Legislation UpdatesNotifications

On 16th June, 2022, the Central Board of Direct Taxes (CBDT) has exempted TDS on lease rentals under Section 194-I of Income Tax Act, 1961 paid to Aircraft Leasing Units vide notification no. 65/2022/F. No. 275/30/2019-IT(B). This will come into force on July 1, 2022.Exemption is applicable on following conditions:

The Lessor must

  • furnish a statement-cum-declaration in Form No. 1 to the lessee giving details of previous years relevant to the ten consecutive assessment years for which the lessor opts for claiming deduction under sub-section (IA) read with section (2) of the section 80LA of the Income-tax Act; and
  • such statement-cum-declaration shall be furnished and verified in the manner specified in Form No.1, for each previous year relevant to the ten consecutive assessment years for which the lessor opts for claiming deduction under sub-section (IA) read with section (2) of the section 80LA of the Income-tax Act.

The Lessee must

  • not deduct tax on payment made or credited to lessor after the date of receipt of copy of statement-cum-declaration in Form No. 1 from the lessor; and
  • furnish the particulars of all the payments made to lessor on which tax has not been deducted in view of this notification in the statement of deduction of tax referred to in sub-section (3) of section 200 of the Income-tax Act read with rule 31A of the Income-tax Rules, 1962.

The above relaxation shall be available to the lessor during the said previous years relevant to the ten consecutive assessment years as declared by the lessor in form 1 which specifies “To be furnished by a unit engaged in the business of leasing of aircraft located in International Financial Services Centre to the Lessee”


*Shubhi Srivastava, Editorial Assistant has reported this brief.

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), New Delhi: An appeal was filed by the assessee against the order of CIT(A)-21, New Delhi dated 21-01-2019 before the bench comprising of Sh. A. D. Jain (Vice-President) and Dr. B. R. R. Kumar (Accountant Member).

The assessment was completed under Section 143(3) of the Act on 03-03-2016 at taxable income of Rs.66,88,240/- inter alia making an addition of Rs.3,73,800/-. Assessee claimed to have paid rent to his wife Mrs. Shivani Mittal during the period September 2012 to March 2013 totaling to a sum of Rs.5,34,000/-. Property worth Rs.1.15.Crore was claimed to be purchased by assesssee’s wife for which amount of Rs.87.50 lacs were funded by the assessee himself and remaining amount was claimed to have been invested out of her own sources i.e. maturity of FD amounting to Rs.33.25 lacs.

Assessee’s wife had no independent source of income. Rental income, earned by her was liable to be clubbed in the hands of the assessee since it proved investment without having any independent source of income. Accordingly Assessing Officer clubbed the rental income of Rs.5,34,000/- after allowing deduction u/s 24A @ 30% (Rs.1,60,200/-) in the hands of the assessee and addition of Rs.3,73,800/- was made in the hands of the assessee.

The CIT(A) confirmed the addition holding claim of the appellant that the investment has been made in the house property by his wife from her own independent resources was not acceptable. For the assessment year, 2001-02 and 2003-04, income from profession was Rs.57,400/- and Rs.1,48,900/- respectively. The CIT(A) further relied on the total taxable income shown in the ITR filed from the assessment year 2001-02 till A.Y 2012-13.

There was no substantial taxable income shown by appellant’s wife during the above assessment years. She had no substantial source of income through which she can make investment in her own capacity either in the property or in the mutual funds etc.

In view of the above, assessee’s wife who has low returned income but received loan from the assessee has repaid the loan from the redemption of mutual funds and liquidation of fixed deposits. There was no bar on the part of the assessee to extend loan from his known sources of income to his wife. Similarly, there was no bar on her to repay the loan from her own mutual funds and fixed deposits. The assessee has paid house rent and the recipient, the assessee’s wife has declared the same under the head “income from house property” in her returns which has been accepted by the revenue.

The house was registered in the name of Smt. Shivani Bansal. Assessee got meager income hence he cannot afford to purchase a house cannot be accepted as the sources for purchase of the house in the hands of Smt. Shivani Bansal were proved rather never doubted. The CIT(A)’s contention that the husband cannot pay rent to the wife was devoid of any legal implication supporting any such contention.

The appeal of the assessee was allowed.[Abhay Kumar Mittal v.  DCIT, 2022 SCC OnLine ITAT 96, decided on 08-02-2022]


Assessee by : Mr Rajesh Mahana

Revenue by : Mr Sanjay Kumar


Suchita Shukla, Editorial Assistant has reported this brief.

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 


 

Case BriefsSupreme Court

Supreme Court: In a major blow to Essar Steel Limited, now Arcelor Mittal Nippon Steel India Limited), the bench of MR Shah* and Sanjiv Khanna, JJ has set aside the Gujarat High Court verdict wherein it was held that Essar was entitled to the exemption from payment of purchase tax as per the Notification dated 05.03.1992, which was issued under Section 49(2) of the Gujarat Sales Tax Act, 1969. As a result Essar will now have to pay the purchase tax of Rs.480.99 crores.

Factual Background

The Government of Gujarat vide Resolution dated 26.07.1991 announced a scheme known as “The Scheme for Special Incentives to Prestigious Units 1990-95 (modified)” for attracting investments in core sector industries. Under the said scheme, a prestigious unit was eligible for incentives up to 90% of the fixed capital investment.

Essar, engaged in the activity of manufacture and sale of Hot Briquetted Iron (HBI) and Hot Rolled Coil (HRC), invested approximately Rs.5000 crores for manufacture of HRC. The said exemption was provided as per Entry 255 of the notification issued by the Government of Gujarat under Section 49(2) of the Act, 1969. The Unit No.2 of the ESL was granted Sales Tax exemption in terms of Entry No.255(2) of the Notification dated 05.03.1992 issued under Section 49(2) of the Act, 1969 for the period from 22.02.1993 to 21.02.2007 up to a maximum monetary limit of Rs. 2050 crores.

This exemption as per Entry No.255(2) vide Notification dated 05.03.1992 was subject to fulfilling following conditions:

  1. The eligible unit was required to furnish to the selling dealer a certificate in Form No.26 declaring inter alia that the goods are required for use by him/it within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or as packing materials in packing of goods so manufactured; and
  2. The eligible unit shall actually use the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat as packing materials for the packing of the goods so manufactured.

Analysis

Before adverting to the case at hand, the Court explained the scope of interpretation of a taxing statute and observed that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications.

The exemption notification should be strictly construed and given meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions.

In the taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining defined meaning. Strict interpretation to the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it alleges to absurd results, which is so not found in the present case.

The Supreme Court observed that the Scheme of the Statute does not in any manner indicate that the incentive provided has to continue for the consecutive years irrespective of the fulfilling of the eligibility conditions.

“Applicability of the incentive is directly related to the eligibility and not dehors the same. If it is found that the industrial undertaking does not fulfil the eligibility criteria, it cannot claim the incentive/exemption.”

Hence, Essar, the eligible unit was found not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by Essar.

The Court also rejected the contention that as in the earlier assessment years benefit of exemption was granted to the respondent and, therefore, in the subsequent assessment years also, despite the fact that it is found that the respondent was/is not eligible for the benefit of exemption under the original Notification/Entry No.255(2). The Court observed that if such a submission is accepted in that case it will be perpetuating the illegality and granting the benefit of exemption to ‘ineligible industry’, who did not fulfill and/or comply with the eligibility criteria/conditions mentioned in the exemption notification. The principle of promissory estoppel shall not be applicable contrary to the Statute.

“Merely because erroneously and/or on misinterpretation, some benefits in the earlier assessment years were wrongly given, cannot be a ground to continue the wrong and to grant the benefit of exemption though not eligible under the exemption notification.”

[State of Gujarat v. Arcelor Mittal Nippon Steel India Limited, 2022 SCC OnLine SC 76, decided on 21.01.2022]


*Judgment by: Justice MR Shah


Counsels

For State: Senior Advocate Maninder Singh

For Assessee: Senior Advocate Ritin Rai,

Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of M. R. Shah* and Sanjiv Khanna, JJ., reversed the impugned order of the High Court whereby the High Court had held that education institutions run by charitable societies are exempted from payment of electricity duty. The Bench held that if the argument that all the schools/colleges or institutions, imparting education or training are exempted from electricity duty is accepted it would lead to absurd result and in that case, even the private hospitals, nursing homes, dispensaries and clinics, who are profit making entities can also claim exemption from levy of electricity duty.

Factual Backdrop

The State of Maharashtra had preferred the instant appeal to assail the order of the High Court wherein it had held that education institutions run by charitable societies were exempted from payment of electricity duty. The High Court had set aside levy of electricity duty on the respondents- Shri Vile Parle Kelvani Mandal, a society registered under the Societies Registration Act, 1860 and also a public charitable trust registered under the Maharashtra Public Trusts Act, 1950 along with respective electricity bills levying the electricity duty on consumption of electricity charge.

The crux of dispute was that prior to 01-09-2016, the charitable education institutions were exempted from payment of electricity duty levied on the consumption charges or the energy consumption for the purposes of or in respect of a school or college or institution imparting education or training, students’ hostels, hospitals, nursing homes etc. as per Section 3(2)(iii) of the Maharashtra Electricity Duty Act, 1958. However, in the year 2018, the respective electricity supply companies levied the electricity duty pursuant to a letter from the State Government stating that as per Maharashtra Electricity Act, 2016, charitable institutions registered under the Maharashtra Public Trusts Act, 1950 for the purpose of or in respect of school or college imparting education or training in academic or technical subjects are not entitled for electricity duty exemption with effect from 01-09-2016.

Intelligible Differentia vis-a-vis Taxing Statute

The respondents contended that if the interpretation canvassed by the state is accepted then it will lead to absurdity and manifest injustice as school/colleges etc. run by the local authority will fall within the purview of Section 3(2)(iii) of 2016 Act, while those run by the statutory university or charitable institution would fall outside the ambit of Section 3(2)(iii). It was submitted that as such there is no essential difference between schools/colleges etc. run by the statutory university or institution registered under the Maharashtra Public Trusts Act, 1950 and those run by the local authority. Further, that who runs the educational institution could not be the intelligible differentia for the purpose of classification. Hence, it was submitted that Electricity Duty Act being taxing statute, it must be strictly construed and if there is any ambiguity the benefit of ambiguity must lean in favour of the assessee rather than the revenue.

On the contrary, the stand of the State was that on enactment of the Maharashtra Electricity Duty Act, 2016 which repealed the earlier the Maharashtra Electricity Duty Act, 1958, no such exemption from levy/payment of electricity duty has been provided to such charitable education institutions.

Analysis of the Statute

As per subsection (2) of Section 3 of the Act, 1958 the electricity duty was not leviable on the consumption charges or the units of energy consumed…………..by or in respect of charitable institution registered under the Bombay Public Trusts Act, 1950, for the purpose of, or in respect of, school or college imparting education or training in academic or technical subjects.

However, there are material changes under the Act, 2016. As per Section 3(2) of the 2016 Act, even the public undertakings are liable to pay the electricity duty. The Bench observed,

“Section 3(2)(iiia), which was there in 1958 Act, is now conspicuously and deliberately absent in Section 3(2) of the 2016 Act.”

Interpreting the Section 3(2)(iii), under Act, 2016, the Bench stated that electricity duty on the consumption of charges or energy consumed for the purposes of, or in respect of a school or college or institution imparting education or training, student’s, hostels………….run by any local bodies shall alone be exempted from levy of electricity duty and the State Government and Central Government are also specifically excluded from payment of electricity duty. However, the public sector undertakings are not exempted from payment of electricity Act.

Therefore, the Bench held that the language and words used in Section 3(2) are plain and simple and are capable of only one definite meaning that there is no exemption provided under the Act, 2016 from levy of electricity duty so far as the charitable education institutions are concerned.

Findings and Conclusion

In Essar Steel India Ltd. v. State of Gujarat, (2017) 8 SCC 357, it was held that the statutory conditions for grant of exemption can neither be tinkered with nor diluted. The exemption notification must be interpreted by their own wordings, and where the wordings of notification with regard the construction is clear, it has to be given effect to. Similarly, in Commr. of Customs Vs. Dilip Kumar & Co., (2018) 9 SCC 1, it was held that, in the context of exemption notification there is no new room for intendment. Regard must be to the clear meaning of the words. Claim to exemption is governed wholly by the language of the notification, which means by plain terms of the exemption clause. An assessee cannot claim benefit of exemption, on the principle that in case of ambiguity a taxing statue must be construed in his favour, for an exception or exemption provision must be construed strictly.

Hence, the Bench opined that if the submissions of the respondents is accepted that as per Section 3(2)(iii), with respect to all the schools/colleges or institutions, imparting education or training, the electricity duty is not leviable, it would lead to absurd result. In that case, even the private hospitals, nursing homes, dispensaries and clinics, who are profit making entities, can also claim exemption from levy of electricity duty. Therefore, it was held that charitable education institutions are not entitled to any exemption from levy/payment of the electricity duty from the date on which Maharashtra Electricity Duty Act, 2016 came into effect.

Consequently, the Bench concluded, the High Court had committed a grave error in setting aside the levy of electricity duty levied on the respondents. Accordingly, the impugned judgment and order were held unsustainable and thereby, quashed and set aside.

[State of Maharashtra v. Shri Vile Parle Kelvani Mandal, 2022 SCC OnLine SC 18, decided on 07-01-2022]


*Judgment by: Justice M. R. Shah


Appearance by:

For the State: Sachin Patil, Advocate

For the Respondents: Shekhar Naphade, Senior Advocate


Kamini Sharma, Editorial Assistant has put this report together 

Legislation UpdatesRules & Regulations

On January 14, 2022, the Securities and Exchange Board of India notifies Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2022 to further amend the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.

Key amendment:

In the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019:

  • In sub-regulation (1) of regulation 7, the words “National Securities Depositories Limited” shall be substituted with the word “the Board”.

Regulation 7 provides:

Certificate of registration.—(1) The designated depository participant shall on behalf of the Board grant the certificate of registration, bearing registration number generated by National Securities Depositories Limited, as specified in the First Schedule to an applicant if it is satisfied that the applicant is eligible and fulfils the requirements as specified in these regulations.

  • In Chapter VIII-A, after regulation 43A, the following regulation shall be inserted, namely,

Exemption from strict enforcement of the regulations in other cases.
43B. (1) The Board may suo motu or on an application made by a foreign portfolio investor, for reasons recorded in writing, grant relaxation from the strict enforcement of any of the provisions of these regulations, subject to such conditions as the Board deems fit to impose in the interests of investors and the securities market and for the development of the securities market, if the Board is satisfied that:

(a) the non-compliance is caused due to factors beyond the control of the entity; or
(b) the requirement is procedural or technical in nature.

(2) The application referred to under sub-regulation (1) shall be accompanied by a non-refundable fee of US $ 1,000 payable by way of NEFT/ RTGS/ IMPS or any other mode allowed by the Reserve Bank of India in the designated bank account of the Board.”

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Anil Choudhary (Judicial Member) and P. Anjani Kumar (Technical Member) allowed an appeal which was filed against the Order-in Appeal passed by the Commissioner (Appeals), CGST & Central Excise Appeal Commissionerate, Allahabad.

Appellants were providing ‘Consulting Engineer Service’ taxable under the Finance Act, 1994 (hereinafter referred to as ‘the Act’) on which service tax was payable by the appellant. The appellant had also received ‘rent-a-cab service’ and ‘legal service’ on which service tax was payable by the appellant under reverse charge. The show cause notice alleged that the appellant had suppressed the ‘taxable value’ of consulting engineer services provided to their clients during the period 2011-12 to 2015-16 and also that service tax has not been paid on the services of ‘rent-a-cab service’ and ‘legal services’ under ‘reverse charge’ during this period.

The Revenue had computed the tax liability on the basis of gross turnover as reflected in Form No. 26AS (under the Income Tax provision), which is a document available on the website of Income Tax Department, wherein the data recorded is on cash basis or receipt basis of accounting. Whereas under the provisions of service tax, the tax liability is computed on the basis of accrual on mercantile system of accounting, which is in contrast to the cash basis of accounting.

The Tribunal found that the allegations of Revenue were frivolous, that it was only on enquiry it came to know about the affairs of the appellant, i.e. providing of taxable service in view of the admitted facts that appellant is a registered assessee under the Service Tax provision, and have been filing their returns and paying tax. The Tribunal further found that Form No. 26AS was not a statutory document for determining the taxable turnover under the Service Tax provisions. Whereas under the Service Tax provisions, the service tax was chargeable on mercantile basis (accrual basis) on the service provided whether the value of such service was received or not, thus the Tribunal concluded that the whole basis of show cause notice was incorrect and/or misconceived.

This Tribunal has held in other disputed cases that even the barricade provided on the side of highway, maintaining greenery on the side or middle of highway, construction of any facility, refreshment centre for road users, is also part of the road construction and such activity is also exempt. Even the administrative building constructed by the concessionaire, for construction of the road or highway for administration and collection of toll etc. is part of road.

The Tribunal allowed the appeal holding that appellant was entitled to exemption under the Notification No. 25/2012-ST under Sl. No. 13(a) of the said notification for providing consulting engineer services in the matter of road construction.

[Quest Engineers & Consultant (P) Ltd. v. Commr. CGST & CE, 2021 SCC OnLine CESTAT 2629, decided on 28-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Himachal Pradesh High Court: Sandeep Sharma, J. contemplated the instant petition filed under Article 227 of the Constitution of India where the order passed by the Civil Judge was challenged.

The factual matrix of the case was that the application under Section 80(2) CPC was filed by the petitioner to seek the permission to institute suit without complying the provisions of Section 80 CPC, which was duly rejected. Petitioner contended that a suit was filed for a permanent prohibitory injunction, to restrain the respondents from interfering in peaceful possession and from dispossessing him forcibly from the place where he was running his business. Along with the aforesaid suit, plaintiff also filed an application under Section 80(2) CPC, seeking therein leave of the Court to institute the suit without compliance of provisions contained under Section 80 CPC. The petitioner contended that the defendants threat him and might remove his business without any authority of law and hence, a direction was sought to prohibit them.

On the contrary, the respondents contended that the relief claimed by the petitioner was not urgent in nature and hence, prayers made on behalf of the petitioner that notice must be exempted under Section 80  were not justified.

Hence, the Civil Judge dismissed the application filed by the petitioner as it was not found that the matter was urgent and the exemption was not needed.

The High Court, observed that, the court below when passed the impugned order, had proceeded to decide the application in slipshod manner without looking into the contents of the plaint as well as an application filed under Section 80(2). A bare perusal of the averments contained in the suit as well as the application under Section 80(2), clearly revealed that plaintiff in the suit had claimed that since 2004 he had been running his business in a peaceful manner. Further, the question was ‘whether valid permission was acquired by the petitioner to set up his tent for running his business?’

It was stated that the question had not been decided by the Civil Judge also it was decided that the case was of urgent nature. It clearly emerged from the pleadings that tents were set up by the various traders on the spot in question temporarily during apple season and in case petitioner, who had claimed that he had been set up tent on the spot in question for so many years, was not heard by the Court below on priority basis, relief prayed for in the suit as well as interim application would render infructuous. It was further observed the respondents will not suffer any prejudice if the exemption was granted of not filing the notice. Hence the petition was allowed.[Hemant Sharma v. State of Himachal, 2019 SCC OnLine HP 1094, decided on 04-07-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Authority for Advance Rulings (GST), Uttarakhand: Vipin Chandra and Amit Gupta (Members), addressed an application stating the following question:

“Whether “Business Transfer Agreement” as a going concern on slump sale basis is exempted from the levy of GST?”

The present application was filed by Innovative Textiles Limited under sub-section (1) of Section 97 of the CGST/SGST Act, 2017 and the rules made thereunder in respect of the question stated above.

While deciding the stated question of “Whether “Business Transfer Agreement” as a going concern on slump sale basis is exempted from the levy of GST in terms of serial No. 2 of the Notification No. 12/2017-Central Tax (rate) dated 28-06-2017”, the relevant portion of the notification was reproduced and on perusal of the same it was observed that,

“services by way of transfer of a going concern, as a whole or an independent part thereof is to be treated as supply of service and covered under Chapter 99 of the Service Code (Tariff) and is exempted from GST.”

The members of the tribunal observed that, a transfer of a business as a going concern is the sale of a business including assets. In terms of financial transaction, ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation.

Further, they added that, internationally accepted guidelines are also applicable in the present cases which are issued by His Majesty’s Revenue & Customs to treat the transfer of a business as a going concern. The guidelines are as under:

  1. The assets must be sold as a part of a ‘business’ as a ‘going concern’.
  2. The purchaser intends to use the assets to carry on the same kind of business as the seller.
  3. Where only part of a business is sold, it must be capable of separate operation.
  4. There must not be a series of immediately consecutive transfers.

Therefore, in view of the above, applicant intends to sale the ongoing Sitarganj business along with all the assets and liabilities and stated that it is live/ operating and purchaser has purchased the business to carry on the same kind of business and applicant has supplied services by way of transfer as a going concern, the same is exempted from levy of GST. [Innovative Textiles Ltd., In re, Ruling No. 20/2018-19, Order dated 26-03-2019]

Case BriefsHigh Courts

Rajasthan High Court: The Bench of Goverdhan Bardhar and Mohammad Rafiq, JJ. disposed of a petition filed by the petitioner challenging the order of termination of his services with the direction to the petitioner to submit a representation to the Principal Secretary, Department of Personnel for giving exemption to the petitioner on the condition of proving his proficiency in computer work on the ground that a similar exemption was accorded to one of his colleagues.

The petitioner had challenged the validity of Rule 9 of the Rajasthan Compassionate Appointment of Dependants of Deceased Government Servant Rules, 1996 which required those appointed on compassionate ground to pass a typing test. The counsel for the petitioner, Mr Om Prakash Sheoran, submitted that ever since the petitioner was appointed on the post, the typewriters had become obsolete and he had been continuously working on computer and acquired proficiency in the computer work. Thus insistence of the respondents to qualify the typing test was wholly unjustified. Further, it was submitted that the respondents had accorded different treatment to another employee. Act of the respondents were discriminatory being violative of Articles 14 and 16 of the Constitution of India.

The Court without going into the argument as to validity of Rule 6 and 9 of the Rules of 1996, considered that the petitioner had rendered services of more than 8 years and on the argument of discrimination on the basis of exemption accorded to another employee, directed the petitioner to submit a representation to the Principal Secretary for according similar exemption to the petitioner on the condition of proving his proficiency in computer work. If eventually, the respondents were persuaded to accord exemption after considering his proficiency in computer work, the petitioner would be entitled to notional benefits and not actual benefits for the intervening period. [Manoj Kumar Sharma v. State of Rajasthan, 2019 SCC OnLine Raj 270, Order dated 27-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India: The Board comprising G. Mahalingam as Whole Time Member, allowed a consortium of port trusts exemption from making a public announcement of open offer for acquiring shares of a mini-ratna public sector undertaking (PSU), opining that the takeover would cause no change in ultimate control of the said PSU.

Cabinet Committee on Economic Affairs gave in-principle approval for strategic disinvestment of shares held by President of India in Dredging Corporation of India Limited (‘Target Company’) – a Mini-Ratna PSU – by four acquirers being – Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust, and Deendayal Port Trust (‘Acquirers’). The Acquirers collectively filed an application seeking exemption from applicability of Regulations 3 and 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which mandates public announcement of open offer for acquiring shares.

Acquirers submitted that they are port trusts constituted by the Government of India (‘GOI’) under Major Port Trusts Act, 1963 (‘MPT Act’) as autonomous entities to administer and manage major ports. Disinvestment of 73.47 per cent of shares of Target Company in their favour would give them direct control of the Target Company, but its ultimate supervisory control would rest with the GOI (since the Acquirers are under direct control of GOI in accordance with MPT Act).

It was submitted that Regulation 10(1)(a)(iii) of Takeover Regulations exempts inter-se transfer of shares amongst certain qualifying persons being a company subject to control over such qualifying persons being exclusively held by the same persons. Though Regulation 10(1)(a)(iii) may not strictly apply for the proposed acquisition, the same shall apply in spirit since GOI will continue to have ultimate supervisory control over the Target Company post proposed acquisition.

The Board opined that proposed acquisition would not be covered under automatic exemption available under Regulation 10(1)(a)(iii) of the Takeover Regulations since it would change the nature of control exercised by GOI over Target Company from direct to indirect control. However, there would be no change in control of Target Company, from a takeover perspective, since GOI shall continue to exercise supervisory control over Target Company through the Acquirers. In view thereof, exemption sought in the application was granted.

[Dredging Corporation of India Ltd. v. Visakhapatnam Port Trust, 2019 SCC OnLine SEBI 23, Order dated 28-02-2019]

Legislation UpdatesNotifications

Ministry of Finance has enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.  Shri Santosh Kumar Gangwar, Minister of State for Labour and Employment has expressed hope that this would benefit those employees of PSUs and other employees not covered by Payment of Gratuity Act, 1972 and has thanked the Finance Minister for enhancing the exemption limit.

The ceiling of Gratuity amount under the Payment of Gratuity Act, 1972 has been raised from time to time keeping in view over-all economic condition and employers capacity to pay and the salaries of the employees, which have been increased in private sector and in PSUs.  The latest such enhancement of ceiling of gratuity was made vide Government of India Notification dated 29-03-2018 under which the gratuity amount ceiling has been increased from Rs 10 lakhs to 20 lakhs w.e.f. 29-03-2018.

Ministry of Labour & Employment

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal, Allahabad (CESTAT): This appeal was filed before Archana Wadhwa, J. and Anil G. Shakkarwar, Member against the impugned order passed by the Commissioner.

Appellant was engaged in manufacturing and export of footwear and its parts falling under Chapter 64 of the Schedule to the Central Excise Tariff Act, 1985. For the purpose of exports and its procurement appellant had established four fully owned subsidiaries in foreign countries. These subsidiaries were working as overseas commission agents and were procuring export orders for the appellant. Inasmuch as the appellant is availing the said commission agent services from the companies located outside India, they were liable to pay Service Tax in respect of the commission paid to them, on reverse charge basis, in terms of Clause (iv) of Rule 2(1)(d) of Service Tax Rules, 1994. But such services come under exceptions. Such exemption should not be available on the export of the goods if the export is made by an Indian partner in a company with equity participation in an overseas joint venture or wholly owned subsidiary. The Commissioner concluded that appellants were not entitled to avail the benefit of the said Notification inasmuch as they have paid commission on export of goods procured through the wholly-owned subsidiaries.

Tribunal was of the view that the plain and simple meaning of the exception was that the exports were required to be made by an Indian partner to a company with equity participation in an overseas joint venture. It was admitted that the appellant had not exported the goods to its own wholly owned subsidiaries or overseas joint ventures. Tribunal thus favoured the appellant’s contention that the demand was barred by limitation. Therefore, the impugned order was set aside. [Super House Ltd. v. CCE, 2019 SCC OnLine CESTAT 6, Order dated 18-02-2019]

Case BriefsHigh Courts

Orissa High Court: A Bench comprising of Dr A.K. Rath, J. clarified the point on exemption of paying court fees in respect of a woman through the present order.

The plaintiff-opposite party 1 had instituted the suit for declaration of title, partition and permanent injunction. Value of the suit was at Rs 1, 11, 84,300 on which ad valorem court fees is of Rs 3, 61,931 payable. It has been contended that the plaintiff being a woman will be exempted from the payment of court fees.

Further, it has been stated that the plaintiff in the present case was a citizen of USA due to which she was not liable to be exempted from payment of court fees. Trial Court had rejected the said submissions which lead to the instant petition.

The Bench stated that in accordance to the SRO No. 575 of 1994 issued by the Government of Orissa under Section 35 of the Court Fees Act, 1987, categories of persons are exempted from payment of court fees, which clearly states that women are exempted from the payment of court fees. The Court also stated that the notification sweeps the woman of any status or nationality.

Therefore, in view of the notification stated above, plaintiff being a woman is exempted from the payment of court fees and the impugned order does not suffer from any illegality or infirmity warranting the interference of the Court under Article 227 of Constitution of India. [Sanjay Kumar Das v. Munmum Patnaik, 2018 SCC OnLine Ori 445, decided on 21-12-2018]

 

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal (CESTAT): A Division bench comprising of C.L. Mahar (Technical) and Ajay Sharma (Judicial), Members. upheld the order of Excise Commissioner directing reversal of Cenvat credit against a manufacturer for non-compliance of Cenvat Credit Rules.

The instant appeal arises against an order of the Excise Commissioner directing reversal of Cenvat credit availed by the appellant. Appellant is the manufacturer and supplier of leaf springs falling under Chapter 73 of Schedule I to the Central Excise Tariff Act, 1985. During 2014, it got an order from the Government of India’s Defence Vehicles Factory and as an established practice, availed Cenvat credit on inputs, input services and capital goods as per Cenvat Credit Rules, 2004 as per which it should have reversed Cenvat credit at the rate of 6% of the value of exempted goods. However, no separate accounts of Cenvat credit availed on exempted and dutiable goods had been maintained by the appellant. Accordingly, show cause notices the demanding reversal of Cenvat credit was issued to the appellant, which was adjudicated by the Commissioner.

The Tribunal noted that Rule 6 of the Cenvat Credit Rules clearly stipulates that if any input, input services or capital goods are used in manufacture of goods which are exempted from payment of central excise duty, then the manufacturer is legally required to reverse back the 6% of the value of clearances from the accumulated Cenvat credit. The manufacturer can also maintain a separate account of inputs and the credits thereon for both dutiable as well as exempted goods, and in that case, the requirement of 6% of the value of clearances is needed not to be followed.

In view of the above and decision rendered in NCS Distilleries/Estates Pvt. Ltd. v. CCE, Visakhapatnam; 2006 SCC OnLine CESTAT 644, the Tribunal held that since the appellant had not maintained separate account of Cenvat credit availed on exempted as well as dutiable final products, hence, it was liable to reverse the Cenvat credit. [Jamna Auto Industries Limited v. CCE & ST, Ujjain,2018 SCC OnLine CESTAT 863, decided on 12-11-2018]

 

 

 

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): G. Mahalingam, whole time Member, in this order granted exemption from application of Section 3(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

An application was filed under Section 11(1) and Section 11(2)(h) of the SEBI Act read with Regulation 11(5) of the SAST Regulations, 2011 seeking exemption from application of Section 3(2) of the SAST Act on acquiring of shares and voting rights in the target company. The matter before the Board was that the promoters were willing to transfer by way of gift all the equity shares of the Target Company to the acquirer trusts. The transferor submitted the grounds on which they seek an exemption. Major grounds being the objective with which the transfer is proposed that is seamless intergenerational transfer of the trust fund in view of the fact that the beneficiaries are family members being non-commercial transaction. The other ground being that the ownership or control of the target company had not been affected. Also, pre and post-acquisition shareholding of promoter group would remain same. The acquirer/transferee confirmed that they have adhered to the Guidelines outlined in the Schedule to the SEBI Circular. Board noted all the grounds and ordered that the Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts Regulation Rules, 1957 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Board was of the view that the exemption prayed by the applicants should be granted with certain conditions which the transferor and transferee needs to fulfill. Therefore, exemption from application of Section 3(2) was granted. [Proposed Acquisition of Shares and Voting Rights in Target Company FDC Ltd., In re,2018 SCC OnLine SEBI 156, order dated 21-08-2018]

Case BriefsHigh Courts

Himachal Pradesh High Court: A Single Judge Bench comprising of Vivek Singh Thakur, J., decided a revision petition wherein the order of conviction passed against the petitioner by the trial court was reversed.

The petitioner was convicted and sentenced under in a criminal case arising under Section 138 of Negotiable Instruments Act. The petitioner, in the instant petition, submitted that he has entered into a compromise with the respondent and the matter has been amicably settled between the parties. Hence, he prayed for the quashing of the said order of conviction and sentence and also for compounding of the said offence.

The High Court perused the evidence available on record to satisfy itself that the matter was in fact amicably settled between the parties by entering into a compromise. Thus, the High Court was of the view that the order of conviction and sentence under Section 138 passed against the petitioner need to be quashed. Also, on further request of the petitioner, he was partly exempted from paying the compounding fee in consideration of the fact that the petitioner was a poor person, he was in jail, and he had no resources available to pay the required 15% of the suit amount. Hence, the petition was allowed. [Keshav Ram v. Padam Singh Thakur, 2018 SCC OnLine HP 150, dated 20.2.2018]

Case BriefsSupreme Court

Supreme Court: Refusing to interfere with the decision of the Gujarat High Court directing Essar Steel India Ltd. (ESL) to pay electricity duty amounting to Rs. 562 Crores together with interest totaling Rs. 1038.27 Crores to the State of Gujarat, the bench of Dr. A.K. Sikri and Ashok Bhushan, JJ said that the statutory conditions for grant of exemption as contained in Section 3(2)(vii)(a) of the Bombay Electricity Duty Act, 1958 can neither be tinkered with nor diluted.

ESL holds 42% shares in Essar Power Ltd. (EPL) which is a duly incorporated company under the provisions of Companies Act, 1956, which is a generating company selling/supplying electrical energy. The Court noticed that both ESL and EPL are distinct separate legal entities and merely because ESL might have 42% shares holding in EPL, it cannot be said that ESL is generating electricity jointly with EPL and EPL is generating electricity jointly with ESL for use of electricity by ESL.

It was further stated that even assuming ESL and EPL are jointly generating the energy for the use of   industrial   undertaking   which   are   jointly generating the energy, the Gujarat Electricity Board to whom 300 MW has been allocated cannot be held to be   industrial   undertaking   which   is   jointly generating the energy with appellant. The Statutory scheme   for   grant   of   exemption   has   to   be   strictly construed.   EPL   is   not   jointly generating energy with Gujarat Electricity Board and it is selling the energy to the extent of 300 MW to Gujarat   Electricity   Board.   Hence, the   conditions   of   the statutory provisions of Section 3(2)(vii)(a) of the Act are not fulfilled. [Essar Steel India Ltd. v. State of Gujarat, 2017 SCC OnLine SC 522, decided on 02.05.2017]

Case BriefsHigh Courts

Delhi High Court: A Division Bench was seized of the question whether an undertaking which was being revived by BIFR could be granted a tax exemption from capital gains. The facts in issue were a textile machinery manufacturer became sick in 2001 and the BIFR charted out a rehabilitation scheme with a twin direction to the Income Tax Directorate (a) to consider the petitioners company’s request for exemption from payment of capital gains on the sale of assets and (b) to carry forward the losses incurred up to the year 2013 as against 2009. The Income Tax Directorate denied the benefit of exemption from capital gains based on certain figures projecting profit by the company in future years. The matter was remanded back by the High Court due to the fact that the income tax department should have passed a judgment keeping in mind the actual figures of profit of the undertaking rather than future projections. The matter was decided against the undertaking again upon reconsideration. The petitioner preferred a writ petition against the order of the Income Tax Directorate and challenged it on the ground of non-consideration of the sick health of the undertaking.

The broad contentions raised by the petitioners were –

(A) The Income tax directorate should have considered the fact that only because the assets exceeded the liabilities (net-worth was in profit) did not discount that the undertaking still had to make up the losses it had incurred.

(B) The BIFR scheme also envisioned the denial of capital gains exemption would make the undertaking sick again because the capital gains liability was a sum of Rs 331 Lakhs.

(C) The capital gains arose after selling land only for discharging the liabilities of other companies

(D) Section 32 of the Sick Industrial Companies Act 1985, stated that any direction issued by the authority would have an overriding effect over any provision or law barring a few exemptions. Therefore, BIFR’s rehabilitation scheme (which recommended exemption of tax on capital gains) should be seriously considered.

The Income Tax Directorate defended the order by contending –

(A) The undertaking of the petitioner was in profits not only in future projections but also in current actual figures – the undertaking had revived after the rehabilitation scheme in the year 2011 itself. (i.e. undertaking’s assets exceeded its liabilities)

(B) The department ought not to be forced to grant an exemption on payment for the fault of the petitioners

(C) The possibility of losses occurring after paying the tax on capital gains was a usual risk in business and could never be averted

The High Court partly allowed the writ petition by issuing a direction that since the petitioner’s liability had not been crystallized yet, no interest on capital gains tax shall be liable for the duration the matter remained pending in court. However, the Court held that the no exemption from payment of tax on capital gains would not be illegal because the possibility of losses arising in future is a normal course of any functioning business enterprise. [Laxmi Automatic Loom Works v. Deputy Commissioner of Income Tax, 2016 SCC OnLine Del 6207, decided on 5.12.2016]

Case BriefsSupreme Court

Supreme Court: Deciding the question as to whether a former ‘ruler’ is entitled to get full benefit of the exemption granted to him under Section 10 (19A) of the Income Tax Act 1961 from payment of income-tax or it is confined only to that portion of palace which is in his actual occupation as residence and the rest which is in occupation of the tenant would be subjected to payment of tax, the Court held that the Legislature did not intend to tax portion of the “palace” by splitting it in parts. Even if the Ruler had let out the portion of his residential palace, yet he would continue to enjoy the exemption in respect of entire palace because it is not possible to split the exemption in two parts, i.e., the one in his occupation and the other in possession of the tenant.

Interpreting the related provisions, the Court said that in Section 10(19A) of the I.T. Act, the Legislature has used the expression “palace” for considering the grant of exemption to the Ruler whereas on the same subject, the Legislature has used different expression namely “any one building” in Section 5 (iii) of the Wealth Tax Act. No reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) for the reason that the language employed in Section 5(iii) is not identical with the language of Section 10(19A) of the I.T. Act. If the Legislature intended to split the Palace in part(s), alike houses for taxing the subject, it would have said so by employing appropriate language in Section 10(19A) of the I.T. Act. Also, Section 23(2) and (3), uses the expression “house or part of a house”. Such expression does not find place in Section 10(19A) of the I.T. Act. Likewise, there is no such expression in Section 23, specifically dealing with the cases relating to “palace”.

In the present case which related to the ‘Umed Bhawan Palace’ used by the ‘ruler’ as his official residence and some part of which had been requisitioned to the Defence Ministry, the bench of Ranjan Gogoi and Abhay Manoher Sapre, JJ further said that if two Statutes dealing with the same subject use different language then it is not permissible to apply the language of one Statute to other while interpreting such Statutes. Similarly, once the assessee is able to fulfill the conditions specified in section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because the exemptions are for the benefit of the assessee. [Maharao Bhim Singh of Kota v. Commissioner of Income Tax, 2016 SCC OnLine SC 1428, decided on 05.12.2016]