v. Commissioner of Income Tax (1969) 72 ITR 612 (SC) and observed that there was the test of commercial expediency. In other words, whether the payment made to the General Manager of the company as commission was an expenditure wholly and exclusively for the purpose of the business? It was concluded that the reasonableness of the expenditure had to be adjudged from the point of view of the businessman and not the Income Tax Department. In the circumstances, the entire amount paid to the General Manager as commission was allowed as expenditure.

The Court observed that all the persons to whom commission was paid were either Directors of the Company or their relatives. None of them is shown to have any expertise in procuring IOF from the Indian markets for enabling the Appellant to meet the purchase order placed on it for IOF. The amounts paid as commission were also not insubstantial. Even from the point of view of a businessman, it does appear to this Court that the commission amount which was disallowed by the AO cannot be said to be for the purpose of business of the Appellant.

The Court held “Thus, it cannot be said that the AO’s decision to disallow part of the payment towards commission was unreasonably arrived at.” [Oripol Industries Ltd. v. Joint Commissioner of IT, ITA No.41 of 2017, decided on 12-05-2022]


Arunima Bose, Editorial Assistant ahs reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Delhi (ITAT): Addressing the issue, of whether mere rejection of the claim by an Assessing Officer would ipso facto make assessee liable for the penalty, the Bench of G.S. Pannu (President) and Kul Bharat (Judicial Member) held that it won’t make the assessee liable to a penalty.

Factual Matrix


An assessee had filed its return of income and the assessment under Section 143(3) of the Income Tax Act, 1961 was framed. Thereby, the income was assessed at Rs 2,13,61,910 after making additions in respect of the wrong claim of deduction under Section 24(a) of the Income Tax Act; disallowance of excess depreciation on vehicles and disallowance of interest under Section 36(1)(iii) of the Act.

A further appeal was carried out wherein the disallowance of interest under Section 36(1)(iii) of the Act was deleted.

Subsequently, the Assessing Officer issued a notice under Section 271(1)(c) of the Act to show cause why the penalty should not be levied, for which the assessee stated that deduction under Section 24(a) of the Act was claimed by the assessee through a bonafide and inadvertent error.

AO did not accept the contention of assesse that he had disclosed and furnished correct particulars of his income, hence penalty was levied.

Aggrieved with the above, the assessee preferred an appeal before the CIT (A) who sustained the penalty, therefore the assessee has appealed before this Tribunal.

Analysis and Decision


“There is no straight jacket formula to say that particular act was a bonafide error or another a deliberate act.” 

The Bench noted that the assessee in the present matter had successfully demonstrated that the claim of deduction under Section 24(a) of the Income Tax Act, was made as the rent was offered for tax under the income from house property.

Hence, in view of the Supreme Court decision in Price Waterhouse Coopers (P) Ltd. v. CIT, (2012) 11 SCC 316 the penalty imposed by the AO on the stated issue could not be sustained, therefore, AO was directed to delete the penalty.

Tribunal found merit in the contention of the assessee that,

“…merely because of a claim is rejected by the Assessing Officer, would not ipso facto make the assessee liable for penalty.”

In the Supreme Court’s decision of CIT v. Reliance Petroproducts (P) Ltd., [2010] 322 ITR 588, the levy of penalty was not justified.

Therefore, the Tribunal directed the Assessing Officer to delete the penalty.

Further, it was added that since the notice did not specify the specific charge, hence in light of the Supreme Court decision in PCIT v. Sahara India Life Insurance Company Ltd., ITA No.475/2019, the initiation of penalty proceedings was not in accordance with law.

In view of the above, the appeal of the assessee was allowed. [Agarwal Packers & Movers Ltd., ITA No. 6565/Del/2018, decided on 29-4-2022]


Advocates before the Tribunal:

For the appellant: Ruchesh Sinha, Advocate

For the respondent: Kirti Sankratyayan, Sr. Dr

Legal RoundUpWeekly Rewind


TOP STORY OF THE WEEK


Anganwadi Workers/Helpers entitled to payment of gratuity; ‘Time to take serious note of their plight’ 

In a relief to the Anganwadi workers and helpers working tirelessly at the grassroot level, the Supreme Court has held that the Anganwadi Workers and Helpers are employed by the State Government for wages in the establishments to which the Gratuity Act applies, hence, they are entitled to payment of Gratuity.  

The Court also observed that the Anganwadi Workers/Helpers have been entrusted with the important tasks of providing food security to children in the age group of 6 months to 6 years, pregnant women as well as lactating mothers, apart from rendering pre-school education. And for all this, they are being paid very meagre remuneration and paltry benefits. 

Therefore, it is high time that the Central Government and State Governments take serious note of the plight of Anganwadi Workers/Helpers who are expected to render such important services to the society. 

Read more… 


SUPREME COURT


Producing false/fake certificate is a grave misconduct; Dismissal of service justified in such cases 

In a case where an employee had produced a fake certificate for seeking employment, the Supreme Court has held that producing the false/fake certificate is a grave misconduct and dismissal of service is a justified punishment in such cases. 

In the case at hand, while the disciplinary authority had imposed a punishment of dismissal from service on the delinquent, the Bombay High Court had directed reinstatement of the respondent without any back wages and other benefits.  

The Supreme Court, however, agreed with the disciplinary authority’s decision and observed:  

“The question is one of a TRUST. How can an employee who has produced a fake and forged marksheet/certificate, that too, at the initial stage of appointment be trusted by the employer? Whether such a certificate was material or not and/or had any bearing on the employment or not is immaterial. The question is not of having an intention or mens rea. The question is producing the fake/forged certificate.” 

Read more… 


‘Can’t allow mass absorption of over 11,000 workers based on a flawed Report’. SC forms new Committee to put an end to the long drawn LIC versus temporary employees’ battle  

In a long drawn battle between Life Insurance Corporation of India (LIC) and its temporary/badli/part-time employees over claim for absorption, a 3-judge bench of Supreme Court has appointed a two-member committee to carry out fresh verification of the claims of workers who were working between 20 May 1985 and 4 March 1991 and who claim to have been employed for at least 70 days in Class IV posts over a period of three years or 85 days in Class III posts over a period of two years shall be carried out. 

Finding the report of the previous committee faulty, the Supreme Court observed, 

“A public employer such as LIC cannot be directed to carry out a mass absorption of over 11,000 workers on such flawed premises without following a recruitment process which is consistent with the principles of equality of opportunity governed by Articles 14 and 16 of the Constitution. Such an absorption would provide the very back-door entry, which negates the principle of equal opportunity and fairness in public employment.” 

Read all about the newly formed committee and its tasks and timelines on the SCC Online Blog.  

Read more… 


High Courts


Madras High Court| Ban the practice of two-finger test on victims of sexual offences by medical professionals

Stating that two-finger test cannot be permitted to be continued, the Division Bench of Madras High Court directed the State Government to ban the practice of two-finger test on victims of sexual offences by the medical professionals. 

Court observed that, 

“…it is necessary for us to put an end to the practice of the two-finger test. We find that the two-finger test is being used in cases involving sexual offences particularly, on minor victims.” 

Read more… 


Bombay High Court| Advocate to maintain dignity & decorum of Court, no room for arrogance and no license to intimidate Court

In a matter wherein an Advocate alleged that the Court was giving priority to certain matters and to certain advocates, the Court observed that an advocate as an Officer of the Court is under an obligation to maintain the dignity and decorum of the Court. There is no room for arrogance and there is no license to intimidate the Court, make reckless accusations and allegations against a Judge and pollute the very fountain of justice. 

Bench also expressed that, “It has to be borne in mind that casting scurrilous aspersions not only has the inevitable effect of undermining the confidence of the public in the judiciary but also has the tendency to interfere with the administration of justice.” 

Read more… 


Bombay High Court| Declaration of reciting religious verses at someone’s residence: Act of breaching personal liberty of another person?

Stating that, “Great power comes with greater responsibility”, the Division Bench of Bombay HC expressed that, the expectation of responsible behaviour or responsible conduct from those persons who are active in public life cannot be an extra expectation but would be a basic one. 

High Court stated that the declaration of the petitioners that they would recite religious verses either in the personal residence of another person or even at a public place is firstly,  encroachment upon another person’s personal liberty and secondly, if a declaration is made with particular religious verses would be recited on the public street, the State government is justified in carrying an apprehension that such act would result in disturbance of law and Order. 

Read more… 


Delhi High Court| Whether absence of rule of law or utter disregard for the same propels a country towards inevitable ruin? 

Expressing that, attempts to circumvent or undermine judicial decisions need to be viewed seriously in order to ensure that the functioning of our country is unhindered, especially during turbulent times, Delhi High Court held that, 

“It is only the rule of law which not only cements the civilised functioning of a country, but also drives a country towards progress and development.” 

With regard to contempt, the Court observed that, 

“The underlying purpose of the law of contempt is meant to serve public interest and build confidence in the judicial process. This flows from how the functioning of a democratic society is sustained by the rule of law and wilful violation of the same would enable anarchy.” 

Read more… 


Legislation Updates 


IFSCA issues framework for FinTech entity in IFSCs 

The International Financial Services Centres Authority (IFSCA) has issued a detailed “Framework for FinTech Entity in the IFSCs” in order to develop and regulate financial products, financial services and financial institutions in the International Financial Services Centres (IFSC) and to encourage promotion of financial technologies (‘FinTech’) across the spectrum of banking, insurance, securities, and fund management in IFS. 

Read more… 


SEBI (Custodian) (Amendment) Regulations, 2022 

The Securities and Exchange Board of India has issued the Securities and Exchange Board of India (Custodian) (Amendment) Regulations, 2022 to amend Securities and Exchange Board of India (Custodian) Regulations, 1996. 

The amendment modifies Regulation 8 dealing with Procedure and grant of certificate and inserts clause (7) to provide that a custodian holding a certificate of registration as on the date of commencement of the Securities and Exchange Board of India (Custodian) (Amendment) Regulations, 2022, may provide custodial services in respect of silver or silver related instruments held by a mutual fund only after taking prior approval of the Board. 

Read more…  


Income-tax (Ninth Amendment) Rules, 2022 

On April 21, 2022, the Central Board of Direct Taxes (CBDT) has issued the Income-tax (Ninth Amendment) Rules, 2022 to amend Income-tax Rules, 1962 and introduces Conditions for furnishing return of income by persons referred in section 139 (1) of the Act.  

Read more … 


 

 

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and BV Nagarathna, JJ has modified the order passed by the Allahabad High Court wherein it had quashed several reassessment notices issued by the Revenue, issued under section 148 of the Income Tax Act, 1961, on the ground that the same are bad in law in view of the amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing  new provisions i.e. sections 147to151 w.e.f. 1st April, 2021.

Observing that some leeway must be shown to the Revenue as ultimately it is the public exchequer which would suffer, the Court has held that instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the notices should be contrued as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue be permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all   the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.

Legislative and Factual History

The Parliament introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings by way of the Finance  Act, 2021, which was passed on 28th  March, 2021.

Under the substituted provisions of the IT Act vide Finance Act, 2021, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act. Along with the notice under 22 section 148 of the IT Act, the assessing officer (AO) is required to serve the order passed under section 148A of the IT Act. section 148A of the IT Act is a new provision which is in the nature of a condition precedent. Introduction of section 148A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation.

But prior to pre-Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the ruling in GKN Driveshafts (India) Ltd. v. Income Tax Officer, (2003) 1 SCC 72.

Despite the substituted sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 coming into force 19 on 1st April, 2021, the Revenue issued approximately 90,000 reassessment notices to the respective assessees under the erstwhile sections 148 to 151 thereof by relying on explanations in the Notifications dated 31st March, 2021 and 27th April, 2021.

Approximately 90,000 such reassessment notices under section 148 of the unamended Income Tax Act were issued by the Revenue after 01.04.2021, which were the subject matter of more than 9000 writ petitions before various High Courts across the country and by different judgments and orders, , the High Courts have taken a similar view as that of the Allahabad High Court and have set aside the respective reassessment notices issued under section 148 on similar grounds.

Supreme Court’s Ruling

While the Revenue was contemplating to prefer appeals against the similar judgments and orders passed by various High Courts, the Court passed PAN INDIA order and observed that the Revenue need not file separate individual appeals which may be more than 9000 in numbers.

The Supreme Court observed that the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021.

However, at the same time, it was conscious of the fact that the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act.

Observing that the Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated, the Court noticed,

“It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 01.04.2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bonafide belief   that the amendments may not yet have been enforced.”

Therefore, in order to strike a balance between the rights of the Revenue as well as the respective assesses as because of a bonafide belief of the officers of the Revenue in issuing approximately 90000 such notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer, the Court modified the order of the High Court to the following extent:

(i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b). The assessing officer shall, within thirty days the date of order provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show-cause notices within two weeks thereafter;

(ii) The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a one-time measure vis-à-vis those notices which have been issued under section 148 of  the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required;

(iii) The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted);

(iv) All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.

The Court clarified that the present order shall be applicable PAN INDIA and all judgments and orders passed by different High Courts on the issue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent.

The present order will also govern the pending writ petitions, pending before various High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 are under challenge.

[Union of India v. Ashish Agarwal, 2022 SCC OnLine SC 543, decided on 04.05.2022]


*Judgment by: Justice MR Shah

For Revenue: ASG N. Venkataraman

For Assessees: Senior Advocates C.A. Sundaram and S. Ganesh

Legal RoundUpSupreme Court Roundups


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Producing false/fake certificate is a grave misconduct; Dismissal of service justified in such cases

“The question is one of a TRUST. How can an employee who has produced a fake and forged marksheet/certificate, that too, at the initial stage of appointment be trusted by the employer? Whether such a certificate was material or not and/or had any bearing on the employment or not is immaterial. The question is not of having an intention or mens rea. The question is producing the fake/forged certificate.”

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Supreme Court upholds the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010

“Aspirations of any country cannot be fulfilled on the hope of foreign donation”

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Anganwadi Workers/Helpers entitled to payment of gratuity; ‘Time to take serious note of their plight’

The Anganwadi Workers/Helpers have been entrusted with the important tasks of providing food security to children in the age group of 6 months to 6 years, pregnant women as well as lactating mothers, apart from rendering pre¬school education. And for all this, they are being paid very meagre remuneration and paltry benefits.

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‘Can’t allow mass absorption of over 11,000 workers based on a flawed Report’. SC forms new Committee to put an end to the long drawn LIC versus temporary employees battle

“The dispute is now of an antiquity tracing back to nearly four decades. Finality has to be wrung down on the dispute to avoid uncertainty and more litigation. Nearly thirty-one years have elapsed since 1991. We have come to the conclusion that the claims of those workers who are duly found upon verification to meet the threshold conditions of eligibility should be resolved by the award of monetary compensation in lieu of absorption, and in full and final settlement of all claims and demands.”

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Supreme Court stays Delhi’s Jahangirpuri demolition drive

The demolition drive has been launched by Delhi municipal authorities in Jahangirpuri area, which witnessed communal violence recently.

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Lakhimpuri Kheri Violence| ‘Allahabad High Court granted bail in a tearing hurry’; Supreme Court cancels Ashish Mishra’s bail

“Victims cannot be expected to be sitting on the fence and watching the proceedings from afar.”

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Also Read: From investigation till culmination of appeal/revision, victim has right to be heard at every step post the occurrence of an offence


Explainers



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Solitary Confinement of Death Row Convicts: Judicial officer to probe to apprise Supreme Court of ground reality

A appeal was filed before the Court alleging that the appellant had been placed in solitary confinement since 29-10-2006 contrary to the law laid down by the Supreme Court in Sunil Batra v. Delhi Administration(1978) 4 SCC 494. The appellant had relied on the letter addressed by the Medical officer to the Superintendent of Prisons dated 06-11-2011 claiming that ‘the aforesaid prisoner is kept in solitary confinement since his admission to this prison on 29-10-2006’ and further that the petitioner was suffering from ‘psychosis with depression’.

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Mere differential treatment cannot on its own be termed as an “anathema to Article 14 of the Constitution”

The bench of Sanjay Kishan Kaul and MM Sundresh*, JJ has held that when there is a reasonable basis for a classification adopted by taking note of the exigencies and diverse situations, the Court is not expected to insist on absolute equality by taking a rigid and pedantic view as against a pragmatic one.

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Interference with Government Tenders makes the State and its citizens suffer twice. Courts should refrain from staying Government tenders even in case of total arbitrariness

“The Writ Court should refrain itself from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer. The Court does not have the expertise to examine the terms and conditions of the present day economic activities of the State and this limitation should be kept in view.”

Read more…

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“State cannot hide behind delay & laches to evade it’s responsibility after acquiring land. There cannot be a ‘limitation’ to doing justice”, holds SC; Land Owners get compensated after decades

“While the right to property is no longer a fundamental right, it is pertinent to note that at the time of dispossession of the subject land, this right was still included in Part III of the Constitution. The right against deprivation of property unless in accordance with procedure established by law, continues to be a constitutional right under Article 300-A.”

Read more…

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Amalgamation does not necessarily nullify tax assessment as only the outer shell of the amalgamating company gets destroyed but the business and the adventure lives on

It is essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings.

Read more…

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SC sets aside Bombay HC’s direction to acquire a land almost 20 years after finalisation of development plan

“Land owner cannot be deprived of the use of the land for years together”

Read more…

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Is there a policy rewarding public prosecutors for securing death sentence? Supreme Court asks M.P. government in a Suo Motu case

Noticeably, a petition was filed before the Court alleging that the State is granting incentives to public prosecutors on the basis of death sentence awarded in matters prosecuted by them. Assessing the gravity of allegation the Court on 29-03-2022 had issued direction to the Registry to register a Suo Motu case and change the cause title immediately.

Read more…

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Insertion of meritorious OBC candidates into general category list without disturbing the appointment of general category candidates? Supreme Court strikes balance

The Court was deciding a case where a service matter where upon reshuffling and on insertion of two OBC candidates into general category select list, two general category candidates already appointed and working since long would have been expelled or removed, thereby unsettling the entire selection process.

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Lapse of a long period in deciding appeal cannot be a ground to award disproportionate and inadequate punishment

“Merely on the technical ground of delay and merely on the ground that after the impugned judgment and order, which is unsustainable, the accused have resettled in their lives and their conduct has since been satisfactory and they have not indulged in any criminal activity, is no ground not to condone the delay and not to consider the appeal on merits.”

Read more…

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Caste can be the starting point for providing internal reservation but not the sole basis

In a case relating to reservation of seats in Educational Institutions, the bench of L. Nageswara Rao* and BR Gavai, JJ has observed that while caste can be the starting point for providing internal reservation, it is incumbent on the State Government to justify the reasonableness of the decision and demonstrate that caste is not the sole basis.

Read more…

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Can an establishment employing about 8000 workers be shut down for not obtaining Environmental Clearance, even when it acts in compliance with required pollution norms?

“An establishment contributing to the economy of the country and providing livelihood ought not to be closed down only on the ground of the technical irregularity of not obtaining prior Environmental Clearance irrespective of whether or not the unit actually causes pollution.”

 Read more…

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Acquitted in the criminal case but employer still going ahead with the disciplinary proceeding? Read the law laid down by Supreme Court

“The purpose of a disciplinary proceeding by an employer is to enquire into an allegation of misconduct by an employee which results in a violation of the service rules governing the relationship of employment.”

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Reduction in stamp duty cannot lead to revenue splitting an instrument into two once it has already been charged under a correct charging provision

After having accepted the deed of assignment as an instrument chargeable to duty as a conveyance under Article 20(a) and after having collected the duty payable on the same, it is not open to the respondent to subject the same instrument to duty once again under Article 45(f), merely because the appellant had the benefit of the notifications under Section 9(a).

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SC allows Tamil Nadu to grant 50% reservation for in-service doctors in Super Specialty Medical Courses

The Court, hence, held that no case was made out for continuing the interim protection which was granted for the academic year 2020-2021 vide interim order dated  27th November, 2020.

Read more…

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Medical College| Does permission to start post graduate courses for subsequent academic year result in effacing deficiencies found in previous academic year? Supreme Court answers

If an institution is seeking grant of permission for undertaking admissions for the academic session 2022-23, it must fulfill the requirements of minimum standard as on 31st December 2021.

Read more…

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2006 Meerut Fire Tragedy| Organizers held guilty! 60:40 liability to compensate victims fixed on Organizers & State

The court was dealing with the writ petition preferred by the victims of the fire tragedy which occurred on 10.4.2006, the last day of the India Brand Consumer Show organized at Victoria Park, Meerut, Uttar Pradesh by Mrinal Events and Expositions. The incident claimed the lives of 65 persons and left 161 or more with burn injuries.

Read more…

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Husband suspects paternity of child; Supreme Court allows DNA test while granting conditional compensation of 30 lakhs to wife if suspicion proves to be wrong

In a case where the husband had disputed paternity of child on suspicion, though the Division Bench comprising of Indira Banerjee and A.S. Bopanna, JJ., directed to conduct DNA test, the Bench granted a conditional compensation of thirty lakhs to the wife if the suspicion proves to be wrong and respondent-husband turns out to be the father of the child.

Read more…

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Medical Admissions| SC directs allotment of in-service PG seat to Lady Doctor with experience in Madhya Pradesh’s Naxal/Tribal regions

The appellant, a mother of a 5-year-old, has been working as a Medical Officer with the State of Madhya Pradesh on a regular basis for over 11 years. Out of the 11 years of service, she has served for 6 years in District Betul which is a notified tribal district and has served in a Community Health Centre at Katangi in the District of Balaghat for the remaining period.

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Even a single crime committed by a ‘Gang’ is sufficient to prosecute an accused under the Gangsters Act

“The definition clause does not engulf plurality of offence before the Gangsters Act is invoked.”

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Delinquent postal officer voluntarily deposits defrauded amount with interest after detection of fraud. Was he able to escape punishment of removal from service?

“Being a public servant in the post office, the delinquent officer was holding the post of trust. Merely because subsequently the employee had deposited the defrauded amount and therefore there was no loss caused to the department cannot be a ground to take a lenient view and/or to show undue sympathy in favour of such an employee.”

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Appointment of Teachers| Can obtaining a degree in one branch of a subject be considered equivalent to obtaining degree in the subject as a whole?

“As per the settled proposition of law, in the field of education, the Court of Law cannot act as an expert normally, therefore, whether or not a student/candidate is possessing the requisite qualification should better be left to the educational institutions, more particularly, when the Expert Committee considers the matter.”

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It’s time for the University to put an end to ‘Yuddh Kand’ and allow appellant to move from ‘Karm Kand’ to ‘Karm Phal Kand’

“The entire controversy appears to have arisen as a result of the tug of war in the year 2006 between the then Chancellor and the then Vice Chancellor, making the appellant a victim in the line of fire. Unfortunately, the High Court omitted to take note of all this.”

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No right to keep goods and wares at hawking place overnight; Supreme Court dismisses plea of hawker of Sarojini Nagar market

The petitioner was a hawker in the Sarojini Nagar Market, who had approached the Delhi High Court seeking permission to leave his goods and wares at the place of hawking overnight.

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Forum Shopping and Power of High Court u/s 482 CrPC; Supreme Court tells when to convert a civil complaint into criminal case

“Forum shopping has been termed as disreputable practice by the courts and has no sanction and paramountcy in law.”

 Read more…

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Person being the highest bidder deposits sale amount for auction property and obtains injunction against Municipality; SC declares the sale non-est for lacking government sanction

The Court opined that no concluded contract ever came into force and in the absence of any approval granted, no right would accrue.

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2G Spectrum Scam| Supreme Court rejects ex-licensee’s refund demand of Rs 1454.94 crores Entry Fee, holding him faulty as a confederate of fraud

“…as a beneficiary and confederate of fraud, the appellant could not be lent the assistance of this Court for obtaining the refund of the Entry Fee.”

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Candidates can’t claim appointment to unfilled posts in absence of provision for waiting list

“In absence of any specific provision for waiting list and on the contrary, there being a specific provision that there shall not be any waiting list and that the post remaining unfilled on any ground shall have to be carried forward for the next recruitment.”

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Income Tax| If such orders continued to be passed, we will impose substantial costs on Assessing Officer which will be recovered from his/her salary: Read why SC stayed Bombay HC’s order

The Division Bench comprising of M.R. Shah and B.V. Nagarathna, JJ., stayed the impugned order of Bombay High Court wherein the High Court had quashed the assessment order under Income Tax Act, 1961 and had further cautioned that if such orders continued to be passed, the Court will be constrained to impose substantial costs on the concerned Assessing Officer to be recovered from his/her salary.

Read more…


Cases Reported in SCC


2022 SCC Vol. 2 Part 4

In 2022 SCC Volume 2 Part 4, read a very interesting decision, wherein a death row convict subjected a 5-year-old girl to rape, killed her by strangulation, and then disposed of her body, tied in a gunny bag, into a stream and the 3-Judge Bench of the Supreme Court finding hope for reformation and rehabilitation commuted his death sentence to life imprisonment.

2022 SCC Vol. 3 Part 1

In a pertinent decision, Supreme Court while rejecting claim for interest the compared it to the Shakespearean character Shylock and remarked,

“…the holder of the Bond has received their ‘pound of flesh’, but they seem to want more. Additional sum in our estimation is not merited as SIBCO has already received their just entitlement and burdening the defendant with any further amount towards interest would be akin to Shylockian extraction of blood from the defendant.”

2022 SCC Vol. 3 Part 2

In 2022 SCC Volume 3 Part 2, read a very interesting case wherein a case where a Constable’s name was recommended by the Superintendent of Police but the same was dropped down by the Inspector General of Police for promotion under the 10% quota of outstanding performance for inclusion in the B-I List for promotion to the post of Head Constable in the year 2004, Supreme Court held that mere recommendation of the SP at the initial stage is not sufficient to claim a right for promotion.


 

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Kolkata: The Bench of Sonjoy Sarma (Judicial member) and Rajesh Kumar (Accountant Member) held that the expenditure incurred by the assessee as such on replacement of wooden body of trucks has to be allowed fully against the income of the assessee in the current year.

The present appeal was preferred by the assessee against the order of the Commissioner of Income Tax for the assessment year 2013-14.

Bench noted that there was delay of 32 days in filing the present appeal and after going through the application for condonation of delay and after hearing both the sides, Tribunal opined that the cause for delay was reasonable, so Bench condoned the delay and proceeded to hear the appeal.

Issue

The only issue in the present matter was against the order of CIT(A) confirming the order of AO wherein the expenses of Rs 47,40,701 were treated as capital expenditure as against the assessee’s contention that the same were of revenue nature as being incurred on repairs and maintenance of the trucks etc.

Analysis and Decision

Tribunal noted that the assessee was an operator of trucks and lorries on hire. During the year, the assessee had incurred expenditure on replacements of old truck bodies which was treated as revenue expenditure however wrongly shown under the head depreciation by claiming 100% of the said expenditure as allowable during the year instead of charging the expenditure directly to the profit and loss account as the revenue item.

Bench held that the expenditure incurred by the assessee as such on replacement of wooden body of trucks has to be allowed fully against the income of the assessee in the current year.

Consequently, Tribunal set aside the order of CIT (A) and directed the AO to treat the expenditure as revenue in nature.

Hence, the appeal of the assessee was allowed. [Ashim Krishna Bhatta v. ACIT, ITA No. 40/Kol/2020, decided on 21-4-2022]


Advocates before the Tribunal:

For the Appellant: P Jhunjhunwala, A.R

For the Respondent: Manash Mondal, Addl. CIT

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Chandigarh (ITAT): The Coram of Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member) examined the issue as to the taxability of the amount of gift received by the assessee from his ‘HUF’.

An appeal was preferred by the assessee against the Principal Commissioner of Income Tax against revision order passed under Section 263 of the Act, whereby the PCIT had set aside the assessment order passed by the Assessing Officer with a direction to make the assessment afresh under Section 143(3) read with Section 147 of the Income Tax Act.

Factual Background

The assessee had filed his return of income declaring an income of Rs 14,32,982 and the assessment was completed by the Assessing Officer under Section 143(3) of the Act accepting the returned income.

Subsequently, the assessing officer reopened the assessment under Section 147 read with Section 148 on the ground that the assessee during the year under consideration had received a gift of Rs 5,90,000 from the Hindu Undivided Family.

In the opinion of the Assessing Officer, since the amount of said gift was more than Rs 50,000, hence the same was exigible to tax as ‘income from other sources’ under Section 56(2)(vii) of Income Tax Act.

PCIT while invoking his jurisdiction under Section 263 of the Act, set aside the order passed by the Assessing Officer, held that HUF does not fall in the definition of relative in the case of an ‘individual’ as provided in the explanation to clause (vii) to Section 56(2).

Though, the definition of a relative in the case of a ‘HUF’ has been extended to include any member of the ‘HUF’, yet, in the said extended definition, the converse case is not included that is to say in the case of an individual, the ‘HUF’ has not been mentioned in the list of relatives.

Thus, PCIT formed a view that though a gift from a member to the ‘HUF’ was not exigible to taxation as per the provisions of Section 56(2)(vii) of the Act, however, a gift by the HUF to a member exceeding a sum of Rs 50,000 was taxable.

To claim an exemption under Section 10(2) of the Act, the member ‘HUF’ must receive any amount for consideration out of the income of the ‘HUF’. That since the assessee had received the aforesaid amount of Rs 5,90,000/- without consideration, hence, the same was not tax-exempt.

Further, the PCIT set aside the order of the Assessing Officer and directed the AO to make the assessment afresh.

On being aggrieved with the order of the PCIT, the assessee filed the appeal.

Analysis, Law and Decision

Coram expressed that the order of the Assessing Officer cannot be said to be erroneous and therefore, the PCIT wrongly exercised jurisdiction under Section 263 of the Act and the same cannot be held to be justified.

Assessee had taken a plea that the gifts had been received by the assessee out of the income of the ‘HUF’ and that the same was exempt under Section 10(2) of the I.T. Act. It was noted that there was no rebuttal or denial either in the order of the Assessing Officer or in the order of the PCIT in respect of the contention of the assessee that the amount in question was received out of the income of the HUF. In view of the said, the assessee was entitled to exemption under Section 10(2) of the Act.

In case an individual member throws his elf-acquired property into a common pool of ‘HUF’, the ‘HUF’ or other members of the ‘HUF’ do not have any pre-existing right in the self-acquired property of a member. If such an individual member throws his own/self-earned or self-acquired property in common pool, it will be an income of the ‘HUF’, however the same will be exempt from taxation as the individual members of the ‘HUF’ have been included in the meaning of ‘relative’.

In view of the above, the HUF had not been included in the definition of relative in explanation to Section 56(2) (vii) as it was not so required whereas in case of HUF, members of the HUF find mention in the definition of ‘relative’.

Hence, the amount received by the assessee from the ‘HUF’ , being its members, was a capital receipt in his hands and was not exigible to income tax.[Pankil Garg v. Pr. CIT, Karnal; 2019 SCC OnLine ITAT 13321, decided on 17-7-2019]

Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of M.R. Shah and B.V. Nagarathna, JJ., stayed the impugned order of Bombay High Court wherein the High Court had quashed the assessment order under Income Tax Act, 1961 and had further cautioned that if such orders continued to be passed, the Court will be constrained to impose substantial costs on the concerned Assessing Officer to be recovered from his/her salary.

The petitioner had impugned the assessment order dated 08-06-2021 along with the demand notice issued under Section 156 for initiating penalty proceedings under Section 274 read with Section 270A of the Income Tax Act, 1961. According to the petitioner, the assessment order had been passed without following the principles of natural justice as his request for personal hearing had not been considered and most importantly the reply/objection filed in response to the show cause notice with the draft assessment order had not been considered.

Holding that the assessment order was issued without application of mind the Bombay High Court set aside the impugned order and also the consequential notices. The High Court observed that Sub Section 9 of Section 144B of the Act provides that any assessment made shall be non-est if such assessment is not made in accordance with the procedure laid down under this section. Therefore, the High Court held that the impugned order was non-est and directed the Assessing Officer to take steps in accordance with law.

Notably, the High Court had passed additional directions under para 9 of the order which reads as:

“Respondents are put to notice, and Mr. Sharma to circulate this order right from the Revenue Secretary to everybody in the Finance Ministry, that if such orders are continued to be passed, this Court will be constrained to impose substantial costs on the concerned Assessing Officer to be recovered from his/her salary and also direct the department to place such judicial orders in the career records of such Assessing Officer.”

Aggrieved by the aforementioned order of the High Court Union of India had approached the Supreme Court to assail the impugned High Court order contending that the High Court ought not to have entertained the Writ Petition and ought to have relegated the original writ petitioner to avail statutory remedy of appeal before the CIT(A).

It was further submitted that one of the grounds on which the High Court had set aside the assessment order was sub-section (9) of Section 144B of the Income Tax Act, 1961, irrespective of the fact that sub-section (9) of Section 144B of the Act had been deleted with effect from 01-04-2021 and the provision to declare the assessment as non est if such assessment is not made in accordance with the procedure laid down under Section 144B of the Act had been deleted. Hence, the assessment order should not have been interfere with by the High Court and the assessee, if aggrieved, should have required to prefer an Appeal before the CIT(A).

It was further submitted by the State that even the observations made by the High Court in para 9, were also not warranted in the facts and circumstances of the case, more particularly, when the entire procedure before assessment was followed and thereafter even the legislature also deleted the provision of sub-section (9) of Section 144B of the Act retrospectively with effect from 01-04-2021.

Considering the arguments of ASG, Mr. Balbir Singh, the Bench issued notice in the matter. Notably, the Bench had also ordered that the observations made by the High Court in para 9 of the impugned judgment and order be stayed.

[National Faceless Assessment Centre v. Mantra Industries Ltd., Special Leave to Appeal (C) No(s). 4906 of 2022, decided on 11-04-2022]


Appearance by:

For the Appellant: ASG Balbir Singh, AOR Raj Bahadur Yadav, Advocate Gargi Khanna, Advocate Praveena Gautam, Advocate Shyam Gopal and Advocate Chinmayee Chandra


Kamini Sharma, Editorial Assistant has put this report together 

Case BriefsSupreme Court

Supreme Court: The bench of UU Lalit and S. Ravindra Bhat*, JJ has held that whether corporate death of an entity upon amalgamation per se invalidates a tax assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.

Facts Background

The Court was deciding an appeal against the order of the Delhi High Court rejecting the appeal, by the revenue and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee Mahagun Realtors Private Limited (MRPL).

MRPL, a real estate company, amalgamated with Mahagun India Private Limited (MIPL) on 01.04.2006. The Assessing Officer (AO), issued an assessment order on 11.08.2011, assessing the income of ₹ 8,62,85,332/- after making several additions of ₹ 6,47,00,972/- under various heads. The assessment order showed the assessee as “Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd”.

It was argued before the Court that the assessment framed in the name of amalgamating company which was ceased to exist in law, was invalid and untenable in terms of Section 170(2) of the Income Tax Act, 1961.

Analysis

Section 170 of Income Tax Act, inter alia, provides that where a person carries on any business or profession and is succeeded (to such business) by some other person (i.e., the successor), the predecessor shall be assessed to the extent of income accruing in the previous year in which the succession took place, and the successor shall be assessed in respect of income of the previous year in respect of the income of the previous year after the date of succession.

Further, there are not less than 100 instances under the Income Tax Act, wherein the event of amalgamation, the method of treatment of a particular subject matter is expressly indicated in the provisions of the Act. In some instances, amalgamation results in withdrawal of a special benefit (such as an area exemption under Section 80IA) – because it is entity or unit specific. In the case of carry forward of losses and profits, a nuanced approach has been indicated. All these provisions support the idea that the enterprise or the undertaking, and the business of the amalgamated company continues. The beneficial treatment, in the form of set-off, deductions (in proportion to the period the transferee was in existence, vis-à-vis the transfer to the transferee company); carry forward of loss, depreciation, all bear out that under the Act, (a) the business-including the rights, assets and liabilities of the transferor company do not cease, but continue as that of the transferor company; (b) by deeming fiction through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor.

The amalgamation of two or more entities with an existing company or with a company created anew was provided for, statutorily, under the old Companies Act, 1956, under Section 394 (1) (a). Section 394 empowered the court to approve schemes proposing amalgamation, and oversee the various steps and procedures that had to be undertaken for that purpose, including the apportionment of and devolution of assets and liabilities, etc.

Reading Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act together, the Court reached to the conclusion that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation, continues.

The Court observed,

“Amalgamation, thus, is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues – enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease – depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall.”

Ruling on facts

The Court specifically noticed that, in the present case,

  • The amalgamation was known to the assessee, even at the stage when the search and seizure operations took place, as well as statements were recorded by the revenue of the directors and managing director of the group.
  • A return was filed, pursuant to notice, which suppressed the fact of amalgamation; on the contrary, the return was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.
  • Even the affidavit before the Supreme Court was on behalf of the director of MRPL.
  • The assessment order painstakingly attributed specific amounts surrendered by MRPL, and after considering the special auditor’s report, brought specific amounts to tax, in the search assessment order.

The Court was, hence, of the opinion that all the aforementioned points clearly indicated that the order adopted a particular method of expressing the tax liability. The AO, on the other hand, had the option of making a common order, with MIPL as the assessee, but containing separate parts, relating to the different transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.).

“The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it.”

Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order – and Section 394 (2). Furthermore, it would be anybody’s guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL).

Having regard to all these reasons, the Court held that the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee.

[Principal Commissioner of Income Tax v. Mahagun Realtors (P) Ltd, 2022 SCC OnLine SC 407, decided on 05.04.2022]


*Judgment by: Justice S. Ravindra Bhat


Counsels

For Petitioner: Advocate Raj Bahadur Yadav

For respondents: Advocate Kavita Jha

Case BriefsSupreme Court

Supreme Court: The bench of UU Lalit and S. Ravindra Bhat*, JJ has held that the declaration under the Income Declaration Scheme (IDS) cannot lead to immunity from taxation in the hands of a non-declarant.

The Court explained that the objective of Income Declaration Scheme (IDS), introduced by Chapter IX of the Finance Act, 2016, was to enable an assessee to declare her (or his) suppressed undisclosed income or properties acquired through such income. It is based on voluntary disclosure of untaxed income and the assessee’s acknowledging income tax liability. This disclosure is through a declaration (Section 183 of the Income Tax Act) to the Principal Commissioner of Income Tax within a time period, and deposit the prescribed amount towards income tax and other stipulated amounts, including penalty.

Facially, Section 192 of the Income Tax Act affords immunity to the declarant: “…nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty…” Therefore, the protection given, is to the declarant, and for a limited purpose.

The assessee, in the case at hand, is a private limited company and had filed return of income for the AY 2010-11 on 25.9.2010. The return was accepted under section 143(1) of the Act without scrutiny.

The assessment was re-opened after search proceedings conducted in the case of one Shirish Chandrakant Shah, an accommodation entry provider in Mumbai, it was observed that huge amounts of unaccounted moneys of promoters/directors were introduced in closely held companies of the assessee’s group.

Further, the reasons to believe also stated that the chairman of M.R. Shah Group, during the statement- recorded under Section 132(4), disclosed that Garg Logistics Pvt. Ltd. had declared ₹ 6.36 crores as undisclosed cash utilized for investment in the share capital of the assessee, M.R. Shah Logistics Pvt. Ltd. through various companies. The assessee company’s chairman voluntarily  disclosed the statements made by Garg Logistics under Section 132 of the Act, about the declaration by Garg Logistics P Ltd, under the Income Declaration Scheme (IDS).

It can be seen that in the present case, the declarant was Garg Logistic Pvt Ltd and not the assessee. The Court, hence, held that the assessee could not claim immunity in the present case.

[Deputy Commissioner of Income Tax v. M. R. Shah Logistics Pvt. Ltd., 2022 SCC OnLine SC 365, decided on 28.03.2022]


*Judgment by: Justice S. Ravindra Bhat


For Assessee: Advocate Guru Krishnakumar

Case BriefsSupreme Court

Supreme Court: In a case where the Division Bench comprising of Uday Umesh Lalit and S. Ravindra Bhat*, JJ., was to answer whether absence of express provision prohibiting the pharmaceutical companies from providing freebies to the medical practitioners be considered prohibited by law when acceptance of freebies by medical practitioners is expressly made an offence, answering in affirmative, the Bench observed,

“…the cold letter of the law is not an abstract exercise in semantics which practitioners are wont to indulge in. So viewed the law has birthed various ideas such as implied conditions, unspelt but entirely logical and reasonable obligations, implied limitations etc.”

The genesis of the issue was that Apex Laboratories Pvt. Ltd., a pharmaceutical company was issued a notice under Section 142(1) of the Income Tax (IT) Act, 1961 to explain why the expenditure of Rs. 4,72,91,159 incurred towards gifting freebies such as hospitality, conference fees, gold coins, LCD TVs, fridges, laptops, etc. to medical practitioners for creating awareness about the health supplement ‘Zincovit’, should not be added back to the total income of Apex.

Noticeably, an amendment to the Medical Council Act, 1956 through the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 published in the Official Gazette on 14-12-2009, disallowed medical practitioners from accepting emoluments in the form of inter alia gifts, travel facilities, hospitality, cash or monetary grants. Consequently, on 01-08-2012, the Central Board of Direct Taxes issued a circular, which clarified that expenses incurred by pharmaceutical and allied health sector industries for distribution of incentives (i.e., “freebies”) to medical practitioners are ineligible for the benefit of Explanation 1 to Section 37(1), which denies the application of the benefit for any purpose which is an ‘offence’ or ‘prohibited by law’.

Findings of the Courts Below

Therefore, CIT(A) had held that the amounts spend by Apex for distribution of freebies would not classify as ‘business expenditure’ under Section 37(1) of the IT Act, 1961. The order of CIT was concurrently upheld by the Income Tax Appellate Tribunal and the High Court. Relying on the Regulations, 2002, the High Court further held that only the expenses incurred till 14-12-2009 were eligible for the benefit of Section 37(1), and not for the entirety of the Assessment Year 2010-2011, as claimed by Apex.

Contentions of the Parties

The Apex contended that while medical practitioners were expressly prohibited from accepting freebies, no corresponding prohibition in the form of any binding norm was imposed on the pharmaceutical companies gifting them. In the absence of any express prohibition by law, Apex could not be denied the benefit of seeking exclusion of the expenditure incurred on supply of such freebies under Section 37(1).

On the contrary, the State submitted that Parliament’s intention to disincentivize the practice of receiving extravagant freebies in exchange for prescribing expensive branded medication over its equally effective generic counterparts, thereby burdening patients with unnecessary costs, was apparent from the amended Regulations, 2002 and the menace of prescribing expensive branded medication as a quid pro quo arrangement had a direct bearing on public policy, which was implicit in the Regulations, 2002.

Observations and Analysis

Section 37 of the IT Act is a residuary provision which states that any business or professional expenditure which does not ordinarily fall under Sections 30-36, and which are not in the nature of capital expenditure or personal expenses, can claim the benefit of exemption. But the exemption is not absolute and Explanation 1, restricts the application of such exemption for “any purpose which is an offence or which is prohibited by law”.

Doubting the position as had been laid down in CIT 8(2) v. PHL Pharma P. Ltd. (ITA No. 4605/Mum/2014, dated 12.01.2017), that the 2002 Regulations were inapplicable to pharmaceutical companies, and there was no enabling provision to allow the CBDT to bring pharmaceutical companies within the fold of the 2002 Regulations, and even if such an act were to be permitted, it could be only be done so prospectively, the Bench opined,

Such a narrow interpretation of Explanation 1 to Section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity.”

The Bench observed,

“It is but logical that when acceptance of freebies is punishable by the MCI, pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium.”

Thus, the Bench noted that acceptance of freebies given by pharmaceutical companies is clearly an offence on part of the medical practitioner, punishable with varying consequences which falls within the purview of “prohibited by law” in Explanation 1 to Section 37(1).

Findings

Emphasising on the principle of law that no court will lend its aid to a party that roots its cause of action in an immoral or illegal act, the Bench opined that none should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating. Observing that a doctor’s prescription is considered the final word on the medication to be availed by the patient, even if the cost of such medication is unaffordable or barely within the economic reach of the patient, the Bench noted,

“…it is a matter of great public importance and concern, when it is demonstrated that a doctor’s prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences.”

The Bench noted that these freebies are technically not ‘free’ – the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle due to prescribing medication that is significantly marked up, over effective generic counterparts in lieu of such a quid pro quo exchange. Further, the agreement between the pharmaceutical companies and the medical practitioners in gifting freebies for boosting sales of prescription drugs was also held to be violative of Section 23 of the Contract Act, 1872 as Pharmaceutical companies misuse a legislative gap to actively perpetuate the commission of an offence.

Conclusion

In the instant case, the freebies given by Apex, to the doctors had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their practice of medicine. Therefore, the Bench held that the medical practitioners being forbidden from accepting such gifts, or “freebies” was no less a prohibition on the part of their giver, or donor, i.e., Apex. Hence, the appeal was dismissed.

[Apex Laboratories Pvt. Ltd. v. CIT, 2022 SCC OnLine SC 221, decided on 22-02-2022]


*Judgment by: Justice S. Ravindra Bhat


Appearance by:

For the Appellant: S. Ganesh, Senior Advocate

For the Respondents: Sanjay Jain, ASG


Kamini Sharma, Editorial Assistant has put this report together 

 

Case BriefsHigh Courts

Bombay High Court: The Division Bench of K.R. Shriram and N.J. Jamdar, JJ., reiterated that notice under Section 148 of the Income Tax Act, 1961 to a dead person cannot be issued.

In the present matter, the petitioner was the legal heir of Khimji Karamshi Patel, who died on or about 2-3-2021. The death of the assessee Khimji Karamshi Patel was communicated to the respondent.

Yet, the respondent had issued a notice under Section 148 of the Income Tax Act, 1961 dated 30-6-2021 for A.Y. 2103-15 stating that there were reasons to believe that Khimji Karamshi Patel’s income chargeable to tax for A.Y. 2014-15 had escaped assessment.

In another petition, an identical notice had been issued for A.Y. 2013-14. With the present decision, both the petitions are disposed of.

The crux in the matter was the petitioner’s challenge to the notice itself.

Petitioner impugned the said notice on the grounds that notice issued in the name of dead person for assessment was null and void along with this, the notice having been issued on 30-6-2021 had been issued without following mandatory provisions of law that came into force on 1-4-2021.

This Court in Sumit Balkrishna Gupta v. Assistant Commissioner of Income Tax, Circle 16(2), Mumbai; [2019] 103 taxmann.com 188 (Bombay) held that notice issued in the name of a dead person for re-opening of assessment is null and void in law.

Many other Judgments including one of the Gujarat High Court in case of Bhupendra Bhikhalal Desai v. ITO Ward 1 (2)(10, [2021] 131 taxmann.com 40 (SC), where also the Court held that notice issued to a dead person is not valid. The said decision was also upheld by the Supreme Court in Income Tax Officer v. Bhupendra Bhikhalal Desai, [2021] 131 taxmann.com 40 (SC).

Hence, the Court while quashing the notice as not maintainable having been issued to a dead person, did not consider the other aspect as to whether the respondent was correct in issuing notice without following the mandatory provisions of law. [Raniben Khimji Patel v. Asst. Commr. Of Income Tax, 2022 SCC OnLine Bom 342, decided on 15-2-2022]


Advocates before the Court:

Mr. Dharan V. Gandhi for Petitioner.

Mr. Suresh Kumar for Respondents.

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Appellate Tribunal for Electricity (APTEL)


State commission disallows benefit of increase in the tariff based on the change in law provision; Tribunal directs reconsideration

A Coram of R.K. Gauba (Officiating Chairperson) and Sandesh Kumar Sharma (Technical Member) decided on an appeal which was filed by Solar Power Project Developer (“SPD”) assailing order passed by respondent Bihar Electricity Regulatory Commission (“the State Commission”) disallowing the benefit of increase in the tariff based on the change in law provision with respect to increased Operation and Maintenance (O&M) costs of its 10MW solar power generating system.

Read full report here…


Armed Forces Tribunal (AFT)


AFT grants war injury pension to soldier who sustained injuries resulting in disability during Operation Hifazat

The Bench of Justice Dharam Chand Chaudhary (Member J) and Vice Admiral HCS Bisht (Member A), granted war injury pension to the ex-serviceman who had sustained injuries resulting in disability during Operation Hifazat.

Read full report here…


Arbitral Tribunal, New Delhi


Arbitral Tribunal finds SJDA at fault; directs to refund bid amount of Rs 84.24 crores to the claimant in New Township Project

“No permission for conversion of land was obtained and, therefore, even if all other conditions were fulfilled, the Claimant-Developer could not have commenced construction activities on the agricultural lands without obtaining conversion of land use.”

Read full report here…


 Competition Commission of India (CCI)


Apple charging a commission of up to 30% on all payments made through its in-app purchase system, is a violation of its dominant position? CCI orders investigation 

“Some consumers may have preference for closed ecosystem like Apple and others may have a preference for open ecosystems like that of Google.” 

Read full report here… 

Why did CCI suspend the Amazon-Future deal? Detailed analysis of CCI order imposing Rs 202 crores penalty on Amazon

“Amazon had misled the Commission to believe, through false statements and material omissions, that the Combination and its purpose were the interest of Amazon in the business of FCPL.”

Read full report here…

Is Google abusing dominant position in news aggregation? CCI gives prima facie findings; discusses Snippets, Mirror Image Websites, Paywall Options, etc.

“Google appears to operate as a gateway between various news publishers on the one hand and news readers on the other. Another alternative for the news publisher is to forgo the traffic generated by Google for them, which would be unfavourable to their revenue generation.”

Read full report here…


 Customs Excise & Service Tax Appellate Tribunal (CESTAT)


“Obiter dictum” not legally binding as precedent; jurisdictional commissioner cautioned for filing frivolous applications

Suvendu Kumar Pati (Judicial Member) dismissed an appeal which was filed in response to the order passed by this Tribunal for rectification of mistake on the ground that the order to the extent of availment of service of outdoor catering was not proper.

Read full report here…

Jurisdiction for claim of refund filed/initiated to be dealt under the provision Central Excise law and not by the provision of CGST law

Ashok Jindal (Judicial Member) dismissed the application filed by the Revenue (CCE & ST, Panchkula) for ratification of mistake in a final order by the Tribunal which was noticed by the Applicant. The Tribunal dealt with two issues (a) whether to ratify previous order & (b) to deal with the jurisdiction

Read full report here…

Is there any provision under Cenvat Credit Rules, 2004 or Finance Act, 1994 for reversal of CENVAT credit for services provided for which no consideration is received by an assessee? CESTAT analyses

“CENVAT Credit Rules or Finance Act there was no provision for reversal of CENVAT credit for the services provided for which no consideration for service provided was received by an assessee.”

Read full report here…


District Consumer Disputes Redressal Commission, Kolkata


Consumer cannot be forced to pay “service charge” in a restaurant: Consumer Forum finds conduct of restaurant contrary to principles of Consumer Protection Act

“The OPs must have been aware of the guidelines of Fair Trade Practice related to changing of service charge from the consumers by hotels/restaurant issued by Department of Consumer Affairs, Government of India, inter alia, stipulating that service charge on hotel and restaurant bill is “totally voluntarily” and not mandatory.”

Read full report here…


Income Tax Appellate Tribunal (ITAT)


If lessee is not actual owner of property, can actual rental expenses be claimed on return of income? ITAT decides

“The assessee-company has merely taken the assets on lease from the owner, and it is accordingly eligible to claim actual rental expenses in the return of income.”

Read full report here… 

Can merely disowning bank accounts exempt assessee from paying tax? Read why ITAT approved addition of Rs 12.81 Crores under S.68 of Income Tax Act

“Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.”

Read full report here…


 National Consumer Disputes Redressal Commission (NCDRC)


Homebuyers cannot be expected to wait indefinitely for taking possession: NCDRC allows consumer complaint against Builder, directs refund, imposes costs

Commission dealt with a complaint filed under Section 21 read with Section 2(c) of the Consumer Protection Act, 1986 by the complainant in respect of a plot allotted to him promoted by the OP, claiming deficiency of service due to delay in handing over possession of the plot allotted and claiming refund of amount deposited with compensation.

Read full report here… 

Insurer refuses to issue insurance policy as Risk Confirmation letter obtained on concealment of material fact by Insurance Broker: Policy will be vitiated? NCDRC answers

“Section 19 of Contract Act, 1872, provides that when the consent of an agreement is caused by coercion, fraud, or misrepresentation, the agreement is voidable at the option of the party whose consent is so caused.”

Read full report here…

Plastic pieces found in slices of bread, but compensation denied to consumer. Read why NCDRC set aside State Commission’s order of compensation

Ram Surat Maurya (Presiding Member) addressed a matter wherein Britannia was alleged to have pieces of plastic in its bread, but the complainant failed to prove that the bread was manufactured by the said company.

Read full report here…

Minor treated for “Measles” instead of “Stevens-Johnson Syndrome” due to wrong diagnosis and leading to medical negligence: Read detailed report on NCDRC’s decision

“The patient at her young age of 12 years suffered very serious and potentially fatal SJ syndrome. It was the patient’s sheer good luck that she survived in spite of such grossly inappropriate/inadequate treatment at every stage.”

Read full report here…


National Company Law Appellate Tribunal (NCLAT) 


Is it proper for NCLT to record finding regarding default when RP is yet to consider it and submit report? NCLAT discusses Ss. 95, 97, 99 IBC

“…there cannot be any dispute with the statutory scheme as contained in Section 97 that when application is filed by the Resolution Professional under Section 95, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that disciplinary proceedings pending against the Resolution Professional or not and the Board was required within seven days to communicate in writing either confirming the appointment of the Resolution Professional or rejecting the appointment of the Resolution Professional and nominating another Resolution Professional.” 

Read full report here…

Aggrieved with the categorisation as ‘unsecured creditor’, Tribunal secures ‘secured creditor’, having relinquished the security interest

The Coram of Ashok Bhushan J, (Chairperson), and Dr Alok Srivastava (Technical Member) while accepting the appeal and rejecting the claim of the respondent, the Tribunal was of the opinion that the Adjudicating Authority committed an error in rejecting the claim of the appellant to be ‘secured creditor’.

Read full report here…

Is approval with 90% vote of CoC required before allowing withdrawal of CIRP application even where CoC was not yet constituted? NCLAT clarifies law on S. 12-A IBC 

“…when the application is filed prior to the constitution of Committee of Creditors, the requirement of ninety percent vote of Committee of Creditors is not applicable and the Adjudicating Authority has to consider the Application without requiring approval by ninety percent vote of the Committee of Creditors.”

Read full report here…

Dominant position and Predatory Pricing or Win-Win for riders and drivers? NCLAT upholds CCI’s decision

“We do not think that Ola could operate independently of other competitors in the relevant market, and hence it did not enjoy a dominant position in the market.”

Read full report here…

Once Adjudicating Authority approves Resolution Plan, does it still remains a confidential document? Read what NCLAT says

“The category of creditors including the Members of the suspended Board of Directors or the partners of the corporate persons, who are entitled to participate in the meeting of the Committee of Creditors are entitled to receive copies of all documents.”

Read full report here…


 National Green Tribunal (NGT)


Rampant noise pollution, incessant use of horns; a Deplorable state of affairs! NGT finds Rajasthan in contempt of Supreme Court’s order 

While addressing the issue of pressure/air horns and motor vehicles being driven with intolerable sound in Rajasthan, the Bench comprising of Justice Sheo Kumar Singh (Judicial Member) and Dr. Arun Kumar Verma (Expert Member) found the State of Rajasthan in contempt of the Supreme Court’s order and issued notice to the state government to reply within three weeks.

Read full report here…


Securities Exchange Board of India (SEBI)


Twitter, Telegram and the tattered chances-Illicit act of swindlers recommending stock tips on social media; Tribunal acts immediately

“The tips circulated through the Channel create an inducing impact which are then followed by the subscribers and ironically, such stock tips may also prove to be true, if large number of recipients of such tips believe it and collectively act on it. Slowly and gradually, after seeing the price of the said thinly traded scrip actually rising, more and more subscribers start believing in the tips and start acting on it, which further strengthens the belief of such tips being genuine, as large number of individuals end up acting on such tips and by their collective buying actions, convert the deceitful, specious and baseless tips to realty”

Read full report here…

‘Billionaire’ dream turns into dread-Unauthorsied investment advisory amounted to fraud & misrepresentation

S.K. Mohanty, Whole Time Member while affirming an ex-parte interim order of SEBI, was of the view that the activities of the Noticees, Billionaire Solutions Pvt. Ltd. (Sole proprietor Akash Jaiswal) was covered within the definition of “fraud” defined under regulation 2(1)(c) of the PFUTP Regulations, 2003. And therefore was held liable for the violation of provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992, Regulations 3 (b), (c) & (d), 4(1), 4(2)(k) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations, 2003).

Read full report here…

Case BriefsSupreme Court

Supreme Court: The Division Bench of R. Subhash Reddy* and Hrishikesh Roy, JJ., held that to determine State Monopoly for disallowance of certain fee, charge, etc. in the case of State Government Undertakings the aspect of ‘exclusivity’ has to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed. The Bench stated,

“If this aspect of exclusivity is viewed from the nature of undertaking, in this particular case, both KSBC and Kerala State Cooperatives Consumers’ Federation Ltd. are undertakings of the State of Kerala, therefore, levy is an exclusive levy on the State Government Undertakings.”

Background

The issue before the Bench was whether the appellant-Kerala State Beverages Manufacturing & Marketing Corporation Ltd., a company engaged in wholesale and retail trade of beverages exempted from levy of gallonage fees, licence fee and shop rental (kist) for FL9 licence and FL1 licence, surcharge on sales tax and turnover tax for the assessment years 2014-2015 and 2015-2016?

The case of the appellant was that the company did not fall within the purview of Section 40(a)(iib), while the case of the revenue was that all the aforesaid amounts were covered under Section 40(a)(iib) as such, such amounts were not deductible for the purpose of computation of income. Section 40 of the Income Tax Act, 1961 is the provision dealing with ‘amounts not deductible’. However, by the Finance Act, 2013 (Act 17 of 2013), Section 40 of the Act was amended by inserting Section 40(a)(iib).

Findings of the High Court

The question of law raised was answered by the High Court of Kerala partly in favour of assessee/appellant and partly in favour of the revenue in the following manner:

“We hold that the levy of Gallonage Fee, Licence Fee and Shop Rental (kist) with respect to the FL9 licences granted to the appellant will clearly fall within the purview of Section 40 (a) (iib) and the amount paid in this regard is liable to be disallowed. The amount of Gallonage Fee, Licence Fee, or Shop Rental (kist) paid with respect to FL1 licences granted in favour of the appellant, with respect to the retail business in foreign liquor, is not an exclusive levy on the appellant, which is a state government undertaking. Therefore the disallowance made with respect to those amounts cannot be sustained. The surcharge on sales tax and turnover tax is not a ‘fee or charge’ coming within the scope of Section 40 (a) (iib) and is not an amount which can be disallowed under the said provision. Therefore the disallowance made in this regard is liable to be set aside. In the result the assessment completed against the appellants with respect to the assessment years 20142015, 20152016 are hereby set aside.”

State Monopoly

During the assessment years 2014-2015 and 2015-2016 the appellant was holding FL9 and FL1 licences to deal in wholesale and retail of Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL) granted by the Excise Department Rules. The appellant was the only licence holder for the relevant years so far as licence to deal in wholesale, and so far as FL1 licences were concerned, it was also granted to one other State owned Undertaking, i.e., Kerala State Cooperatives Consumers’ Federation Ltd.

By interpreting the word ‘exclusively’ as worded in Section 40(a)(iib)(A) of the Act, High Court in the impugned order had held that the levy of gallonage fee, licence fee and shop rental (kist) with respect to FL9 licences granted to the appellant would clearly fall within the purview of Section 40(a)(iib) of the Act and the amounts paid in that regard was liable to be disallowed. At the same with respect to FL1 licences granted in favour of the appellant for retail business, it was held that it was not an exclusive levy; as such disallowance made with respect to the same could not be sustained.

Considering the relevant Memorandum to the Finance Act, 2013 and underlying object for amendment of Income Tax Act, 2013, the Bench opined that the amendment was made to plug the possible diversion or shifting of profits from these undertakings into State’s treasury. Hence, in view of Section 40(a)(iib) of the Act any amount which is  levied exclusively on the State owned undertaking cannot be claimed as a deduction in the books of State owned undertaking, thus same is liable to income tax.

Disagreeing with the view taken by the High Court, the Bench opined that if the amended provision is to be read in the manner interpreted by the High Court, it will literally defeat the very purpose and intention behind the amendment. The Bench stated,

“The aspect of exclusivity under Section 40(a)(iib) is not to be considered with a narrow interpretation, which will defeat the very intention of Legislature, only on the ground that there is yet another player, viz., Kerala State Cooperatives Consumers’ Federation Ltd. which is also granted licence under FL1.”

The Bench added, the aspect of ‘exclusivity’ under Section 40(a)(iib) had to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed. Since both the undertakings; i.e. KSBC and Kerala State Cooperatives Consumers’ Federation Ltd. were undertakings of the State, the Bench held that levy was an exclusive levy on the State Government Undertakings.

Fee vis-a-vis Tax

Observing that a clear distinction between ‘fee’ and ‘tax’ was carefully maintained throughout the scheme under Section 40(a) of the Act itself, as wherever the Parliament intended to cover the tax it specifically mentioned as a tax, the Bench stated that Section 40(a)(i) and 40(a)(ia) specifically relate to tax related items. Section 40(a)(ic) refers to a sum paid on account of fringe benefit tax. At the same time, Section 40(a)(iib) refers to royalty, licence fee, service fee, privilege fee or any other fee or charge. Hence,

“If these words are considered to include a tax or surcharge like sales tax, the distinction so carefully spelt out in Section 40 between a tax and a fee will be obliterated and rendered meaningless.”

Further, the Bench observed that gallonage fee, licence fee and shop rental (kist) were the levies under the Kerala Abkari Act on all the licence holders, as such it could not be said that same was an exclusive levy on the appellant/KSBC. Hence, the Bench expressed,

“Once the State Government Undertaking takes licence, the statutory levies referred above are on the Government undertaking because it is granted licences.”

Therefore, the Bench disagreed with the finding of the High Court holding that such finding was contrary to object and intention behind the legislation.

Findings and Conclusion

In the backdrop of above, the Bench concluded:

  1. Gallonage fee, licence fee and shop rental (kist) with respect to FL9 and FL1 licences granted to the appellant would squarely fall within the purview of Section 40(a)(iib).
  2. Surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard was rightly set aside by the High Court.

Resultantly, assessments completed against the assessee for 2014-2015 and 2015-2016 were set aside and the Assessing Officer was directed to pass revised orders after computing the liability in accordance with the directions in this judgment.

[Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. CIT, 2022 SCC OnLine SC 3, decided on 03-01-2021]


*Judgment by: Justice R. Subhash Reddy


Appearance by:

For the Appellant: S. Ganesh, Senior Advocate

For the State: N. Venkataraman, Additional Solicitor General


Kamini Sharma, Editorial Assistant has put this report together 


 

District CourtHigh CourtsLegal RoundUpTribunals/Commissions/Regulatory Bodies

Here are some of the interesting Legal Stories from Week 4 of January 2022


Bishop Franco Mulakkal; A victim of faction feud in the Church and group fights of nuns? Read why Sessions Court acquitted the Bishop in nun rape case

 While hearing a case which had lead nation to one of the most controversial outbreak and had lifted the veil to showcase the alleged atrocities and harassment behind the four walls of the Church, Gopakumar G., Addl. Sessions Judge held that what seem to be a disturbing case of sexual violence by a Bishop, intoxicated with power, authority and position was nothing but a faction feud in the Church and the victim was a mere scapegoat in the hands of priests.

Read full report here…


Consumer cannot be forced to pay “service charge” in a restaurant: Consumer Forum finds conduct of restaurant contrary to principles of Consumer Protection Act

While holding against the service charge, charged by a restaurant, Consumer Forum directed for return of the amount charged as “service charge” along with compensation.

Read full report here…


Did Ola abuse its dominant position? Read to know

 NCLAT held that Ola’s below-cost pricing was not predatory pricing with a view to dislodging any competitor from the market but towards establishing itself as an effective and reliable brand in the market and also opening up a latent market to its advantage.

Read full report here…


Son ousted benighted widowed mother, deprived her right to “live a normal life” apart from maintaining and supporting her livelihood

G.S. Kulkarni, J., while addressing another unfortunate case concerning a mother who was ousted from the tenement she owned by her own son expressed that,

“This appears to be another clear case where the petitioner(son) has no other intention but to enjoy the tenement exclusively, ousting the roof over his mother’s head, taking advantage of her incapacity at such an old age.”

Read full report here…


Husband’s company can have ‘Virat Kohli’ as a brand ambassador, but cannot provide maintenance to wife: Man tried appearing as a pauper? Saket Courts adjudicates

 While addressing a case wherein the maintenance was sought by wife, Saket Courts held that,

“It cannot be believed that a person who was capable of supporting a family by getting married, would all of a sudden become devoid of all sources of income.”

Read full report here…


‘On Judgement Day, God shall admonish petitioner for committing un-Christian act’: Read weather Madras HC holds Catholic Priest prima facie accountable under S. 295A IPC for using ‘Bharat Mata’ and ‘Bhuma Devi’ in offensive manner

 “Bhuma Devi is considered as a Goddess by all believing Hindus. I use the expression “believing” because, even materialists, rationalists and non-believers also can be counted as Hindus. I may add tongue-in-cheek that even the great iconoclast and rationalist Periyar did not cease to be a Hindu. Bharat Mata evokes a deeply emotional veneration in a very large number of Hindus. She is often portrayed carrying the national flag and riding a lion. She is to many Hindus a Goddess in her own right.”

Read full report here…


Can merely disowning bank accounts exempt assessee from paying tax? Read why ITAT approved addition of Rs 12.81 Crores under S.68 of Income Tax Act

Stating that, “Urgent needs invite urgent action”, ITAT while addressing a very significant matter wherein assessee did not disclose the two bank accounts operated by him to the Income Tax Department, expressed that,

“Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.”

Read full report here…


Provision of Personal Hearing would defeat the purpose of Faceless Assessment Scheme? Del HC decides

The Division Bench of Manmohan and Navin Chawla, JJ., while focusing on the principles of natural justice and right to personal hearing observed that,

Faceless Assessment Scheme does not mean no personal hearing.

An assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it. 

Read full report here…


SPOTIFY v. POTIFY | Can the mark POTIFY conjure up mark SPOTIFY? Here’s detailed analysis of US Patent and Trademark Office decision in trademark clash

United States Patent and Trademark Office decided whether SPOTIFY is entitled against dilution by blurring under 15 U.S.C Section 1125(c).

Read full report here…


53-year-old man molested a 9-year-old minor boy by pressing his private parts: Court sentences man under POCSO Act

Jayakrishnan, Special Judge addressed a case wherein a minor boy aged 9 years old was subjected cruelly by a 53-year-old man who squeezed the boy’s private part causing him pain.

Read full report here…

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), New Delhi: Stating that, “Urgent needs invite urgent action”, Amit Shukla, Judicial Member and Dr B.R.R. Kumar, Accountant Member while addressing a very significant matter wherein assessee did not disclose the two bank accounts operated by him to the Income Tax Department, expressed that,

Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.

Purpose of approaching ITAT

Investigation Division of the Income Tax Department found that two bank accounts maintained by the assessee have not been disclosed to the Income Tax Department. Based on the said information, the Assessing Officer initiated the reopening proceedings under Section 148 of the Income Tax Act, 1961 and issued notice.

Owing to credits in the bank account, the addition of Rs 12.81 Crores was made by the Assessing Officer under Section 68 of the Act.

Since the CIT(A) confirmed the order of the Assessing Authorities, the present appeal was filed before the ITAT.

Facts of the Case

The assessee had opened, operated and owned two bank accounts in which Rs 12.81 crores were duly deposited. The assessee before the revenue authorities on various occasions denied the knowledge of having any such account. During the statement recorded on 29.12.2015, the assessee said that he was in no way associated with Alfa India and he was hearing the name for the first time during the assessment proceedings.

Analysis and Discussion

Tribunal noted the stark facts recorded by the Assessing Officer and found no theories, surmises or suspicion, in fact, the information gathered was entirely of factual content.

The credits in the bank were not disputable nor the bank account of the assessee.

Assessing Officer’s reasoning: Mechanical?

In the opinion of the Bench, the Assessing Officer had credible information in his possession and the reasons were duly recorded after application of mind.  It was also an indisputable fact that the assessee had denied owing any such bank account during the statement recorded by the department.

Assessing Officer’s reason clearly mentioned that the AO had applied his mind verified the Income Tax Return of the assessee, gone through the bank statement wherein the credits were appearing.

While the citizen and public are disgruntled regarding the apathy, red tapism and delays in various bureaucratic and judicial procedures, the prompt action taken by the revenue authorities in this case cannot be looked with contempt, rather it is highly appreciable.

Keeping the file for longer time, mulling over issue cannot be considered as a sign of application of mind and taking prompt decision must not be taken as non-application of mind nor mechanical action by the authorities.

 In the instant case, on going through the entire records, we find that there were no theoretical postulates involved in the information or the reasoning recorded by the revenue authorities.

Tribunal relied on the decision of the Delhi High Court in Experion Developer (P) Ltd. v. Assistant Commr. Of Income Tax, wherein it was held that where necessary sanction to issue notice u/s 148 was obtained from Pr. Commissioner as per provision of section 151, Pr. Commissioner was not required to provide elaborate reasoning to arrive at a finding of approval when he was satisfied with reasons recorded by Assessing Officer.

Calling the present case to be a classic case of prompt action on the part of the revenue taking into consideration received, Tribunal denied accepting the arguments that the satisfaction was borrowed, the approval was mechanical, and the promptness of the revenue authorities was misplaced

Tribunal upheld the action of revenue authorities on the issue of impugned under Section 148 of the Income Tax Act as the information received was not wrong nor the reasons to be believed were faltered.

Nothing done behind the back of assessee

The assessee had been given ample opportunities on various occasions as to why the case was reopened and as to what amounts the revenue was proposing to bring to tax.

Conclusion

The assessee had failed every time and feigned ignorance about the account which was opened with his full knowledge and conscience.

Since the assessee failed to prove the source of the sum of money found in his bank account, they have been rightly taxed by the revenue under Section 68 of the Income Tax Act.

Onus of providing the source of a sum of money found to have been received by an assessee is on him.

Where any sum is found credited in the books of the assessee for any previous year, it may be charged to Income Tax as the income of the assessee for that previous year if the explanation offered by assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. [Vasantibai N. Shah v. CIT (Bom.) 213 ITR 805, Sreelekha Banerjee v.  CIT (SC) 49 ITR 112]

Therefore, keeping in view the entire facts and circumstances of the case, Tribunal held that:

  • Action of the revenue authorities on the issue of notice under Section 148, approval under Section 151 was in accordance with the law.
  • Addition under Section 68 was rightly made, as the assessee failed to offer any explanation with regard to nature and source of credit in his bank account and the primary burden cast upon the assessee for proving the credits has not been discharged either before AO or CIT(A) or before us.

Therefore, the action under Sections 147, 148 as well as the addition made under Section 68 was affirmed and the appeal of the assessee was dismissed. [Arun Duggal v. SCIT, 2022 SCC OnLine ITAT 32, decided on 4-1-2022]


Assessee by: Sh. Kapil Goel, Adv.

Revenue by : Ms. Paramita M. Biswas, CIT DR

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Bangalore Benches (ITAT): The Bench of Chandra Poojari, AM and George George K, JM while partly allowing an appeal held that the lessee not being the exclusive owner of a property is eligible to claim actual rental expenses in the return of income.

Factual Matrix

The assessee in the present matter was stated to be registered as a 100% Export Oriented Unit and also registered under the Software Technology Park of India (STPI).

After the scrutiny and assessment under Section 143(3) read with Section 92CA of the Income Tax Act, the total income was determined at Rs 35,44,70,726. One of the additions made by the A.O. was Rs 79,27,497 on account of foreign exchange loss.

The A.O. held that the restatement of Export Earners Foreign Currency (EEFC) account is in the nature of capital item and hence cannot be allowed. He further held that the amount of Rs.79,27,497 is a notional loss.

On being aggrieved with the above, the assessee filed an appeal before the first appellate authority, which confirmed the additions made by the A.O. and held that the loss on account of fluctuation in foreign exchange can be adjusted at the time of making payment but not on notional basis.

Aggrieved with the order of CIT(A), the assessee approached this tribunal.

Analysis, Discussion and Decision

Tribunal expressed that, as per the mercantile system of accounting followed by the assessee, the foreign exchange loss arising on account of restatement of EEFC account cannot by any stretch of imagination be termed as notional or contingent in nature.

It was noted that the EEFC account was maintained by the assessee to facilitate regular business operation and not for acquiring any asset.

Noting that, the transaction in EEFC account undertaken during the year were trading nature in order to facilitate the regular business operation of the assessee-company, Tribunal held that the AO erred in making an addition of Rs 79,27,497 to the income returned and the CIT(A) was not justified in sustaining the same.

In view of the above reasoning, the addition by A.O. was deleted.

Ground 2

Background

The assessee had paid a sum of Rs 2,36,70,370 to First Lease Company India Limited towards equipment leasing. Out of Rs 2,36,70,317, the principal repayment of Rs 1,77,95,992, the interest and VAT aggregated to Rs 58,74,325. The assessee had claimed Rs 2,36,70,317 as a deduction. The A.O. in the impugned order held that the sum of Rs 1,77,95,992 (i.e. Rs 2,36,70,317 – Rs 58,74,325), which was paid towards principal as an expenditure of capital in nature and accordingly added back to the returned income.

The above was preferred for an appeal before CIT(A), and it was directed to the A.O. to verify whether there was a violation of TDS provisions under Section 194-I of the I.T. Act and to make necessary disallowance under Section 40(a)(ia) of the I.T. Act. Further, the CIT(A) directed the A.O. to verify whether the assessee had claimed depreciation on the leased asset and if so, add back the same to the total income.

Aggrieved with the above, the present appeal was filed.

It was noted that as per clause 4 of the agreement between the assessee and the First Leasing (lessor) the asset shall remain the exclusive property of the lessor at all times and the lessee during the lease time cannot capitalize the assets in its books of account since the ownership of the asset was with the lessor.

As per clause 19 of the said agreement, the assessee company (lessee) shall surrender the leased assets to First Leasing in good condition and working order on the expiration of the agreement.

It was clear that the actual owner of the leased asset was the lessor and was entitled to claim depreciation.

The assessee-company has merely taken the assets on lease from the owner, and it is accordingly eligible to claim actual rental expenses in the return of income.

Tribunal upheld the direction of CIT(A) on verifying whether there was TDS made by the assessee while making payment for lease rentals and adding back the depreciation claim.

In view of the above discussion, the appeal was partly allowed. [ThoughtWorks Technologies (India)(P) Ltd. v. Deputy Commr. Of Income Tax, 2022 SCC OnLine ITAT 33, decided on 4-1-2022]