Case Briefs

Supreme Court: The 3-Judge Bench comprising of Dr Dhananjaya Y Chandrachud*, Vikram Nath and BV Nagarathna, JJ., has held that the question whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor is a question of law and existence of alternate remedy would not bar the High Court from entertaining the same. The Bench expressed,

“The issues raised by the appellant were questions of law which required, upon a comprehensive reading of the Bihar Electricity Act, a determination of whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor…”

The crux of the case was that the Patna High Court had declined to entertain writ petition challenging the validity of electricity duty and penalty imposed on the electricity supplied to Bihar State Electricity Board (BSEB) on the ground that the dispute between the parties was factual in nature and was suitable for adjudication in terms of the statutory remedy provided in the Bihar Electricity Duty Act 19481.

Factual Developments

The appellant, a sugar mill company was engaged in the business of manufacture and sale of white crystal sugar. The waste of sugarcane (bagasse) was used for the production of electricity for its own consumption by the appellant and the surplus energy was supplied to BSEB.

In pursuance of its power under Section 3(1) of the Act, the State had issued a notification dated 21-10-2002 which stipulated that the rate of duty applicable on the consumption or sale of electricity would be fixed at six per cent of the value of energy consumed or sold for any other purposes other than irrigation which was later amended on 04-03-2005 which provided that the rate of duty to be levied on consumption of electrical energy generated by captive power plants would be six per cent of the  value of energy, i.e. energy tariff as fixed by the BSEB. Noticeably on 14-01-2011 another notification was issued by the State, granting a blanket exemption from payment of electricity duty on electricity generated by captive plants for self-consumption.

In the above backdrop, the appellant had challenged the notifications dated 21-10-2002, which was struck down by the High Court on the ground that there were no guidelines in the statute or the notifications for construing the expression ‘value of energy’. Subsequently, the State amended the Act through the Bihar Finance Act 2012 with retrospective effect from 17-10-2002 for defining the term ‘value of energy’.

Once again, the appellant challenged the amendment in the High Court, however, while the petition was pending the State issued a notice to the appellant for its failure to file returns under Section 6B (1) of the Act, concealment of the sale of electricity of approximately Rs 56 crores and for raising a demand of electricity duty and penalty of about Rs 67 crores.

Grievance raised by the Appellant

On behalf of the appellant, the following submissions had been made to substantiate the claim that no tax can be levied on the supply of electricity by the appellant to BSEB for the following reasons:

  1. Under Section 3 of the Act, tax was levied on the ‘value of energy’ and Section 2(ee) only brought the sale to a consumer within the ambit of the phrase ‘value of energy’;
  2. BSEB was a ‘licensee’ and not a ‘consumer’ in view of the definition of ‘licensee’ provided under Section 2(d) of the Act; and the term ‘value of energy’ used in Section 3 for the levy of tax was not applicable to BSEB because the definition of ‘consumer’ excluded a licensee, Section 2 (b) states:

“‘Consumer’ means any person who is supplied with energy but does not include either a licensee or the distributing licensee…”

  1. BSEB was already paying electricity duty for the electricity sold by it to consumers, including the electricity supplied by the company to the Board. The levy of tax on the electricity supplied by the company would thus amount to double taxation;
  2. Even if it was conceded that the State had power to levy tax on the supply of electricity by the generator to the licensee, the Government had not exercised its power, since under Section 3, a notification must be issued for specifying the rate of charge. The notification issued on 21-10-2002 was only providing the rate of duty on ‘consumption or sale of electricity’.
  3. Since the power exercised by the State under Section 3 of the Act to levy electricity duty on sale of electricity by the appellant to BSEB was a jurisdictional issue, the rule of alternate remedy would not apply;

Analysis

In a similarly placed case, which was initially tagged with the instant petition but was later de-tagged, National Thermal Power Corporation Ltd. (NTPC) was supplying electricity exclusively to the Electricity Boards, which had challenged the same issue before the Court, the High Court had held that electricity duty could not be imposed under Section 3 (1) of the Act on a power generation company supplying electricity to a licensee like the Electricity Board, concluding that it was beyond the legislative competence of the State to impose a tax on the sale of electricity which was not a sale for consumption. Moreover, the High Court observed that in terms of the provisions of the Bihar Electricity Act, a power generation company is liable to pay duty only if it is selling electricity to the consumer, as defined in the legislation.

Noticeably, the High Court by its impugned order had declined to entertain the writ petition on two counts: (i) the appellant had an alternate statutory remedy under Section 9A of the Act; and (ii) the dispute involved questions of fact which are not amenable to the writ jurisdiction of the High Court. The Bench observed that it was not the case of the appellant that the respondents had miscalculated the duty and penalty imposed on it. The appellant contended that the State Government did not have power to levy tax on its sale of electricity to BSEB. Thus, the plea stroke at the exercise of jurisdiction by the Government; accordingly, the Bench held,

“The High Court can exercise its writ jurisdiction if the order of the authority is challenged for want of authority and jurisdiction, which is a pure question of law.”

Relying on the decision in Sree Meenakshi Mills Ltd. v CIT, 1956 SCR 691, wherein a three judge Bench had explained succinctly the tests for the identification of questions of fact, questions of law and mixed questions of law and facts, the Bench stated that, “the test that is to be applied for the determination of a question of law is whether the rights of the parties before the court can be determined without reference to the factual scenario.”

Verdict

Hence, the Bench held that the issues raised by the appellant were questions of law which required, upon a comprehensive reading of the Bihar Electricity Act, a determination of whether tax can be levied on the supply of electricity by a power generator (which also manufactures sugar) supplying electricity to a distributor; and whether the State had the legislative competence to levy duty on the sale of electricity to an intermediary distributor.

Resultantly, the Bench was of the view that the High Court made an error in declining to entertain the writ petition and it would be appropriate to restore the proceedings back to the High Court for a fresh disposal. Accordingly, the appeal was allowed and the impugned judgment was set aside.

[M/s Magadh Sugar & Energy Ltd. v. State of Bihar, 2021 SCC OnLine SC 801, decided on 24-09-2021]

___________________________________________________________________________
Kamini Sharma, Editorial Assistant has put this report together

___________________________________________________________________________

Appearance by:

For the Appellant: Advocate SK Bagaria

For the State of Bihar: Sr. Advocate Saket Singh


*Judgment by: Justice Dr Dhananjaya Y Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Case BriefsSupreme Court

Supreme Court: The division bench of Dr. DY Chandrachud and MR Shah, JJ has upheld the validity of Section 54(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) which provides for refund of unutilised input tax credit (ITC) in certain cases.

Provisions in question

Section 54[1] of the CGST Act provides for a refund of tax. Under sub-Section (1) of Section 54, a person claiming a refund of “tax and interest, if any, paid on such tax or any other amount paid” has to make an application within two years of the relevant date.

Parliament envisaged a specific situation where the credit has accumulated due to an inverted duty structure, that is where the accumulation of ITC is because the rate of tax on inputs is higher than the rate of tax on output supplies. Taking legislative note of this situation, a provision for refund was provided for in Section 54(3) which embodies for refund of unutilised input tax credit (ITC) in cases involving:

(i) zero rated supplies made without payment of tax; and

(ii) credit accumulation “on account of rate of tax on inputs being higher than rate of tax on output supplies”.

Further, the Central Goods and Service Tax Rules 2017 were formulated in pursuance of the rule making power conferred by Section 164 of the CGST Act. Rule 89(5) provides a formula for the refund of ITC, in “a case of refund on account of inverted duty structure”. The said formula uses the term “Net ITC”. In defining the expression “Net ITC”, Rule 89(5)[2] speaks of “input tax credit availed on inputs”.

Case Trajectory

The petitioners approached the Gujarat High Court and the Madras High Court and made the following submissions:

(i) Section 54(3) allows for a refund of ITC where the accumulation is due to an inverted duty structure;

(ii) ITC includes the credit of input tax charged on the supply of goods as well as services;

(iii) Section 54(3) does not restrict the entitlement of refund only to unutilised ITC which is accumulated due to the rate of tax on inputs being higher than the rate of tax on output supplies. It also allows for refund of unutilised ITC when the rate of tax on input services is higher than the rate of tax on output supplies;

(iv) While Section 54(3) allows for a refund of ITC originating in inputs as well as input services, Rule 89(5) is ultra vires in so far as it excludes tax on input services from the purview of the formula; and

(v) In the event that Section 54(3) is interpreted as a restriction against a claim for refund of accumulated ITC by confining it only to tax on inputs, it would be unconstitutional as it would lead to discrimination between inputs and input services.

Gujarat High Court’s judgment

By its judgment dated 24 July 2020, the Division Bench of the Gujarat High Court, held that:

“Explanation (a) to Rule 89(5) which denies the refund of “unutilised input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017.”

The High Court therefore directed the Union Government to allow the claim for refund made by the petitioners before it, considering unutilised ITC on input services as part of “Net ITC” for the purpose of calculating refund in terms of Rule 89(5), in furtherance of Section 54(3).

Madras High Court’s judgment

The Division Bench of the Madras High Court came to a contrary conclusion, after having noticed the view of the Gujarat High Court, and held;

 “63…

(1) Section 54(3)(ii) does not infringe Article 14.

(2) Refund is a statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power.”

The divergent views by both the High Courts led to the case before the Supreme Court.

Supreme Court’s verdict

Upholding the constitutional validity of Section 54(3), the Court held that

“A claim to refund is governed by statute. There is no constitutional entitlement to seek a refund.”

The Court explained that Parliament while enacting the provisions of Section 54(3), legislated within the fold of the GST regime to prescribe a refund. While doing so, it has confined the grant of refund in terms of the first proviso to Section 54(3) to the two categories which are governed by clauses (i) and (ii) i.e.

(i) zero rated supplies made without payment of tax; and

(ii) credit accumulation “on account of rate of tax on inputs being higher than rate of tax on output supplies.

Parliament has in clause (i) of the first proviso allowed a refund of the unutilized ITC in the case of zero-rated supplies made without payment of tax. Under clause (ii) of the first proviso, Parliament has envisaged a refund of unutilized ITC, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

“When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated at par on a matter of a refund of unutilized ITC cannot be accepted. Such an interpretation, if carried to its logical conclusion would involve unforeseen consequences, circumscribing the legislative discretion of Parliament to fashion the rate of tax, concessions and exemptions. If the judiciary were to do so, it would run the risk of encroaching upon legislative choices, and on policy decisions which are the prerogative of the executive.”

Stating that courts are averse to entering the area of policy matters on fiscal issues, the Court said,

“Many of the considerations which underlie these choices are based on complex balances drawn between political, economic and social needs and aspirations and are a result of careful analysis of the data and information regarding the levy of taxes and their collection.”

The Court also found it impossible to accept the premise that the guiding principles which impart a measure of flexibility to the legislature in designing appropriate classifications for the purpose of a fiscal regime should be confined only to the revenue harvesting measures of a statute.

“The precedents of this Court provide abundant justification for the fundamental principle that a discriminatory provision under tax legislation is not per se invalid. A cause of invalidity arises where equals are treated as unequally and unequals are treated as equals.”

Noticing that both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same and they are distinct species, the Court said,

“Parliament engrafted a provision for refund Section 54(3). In enacting such a provision, Parliament is entitled to make policy choices and adopt appropriate classifications, given the latitude which our constitutional jurisprudence allows it in matters involving tax legislation and to provide for exemptions, concessions and benefits on terms, as it considers appropriate.”

[Union of India v. VKC Footsteps, 2021 SCC OnLine SC 706, decided on 13.09.2021]


*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

For UOI: N Venkataraman and Balbir Singh, ASG

For Assessee: Senior Advocates V Sridharan and Arvind Datar; Advocates Sujit Ghosh and Uchit Sheth

For Respondents: Advocate Arvind Poddar


[1] “Section 54. Refund of tax

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of Section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

[…] (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods and services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

*********************************************

[2] “(4) […]

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;

[…]

(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;

(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula: – Maximum Refund Amount= {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover} − tax payable on such inverted rated supply of goods

Explanation:- For the purposes of this sub rule, the expressions “Net ITC” and “Adjusted Total turnover” shall have the same meanings as assigned to them in sub-rule (4).”

Case BriefsSupreme Court

Supreme Court: In an important ruling on taxation law, the bench of Sanjay Kishan Kaul and Hrishikesh Roy*, JJ has held that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments.

Issue

Whether Section 14A of the Income Tax Act, 1961, enables the Department to make disallowance on expenditure incurred for earning tax free income in cases where assessees like the present appellant, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income?

What does Section 14A state?

In Section 14, the various incomes are classified under Salaries, Income from house property, Profit & Gains of business or profession, Capital Gains & Income from other sources.

The Section 14A relates to expenditure incurred in relation to income which are not includable in Total Income and which are exempted from tax. No taxes are therefore levied on such exempted income. The Section 14A had been incorporated in the Income Tax Act to ensure that expenditure incurred in generating such tax exempted income is not allowed as a deduction while calculating total income for the concerned assessee.

Legislative history

Section 14A was introduced to the Income Tax Act by the Finance Act, 2001 with retrospective effect from 01.04.1962, in aftermath of judgment in the case of Rajasthan State Warehousing Corporation Vs. CIT, (2000) 3 SCC 126. The said Section provided for disallowance of expenditure incurred by the assessee in relation to income, which does not form part of their total income.

“As such if the assessee incurs any expenditure for earning tax free income such as interest paid for funds borrowed, for investment in any business which earns tax free income, the assessee is disentitled to deduction of such interest or other expenditure.”

Although the provision was introduced retrospectively from 01.04.1962, the retrospective effect was neutralized by a proviso later introduced by the Finance Act, 2002 with effect from 11.05.2001 whereunder, re-assessment, rectification of assessment was prohibited for any assessment year, up-to the assessment year 2000-2001, when the proviso was introduced, without making any disallowance under Section 14A. The earlier assessments were therefore permitted to attain finality. As such the disallowance under Section 14A was intended to cover pending assessments and for the assessment years commencing from 2001-2002.

Facts

  • In the case at hand, the Court was concerned with disallowances made under Section 14A for assessment years commencing from 2001-2002 onwards or for pending assessments.
  • The assessees are scheduled banks and in course of their banking business, they also engage in the business of investments in bonds, securities and shares which earn the assessees, interests from such securities and bonds as also dividend income on investments in shares of companies and from units of UTI etc. which are tax free.
  • None of the assessee banks amongst the appellants, maintained separate accounts for the investments made in bonds, securities and shares wherefrom the tax-free income is earned so that disallowances could be limited to the actual expenditure incurred by the assessee.
  • In absence of separate accounts for investment which earned tax free income, the Assessing Officer made proportionate disallowance of interest attributable to the funds invested to earn tax free income by referring to the average cost of deposit for the relevant year.
  • The CIT (A) had concurred with the view taken by the Assessing Officer.
  • The ITAT in Assessee’s appeal against CIT(A) considered the absence of separate identifiable funds utilized by assessee for making investments in tax free bonds and shares but found that assessee bank is having indivisible business and considering their nature of business, the investments made in tax free bonds and in shares would therefore be in nature of stock in trade. The ITAT then noticed that assessee bank is having surplus funds and reserves from which investments can be made. Accordingly, it accepted the assessee’s case that investments were not made out of interest or cost bearing funds alone and held that disallowance under Section 14A is not warranted, in absence of clear identity of funds.
  • The decision of the ITAT was reversed by the High Court.

Analysis

The Supreme Court took note of the fact that the CIT(A) and the High Court had based their decision on the fact that the assessee had not kept their interest free funds in separate account and as such had purchased the bonds/shares from mixed account. This is how a proportionate amount of the interest paid on the borrowings/deposits, was considered to have been incurred to earn the tax-free income on bonds/shares and such proportionate amount was disallowed applying Section 14A of the Act.

It, however, explained that

“In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure.”

The Court, hence, held that if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made.

[South Indian Bank v. CIT,  2021 SCC OnLine SC 692, decided on 09.09.2021]


*Judgment by: Justice Hrishikesh Roy

Know Thy Judge | Justice Hrishikesh Roy

Appearances before the Court by:

For Appellants: Senior Advocates S. Ganesh, S.K. Bagaria, Jehangir Mistri and Joseph Markose,

For Respondent/Revenue: ASG Vikramjit Banerjee and Senior Advocate Arijit Prasad

Legislation UpdatesStatutes/Bills/Ordinances

The Ministry of Finance has passed the Taxation Laws (Amendment) Act, 2021 on August 13, 2021. The Act amends the Income Tax Act, 1961 and the Finance Act, 2012.

Key amendments under the Act are:

Levy of Tax on income earned from the sale of shares outside India: 

Under the Income Tax Act, 1961 the non-residents are required to pay tax on the income accruing through or arising from any business connection, property, asset, or source of income situated in India. The Finance Act, 2012 amended the Income Tax Act, 1961 and clarified that if a company is registered or incorporated outside India, its shares will be deemed to be or have always been situated in India if they derive their value substantially from the assets located in India.  As a result, the persons who sold such shares of foreign companies before the enactment of the Finance Act, 2012, also became liable to pay tax on the income earned from such sale. The Taxation Laws (Amendment) Act, 2021, omits this tax liability if following conditions are met:

  1. An appeal or petition filed in this regard must be withdrawn or the person must submit an undertaking to withdraw it
  2. The notices or claims under such proceedings must be withdrawn or the person must submit an undertaking to withdraw them
  3. The person should submit an undertaking to waive the right to seek or pursue any remedy or claim in this regard, which may otherwise be available under any law in force or any bilateral agreement.

The Act prescribes that if all the above conditions are fulfilled by the concerned person, then all the assessment or reassessment orders issued with respect to such tax liability will be deemed to have never been issued. Also, if a person becomes eligible for refund after fulfilling these conditions, the amount will be refunded to him, without any interest.


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Delhi: Dealing with the validity of the order passed under section 143(3), which was passed by an officer who did not have the Jurisdiction on the case of the Assessee and whether, the second Statutory notice issued under section 143(2) by the jurisdiction Assessing Officer, is also barred by limitation. The tribunal has reiterated that the notice under section 143(2) can be issued within a period of six months from the end of the financial year in which the return was filed. Further, on the point of jurisdiction relating to the issuance of notice also makes the notice under Section 143(2) void-ab-initio

The return of income for Assessment Year 2015-16 was e-filed by the Assessee on 2/9/2015 declaring a total income of Rs. 8,76,900/-. The case was selected for complete scrutiny under CASS. The Assessing Officer after considering the submissions and the relevant documents passed the final assessment order u/s 143 (3) of the Income Tax Act on 1st May, 2017, and accepted the declared income by the Assessee.

The Principal Commissioner of Income Tax (CIT) issued a notice under Section 263(1) on 16/08/2017. The Principal CIT vide order dated 7/11/2017 set aside the original assessment order and directed the Assessing Officer to pass the assessment order afresh.

Being aggrieved by the order u/s 263 of the Income Tax Act, 1961 passed by the Principal CIT, the Assessee preferred an Appeal before the Income Tax Appellate Tribunal (hereinafter referred as to “Tribunal”).

Whereby, the tribunal was pleased to held that the notice under section 143(2) can be issued within a period of six months from the end of the financial year in which the return was filed. Further, on the point of jurisdiction relating to the issuance of notice also makes the notice under Section 143(2) void-ab-initio.

“The tribunal was pleased to held that the notice under Section 143(2) can be issued after an income tax return has been filed but within a period of six months from the end of the financial year in which the return was filed. Thus, the first notice under Section 143(2) was issued on 01.08.2016 which by the non-jurisdictional Assessing Officer and jurisdictional Assessing Officer issued the notice on 10.03.2017 which is beyond the limitation period as per the statutory provisions of the Act. Thus, the notice is time-barred and hence, the assessment itself becomes void-ab-initio.

the proper jurisdiction of the Assessing Officer in the present case is that of DCIT, Circle 25(2) as the assessment for A.Y. 2014-15 has proceeded before the said Assessing Officer in Assessee’s case. There was no change of jurisdiction sought by the Revenue as per Section 124 read with Section 120 of the Income Tax Act, 1961. Thus, on the point of jurisdiction relating to the issuance of notice also makes the notice under Section 143(2) void-ab-initio.”

[Nirmal Gupta v. Pr. CIT-9,  2021 SCC OnLine ITAT 345, decided on 22.06.2021]


† Advocate, Supreme Court of India and Delhi High Court  

Case BriefsSupreme Court

Supreme Court: Interpreting the true scope of Section 80-IA(5) of the Income Tax Act, 1961, the bench of L. Nageswara Rao* and Vineet Saran, JJ has held that the scope of sub-section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating ‘eligible business’ as the ‘only source of income’.

Provision in question

Sub-section (1) and sub-section (5) of Section 80-IA which are relevant for these Appeals are as under:

“80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.— (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years.

* * * *

(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

The essential ingredients of Section 80-IA (1) of the Act are:

  1. a) the ‘gross total income’ of an assessee should include profits and gains;
  2. b) those profits and gains are derived by an undertaking or an enterprise from a business referred to in subsection (4);
  3. c) the assessee is entitled for deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive assessment years; and
  4. d) in computing the ‘total income’ of the Assessee, such deduction shall be allowed.

The import of Section 80-IA is that the ‘total income’ of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the ‘eligible business’.

Background

In the case at hand, the ‘gross total income’ of the Assessee for the assessment year 2002-03 was less than the quantum of deduction determined under Section 80-IA of the Act. The Assessee contended that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of ‘gross total income’. The Appellate Authority was of the view that there is no limitation on deduction admissible under Section 80-IA of the Act to income under the head ‘business’ only.

The Court was hearing a case where the Revenue had argued that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from ‘eligible business’ by taking it as the only source of income.

“… the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from ‘eligible business’ which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the ‘business income’.”

On the other hand, the Assessee had argued that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the ‘eligible business’ as the only source of income.

The claim of the Assessee was that in computing its ‘total income’, deductions available to it have to be set-off against the ‘gross total income’, while the Revenue contends that it is only the ‘business income’ which has to be taken into account for the purpose of setting-off the deductions under Sections 80-IA and 80-IB of the Act

Analysis and conclusion

In Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai, (2008) 4 SCC 22, the Supreme Court was concerned with Section 80-I of the Act. Section 80-I(6), which is in pari materia to Section 80-IA(5), is as follows:

“ 80-I(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under subsection (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.”

It was held in Synco Industries that

  • for the purpose of calculating the deduction under Section 80-I, loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income.
  • Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee.

In CIT (Central), Madras v. Canara Workshops (P) Ltd., Kodialball, Mangalore, (1986) 3 SCC 538, the question that arose for consideration before this Court related to computation of the profits for the purpose of deduction under Section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels.

The Court was, however, not in agreement with the submissions made by the Revenue. It was, hence, held that the profits and gains by an industry entitled to benefit under Section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.

Referring to the aforesaid authorities, the Court held that

“… Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’.”

[CIT v. Reliance Energy Ltd., 2021 SCC OnLine SC 349, decided on 28.04.2021]


Judgment by: Justice L. Nageswara Rao 

Know Thy Judge| Justice L. Nageswara Rao

For Revenue: Senior Advocate Arijit Prasad

For Assessee: Senior Advocate Ajay Vohra

Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of R. F. Nariman* and B.R. Gavai, JJ., addressed the instant case regarding statutory interpretation.  The issue before the Bench was whether a residential accommodation for nuns and hostel for students would fall under “religious or educational purposes” for the purpose of tax exemption. The Bench expressed,

“We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.”

Findings of the High Court

Under Section 3(1)(b) of Kerala Building Tax Act, 1975 buildings that are used principally for religious, charitable or educational purposes or as factories or workshops are exempted from building tax.

The State had claimed that no exemption should be granted as residential accommodation for nuns and hostels for students would be for residential as apart from religious or educational purposes and would not therefore be covered by the exemption contained in Section 3(1)(b) of the Act. The Division Bench of Kerala High Court had held that the buildings used for the residence of the nuns in a convent, was principally used for religious purposes and therefore, should also qualify for exemption. However, on the question of hotel accommodations for students the Bench had expressed a contrary view and held that the same would not qualify as being principally used for education purpose and would not be entitled for exemption.

However, the full Bench of Kerala High Court had reversed the findings of Division Bench regarding hostel accommodation. The full Bench opined that the Division Bench while deciding the matter did not consider the educational Regulations of the Medical Council of India and Nursing Council of India, which made it mandatory that in order to get approval, hospital for patients and hostel facilities for students are mandatory. Thus, the full Bench held that, “

“Wherever hostel is compulsory for approval of a course study or an educational institution by the regulatory body as in the case of medical and nursing colleges, hostel building is an integral part of the educational institution, and so much so, accommodation to students provided in the hostel building is for educational purpose and therefore the hostel building qualifies for exemption from building tax.”

However, letting out of buildings by private agencies was held to be a commercial activity whether tenants were students or not.

Observation and Conclusion

Section 3(1)(b) of Kerala Building Tax Act, 1975 read as:

    1. Exemptions(1) Nothing in this Act shall apply to-

(b) Buildings used principally for religious, charitable or educational purposes or as factories or workshops.

Explanation- for the purposes of this sub-section, “charitable purpose” includes relief of the poor and free medical relief.

Noticing that even factories or workshops which produce goods and provide services were also exempted, despite profit motive, the Bench opined that the object for exempting buildings which were used principally for religious, charitable or educational purposes would be for core religious, charitable or educational activity as well as purposes directly connected with religious activity.

In Commr. of Customs (Preventive) v. M. Ambalal & Co., (2011) 2 SCC 74, the  Supreme Court made a clear distinction between exemptions which were to be strictly interpreted as opposed to beneficial exemptions and held that,

“The general rule is strict interpretation while special rule in the case of beneficial and promotional exemption is liberal interpretation. The two go very well with each other because they relate to two different sets of circumstances.”

The Bench cited an example, stating that take a case where nuns were residing in a building next to a convent so that they may walk over to the convent for religious instruction. Take a case where the neighbouring building to the convent was let out on rent to any member of the public, and the rent was then utilised only for core religious activity. Letting out a building for a commercial purpose would lose any rational connection with religious activity. The indirect connection with religious activity being the profits which were ploughed back into religious activity would obviously not suffice to exempt such a building. But it was obvious that the purpose of residence of nuns was not to earn profit but residence that was integrally connected with religious or educational activity.

Lastly, while differentiating with the judgment in Union of India v. Wood Papers Ltd., (1990) 4 SCC 256, the Bench held that,

“An exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting economic growth or otherwise has some beneficial reason behind it.”

Thus, the Court refused to countenance the plea made by the State that buildings which were used for purposes integrally connected with religious or educational activity were outside the scope of the exemption contained in Section 3(1)(b) of the Act.

“We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted.”

In the light of above, the Bench opined that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to and a literal formalistic interpretation of the statute at hand was to be eschewed.

[State of Kerala v. Mother Superior Adoration Convent, 2021 SCC OnLine SC 151, decided on 01-03-2021]


Kamini Sharma, Editorial Assistant has put this report together 

*Judgment by: Justice R. F. Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearance before the Court by:

For the Appellants: Sr. Adv. Venkatraman and Sr. Adv. Jaideep Gupta

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Hemant Gupta and BR Gavai, JJ has held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India.

Background

The Court was hearing an appeal arising from the judgment of the High Court of Karnataka dated 15.10.2011 reported as CIT v. Samsung Electronics Co. Ltd., (2012) 345 ITR 494, wherein it was held that the amounts paid by the concerned persons resident in India to non-resident, foreign software suppliers, amounted to royalty and as this was so, the same constituted taxable income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, 1961, thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source [TDS] under section 195 of the Income Tax Act.

The Court grouped the appeals before it into four categories:

i) The first category dealt with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer

ii) The second category of cases dealt with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.

iii) The third category dealt with cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.

iv) The fourth category dealt with cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users

Scheme of Income Tax Act vis-à-vis applicability of Double Taxation Avoidance Agreements (DTAA)

The scheme of the Income Tax Act, in relation to the questions before the Court, is that for income to be taxed under the Income Tax Act, residence in India, as defined by section 6, is necessary in most cases.

Under section 5(2) of the Income Tax Act, the total income of a person who is a non-resident, includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise to such person in India during such year. This, however, is subject to the provisions of the Income Tax Act. Certain income is deemed to arise or accrue in India, under section 9 of the Income Tax Act, notwithstanding the fact that such income may accrue or arise to a non-resident outside India. One such income is income by way of royalty, which, under section 9(1)(vi) of the Income Tax Act, means the transfer of all or any rights, including the granting of a licence, in respect of any copyright in a literary work.

That such transaction may be governed by a DTAA is then recognized by section 5(2) read with section 90 of the Income Tax Act, making it clear that the Central Government may enter into any such agreement with the government of another country so as to grant relief in respect of income tax chargeable under the Income Tax Act or under any corresponding law in force in that foreign country, or for the avoidance of double taxation of income under the Income Tax Act and under the corresponding law in force in that country.

“What is of importance is that once a DTAA applies, the provisions of the Income Tax Act can only apply to the extent that they are more beneficial to the assessee and not otherwise.”

Further, by explanation 4 to section 90 of the Income Tax Act, it has been clarified by the Parliament that where any term is defined in a DTAA, the definition contained in the DTAA is to be looked at. It is only where there is no such definition that the definition in the Income Tax Act can then be applied.

The machinery provision contained in section 195 of the Income Tax Act is inextricably linked with the charging provision contained in section 9 read with section 4 of the Income Tax Act, as a result of which, a person resident in India, responsible for paying a sum of money, “chargeable under the provisions of [the] Act”, to a non-resident, shall at the time of credit of such amount to the account of the payee in any mode, deduct tax at source at the rate in force which, under section 2(37A)(iii) of the Income Tax Act, is the rate in force prescribed by the DTAA. Importantly, such deduction is only to be made if the non-resident is liable to pay tax under the charging provision contained in section 9 read with section 4 of the Income Tax Act, read with the DTAA.

When is making of copies or adaptation of a computer programme not copyright infringement?

The making of copies or adaptation of a computer programme in order to utilise the said computer programme for the purpose for which it was supplied, or to make up back-up copies as a temporary protection against loss, destruction or damage so as to be able to utilise the computer programme for the purpose for which it was supplied, does not constitute an act of infringement of copyright 54 under section 52(1)(aa) of the Copyright Act. What is referred to in section 52(1)(aa) of the Copyright Act would not amount to reproduction so as to amount to an infringement of copyright.

Section 52(1)(ad) is independent of section 52(1)(aa) of the Copyright Act, and states that the making of copies of a computer programme from a personally legally obtained copy for non-commercial personal use would not amount to an infringement of copyright. However, it is not possible to deduce from this that if personally legally obtained copies of a computer programme are to be exploited for commercial use, it would necessarily amount to an infringement of copyright.

“Section 52(1)(ad) of the Copyright Act cannot be read to negate the effect of section 52(1)(aa), since it deals with a subject matter that is separate and distinct from that contained in section 52(1)(aa) of the Copyright Act.”

Definition of Royalty in the DTAAs vis-à-vis the Income Tax Act

Under Article 12 of the India-Singapore DTAA, the term “royalties” uses the expression “means”, thereby making it exhaustive and it refers to payments of any kind that are received as a consideration for the use of or the right to use any copyright in a literary work.

As opposed to this, the definition contained in explanation 2 to section 9(1)(vi) of the Income Tax Act, is wider in at least three respects:

i. It speaks of “consideration”, but also includes a lump-sum consideration which would not amount to income of the recipient chargeable under the head “capital gains”;

ii. When it speaks of the transfer of “all or any rights”, it expressly includes the granting of a licence in respect thereof; and

iii. It states that such transfer must be “in respect of” any copyright of any literary work.

However, even where such transfer is “in respect of” copyright, the transfer of all or any rights in relation to copyright is a sine qua non under explanation 2 to section 9(1)(vi) of the Income Tax Act. In short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act.

The transfer of “all or any rights (including the granting of a licence) in respect of any copyright”, in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. The expression “in respect of” is equivalent to “in” or “attributable to”.

“Thus, explanation 2(v) to section 9(1)(vi) of the Income Tax Act, when it speaks of “all of any rights…in respect of copyright” is certainly more expansive than the DTAA provision, which speaks of the “use of, or the right to use” any copyright.”

However, when it comes to the expression “use of, or the right to use”, the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income Tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent, there will be no difference in the position between the definition of “royalties” in the DTAAs and the definition of “royalty” in explanation 2(v) of section 9(1)(vi) of the Income Tax Act.

Conclusion

The Court held that the “person” mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute.

“… persons are not obligated to do the impossible, i.e., to apply a provision of a statute when it was not actually and factually on the statute book.”

Hence, the distribution of copyrighted computer software, would not constitute the grant of an interest in copyright under section 14(b)(ii) of the Copyright Act, thus necessitating the deduction of tax at source under section 195 of the Income Tax Act.

The Court highlighted that the effect of section 90(2) of the Income Tax Act, read with explanation 4 thereof, is to treat the DTAA provisions as the law that must be followed by Indian courts, notwithstanding what may be contained in the Income Tax Act to the contrary, unless more beneficial to the assessee. Hence, it was held that,

“Given the definition of royalties contained in Article 12 of the DTAAs, there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.”

[Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax, 2021 SCC OnLine SC 159, decided on 02.03.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For appellants: Senior Advocates Arvind Datar, Percy Pardiwala, S. Ganesh, Ajay Vohra, Preetesh Kapur and Advocates Sachit Jolly, Kunal Verma

For Revenue: Additional Solicitor General Balbir Singh

Experts CornerTarun Jain (Tax Practitioner)

  1. Introduction

Tax minimisation pursuits are as old as tax itself. While there is no fundamental right to be immune from taxation,[1] there is nonetheless judicial recognition that “every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be”.[2] The Indian judiciary has witnessed tumultuous swings on the scope of taxpayers’ abilities to adjust their affairs. On the one hand are the sui generis observations of Justice Chinnappa Reddy in McDowell[3] inter alia highlighting that “no one can now get away with a tax avoidance project with a mere statement that there is nothing illegal about it” versus the other decisions of the Supreme Court, such as Azadi Bachao Andolan,[4] Walfort Share,[5] Vodafone International,[6] etc., which continue to vindicate tax planning.

In the year 2012 and in the context of income tax law, the Parliament intervened by inserting statutory provisions to address tax avoidance disputes and thereby adding legislative certainty as regards their respective rights of the taxpayers vis-à-vis the tax officer’s ability to revisit transactions. It is not for the first time that anti-avoidance rules have been inserted in the tax law. In fact tax laws are replete with provisions which repel specific class of prohibited transactions.[7] The difference between these provisions vis-à-vis the 2012 change, which introduced General Anti-Avoidance Rules (or GAAR), is that GAAR are potentially limitless in their scope and extend to all transactions.

  1. Legislative history

The introduction of GAAR in the law was originally proposed in the Direct Taxes Code Bill, 2009, which was followed by Direct Taxes Code Bill, 2010, but did not fructify. Thereafter the GAAR provisions were enacted in the Income Tax Act, 1961 (Act) in terms of the amendments carried out by Finance Act, 2012. Seeking to accommodate the representations from various quarters, the Government of India appointed an Expert Committee under the chairmanship of Dr Parthasarathi Shome which made extensive recommendations on GAAR.[8] Taking note of these recommendations, the relevant provisions of the Act were amended and also supplemented by detailed rules and administrative clarifications. The application of the GAAR law was also revised and amended law came into force from 1-4-2017.[9]

  1. Scope of GAAR – Impermissible avoidance arrangement

For the GAAR law to apply, it is necessary that an “impermissible avoidance arrangement” (IAA) exists.[10] The expression IAA has been defined in the Act[11] and the relevant provision states as under:

  1. Impermissible avoidance arrangement.— (1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it—

 (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;

 (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;

 (c) lacks commercial substance or is deemed to lack commercial substance under Section 97, in whole or in part; or

 (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.

As can be seen from the above, IAA is defined very widely to cover not just the transactions which are not at arm’s length but even those which are considered as resulting in misuse of the Act (either directly or indirectly), lacking commercial substance or lacking bona fide purpose. The same provision further provides that even where the “main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit”, it shall be presumed that the entire arrangement has the main purpose of obtaining a tax benefit; the burden is upon the taxpayer concerned to rebut such presumption.[12]

As if such detailed scope of IAA was not enough, there are other provisions in the Act which supplement (rather enlarge) the scope of IAA. The Act defines the scope of arrangements which are deemed to lack commercial substance,[13] meaning and scope of “round tripping” (which is one of the situations which is deemed to lack commercial substance),[14] besides delineating when does a person become an “accommodating party” for the purpose of IAA,[15] factors considered irrelevant to determine commercial substance in a transaction,[16] etc. In addition, another provision contains a near-exhaustive set of definitions specific to the GAAR chapter under the Act.[17]

  1. Consequences of application of GAAR

Once a transaction is covered within the scope of IAA, then wide-ranging consequences can follow.[18] It is stipulated that where an IAA exists, “then the consequences, in relation to tax, of the arrangement, including denial of tax benefit or a benefit under a tax treaty, shall be determined, in such manner as is deemed appropriate, in the circumstances of the case”. The Act itself stipulates the likely consequences in such scenarios, which include disregarding, combining or recharacterizing any step or the whole IAA; disregarding any accommodating party or treating any accommodating party and any other party as one and the same person; reallocating amongst the parties to the arrangement accruals, receipts, expenditures, etc., repositioning the place of residence of any party to the arrangement or the situs of an asset or transaction; lifting of corporate veil, etc. The Act further provides that, to this end, “(i) any equity may be treated as debt or vice versa; (ii) any accrual, or receipt, of a capital nature may be treated as of revenue nature or vice versa; or (iii) any expenditure, deduction, relief or rebate may be recharacterized.”[19] The Act, in addition, provides consequences in respect of the connected persons and accommodating parties.[20] In short, once a transaction is declared as an IAA, the underlying tax benefit would be brought to tax irrespective of the legal form of the transaction or the position of the parties.

  1. Procedural dynamics

The aforesaid survey of statutory provisions relating to GAAR unfailingly manifests its wide scope and consequences. In order to ensure against its indiscriminate application and arrest potential of abuse, the Act provides for framing of “guidelines” and stipulation of “conditions” which may be prescribed and the GAAR provisions “shall be applied in accordance” with such guidelines and conditions.[21] These guidelines are prescribed in Part DA of the Income Tax Rules, 1962 (Rules).

The very first provision in the Rules stipulates carve-outs i.e. situations where GAAR provisions shall not apply.[22] There are four different situations identified in this provision. First is a monetary threshold in terms of which GAAR would not apply to an IAA where the tax benefit does not exceed INR 3 crores. This is presumably to give relief to small transactions. Second is a class exclusion whereby GAAR does not apply to foreign institutional investors (i.e. FIIs) who do not claim tax treaty benefits and satisfy other stipulated conditions. Third is also a class exclusion whereby non-resident investors of a FII are excluded. The rationale for these exclusions was discussed in detail in the Expert Committee Report, which is evidently to protect foreign investors and grant legal certainty to them. Fourth is a provision colloquially referred as grandfathering provision whereby income arising out of investment transfer made prior to 1-4-2017 (i.e. before application of GAAR) is excluded from the scope of GAAR. This is to ensure against the retrospective application of GAAR law. The other provisions in the Rules provide for the show-cause notice mechanism to be issued by the assessing officer (AO) to the taxpayer concerned before application of GAAR,[23] time-limits for various actions to be undertaken under the GAAR provisions, etc. In addition, certain administrative clarifications[24] have been issued by the Income Tax Department which explain its perspective on the interpretation and application of GAAR provisions.

This takes us back to the Act which prescribes a detailed procedure for applying GAAR.[25] It is stipulated that in a situation where the AO considers that the transaction may be an IAA, he is required to a make a reference to the Principal Commissioner of Income Tax, who, if he agrees, shall issue a notice to the taxpayer concerned and issue necessary directions after hearing the response. In the event the explanation of the taxpayer is not found satisfactory, then a reference has to be made to an approval panel which would, after hearing both the taxpayer and the tax officer, pass directions determining whether a case for IAA is made out. The approval panel would comprise of three members; the chairperson being a serving or former High Court Judge, one senior Indian Revenue Service member and one member who “shall be an academic or scholar having special knowledge of matters, such as direct taxes, business accounts and international trade practices”. The completion of proceedings relating to IAA shall be in terms of the directions of the approval panel, which must be issued within six months of reference being made to it.

  1. Conclusion

A review of the procedural dynamics reveals that multiple stages of hearing and application of mind by different classes of authorities, including those representing the judiciary and external experts, are envisaged in the GAAR application process. This is possibly directed towards driving away subjectivity before the GAAR consequences are applied, in line with the recommendations of the Expert Committee and also emulating international best practices. On a larger level, however, the introduction of GAAR in the tax law reveals the legislative non-tolerance towards tax avoidance manoeuvers. Looked from another perspective, the constant tussle between the taxpayer and the tax officer is sought to be injuncted by the legislature with GAAR, by prescribing the substantive parameters on which the conduct of the taxpayer shall be assessed and the procedure which shall preserve the sanctity of adjudication and instil fairness in this exercise. It is noteworthy that despite the extensive litigation generally observed in tax laws, not a single case has been reported where GAAR law has been applied even though the law already being in force for a few years now. This indicates that the introduction of GAAR in the income tax law has brought about both a perceptual and implementation change insofar tax avoidance is concerned.

†Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1]State of W.B. v. Subodh Gopal Bose, AIR 1954 SC 92, para 20, vide Patanjali Sastri C.J.

[2]IRC v. Duke of Westminster, 1936 AC 1.

[3]McDowell and Co. Ltd. v. CTO, (1985) 3 SCC 230 : (1985) 154 ITR 148.

[4]Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1 : (2003) 263 ITR 706.

[5]CIT v. Walfort Share and Stock Brokers (P) Ltd., (2010) 8 SCC 137 : (2010) 326 ITR 1.

[6]Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 341 ITR 1.

[7]For illustration, see Ch. X, Income Tax Act, 1961.

[8] Expert Committee Report available HERE .

[9]S. 95(2) of the Income Tax Act, 1961 states “[t]his Chapter shall apply in respect of any assessment year beginning on or after the 1st day of April, 2018”.

[10]S. 95(1), Income Tax Act, 1961.

[11] S. 96(1), Income Tax Act, 1961.

[12] S. 96(2), Income Tax Act, 1961.

[13] S. 97(1), Income Tax Act, 1961.

[14] S. 97(2), Income Tax Act, 1961.

[15] S. 97(3), Income Tax Act, 1961.

[16] S. 97(4), Income Tax Act, 1961. It is noteworthy that “the fact of payment of taxes, directly or indirectly, under the arrangement”, “period or time for which the arrangement exists”, etc. are specifically provided as immaterial for the purpose of the commercial substance analysis.

[17] S. 102, Income Tax Act, 1961. For illustration, this provision defines expressions such as arrangement, asset, benefit, connected person, fund, party, relative, tax benefit, etc.

[18] S. 98, Income Tax Act, 1961, titled “consequences of impermissible avoidance arrangement”.

[19] S. 98(2), Income Tax Act, 1961.

[20] S. 99, Income Tax Act, 1961.

[21] S. 101, Income Tax Act, 1961.

[22] R. 10-U, Income Tax Rules, 1962.

[23] R. 10-UB, Income Tax Rules, 1962.

[24]For illustration, see Circular No. 7 of 2017 dated 27-1-2017, available HERE .

[25] S. 144-BA, Income Tax Act, 1961.

Hot Off The PressNewsTaxation

While the Finance Minister, presented the Union Budget, 2021-22 today, the most talked about was the Voluntary Scrappage Policy even before the budget was presented. Let’s understand more about the Policy.

The motive behind introducing the said policy is to get rid of the unfit vehicles causing and contributing to air pollution and this has been the main reason why the Government has stressed upon this policy.

Nitin Gadkari, Union Minister for MSME and Road Transport and Highways has already announced that the details of the said policy will be out in 15 days.

It has been stated that the policy is likely to cover an estimated 51 lakh Light Motor Vehicles (LMV) that have the age of 20 years above, while another 34 lakh LMV’s that are above 15 years. Further 17 lakh medium and heavy motor vehicles, which are above 15 years, and currently without valid fitness certificates.

The said vehicles are estimated to cause 10-12 time more pollution than the latest vehicles.

According to the Union Minister, the following could be the benefits of this policy:

  • Recycling of Waste Metal
  • Improved Safety
  • Reduction in Air Pollution
  • Reduction in Oil imports

With the removal of the above-categorised vehicles, there would be a booster to fuel-efficient and environment-friendly vehicles.

Government has been trying to curb air pollution and this could be a major step in that direction.


The post will be updated with the announcement of the policy.

Hot Off The PressNewsTaxation

In view of the challenges faced by taxpayers in meeting the statutory and regulatory compliances due to the outbreak of COVID-19, the Government brought the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (‘the Ordinance’) on 31st March, 2020 which, inter alia, extended various time limits. The Ordinance has since been replaced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act.

The Government issued a Notification on 24th June, 2020 under the Ordinance which, inter alia, extended the due date for all Income Tax Returns for the FY 2019-20 (AY 2020-21) to 30th November, 2020. Hence, the returns of income which were required to be filed by 31st July, 2020 and 31st October, 2020 were required to be filed by 30th November, 2020. Consequently, the date for furnishing various audit reports including tax audit report under the Income-tax Act, 1961 (the Act) was also extended to 31st October, 2020.

In order to provide more time to taxpayers for furnishing of Income Tax Returns, the due date was further extended vide notification No 88/2020/F. No. 370142/35/2020-TPL dated 29th October, 2020:

(A) The due date for furnishing of Income Tax Returns for the taxpayers (including their partners) who are required to get their accounts audited [for whom the due date (i.e. before the said extension) as per the Act was 31st October, 2020] was extended to 31st January, 2021.

(B) The due date for furnishing of Income Tax Returns for the taxpayers who are required to furnish report in respect of international/specified domestic transactions [for whom the due date (i.e. before the said extension) as per the Act was 30th November, 2020] was extended to 31st January, 2021.

(C) The due date for furnishing of Income Tax Returns for the other taxpayers [for whom the due date (i.e. before the said extension) as per the Act was 31st July, 2020] was extended to 31st December, 2020.

(D) Consequently, the date for furnishing of various audit reports under the Act including tax audit report and report in respect of international/specified domestic transaction was also extended to 31st December, 2020.

Considering the problems being faced by the taxpayers, it has been decided to provide further time to the taxpayers for furnishing of Income Tax Returns, tax audit reports and declaration under Vivad Se Vishwas Scheme. Further, in order to provide more time to taxpayers to comply under various ongoing proceedings, the dates of completion of proceedings under various Direct Taxes &Benami Acts have also been extended. These extensions are as under:

a.            The due date for furnishing of Income Tax Returns for the Assessment Year 2020-21 for the taxpayers (including their partners) who are required to get their accounts audited and companies [for whom the due date, as per the provisions of section 139(1) of the Income-tax Act,1961, was 31st October, 2020 and which was extended to 30th November, 2020 and then to 31st January, 2021] has been further extended to 15th February, 2021.

b.            The due date for furnishing of Income Tax Returns for the Assessment Year 2020-21 for the taxpayers who are required to furnish report in respect of international/specified domestic transactions [for whom the due date, as per the provisions of section 139(1) of the Income-tax Act,1961, was 30th November, 2020 and which was extended to 31st January, 2021] has been further extended to 15th February, 2021.

c.             The due date for furnishing of Income Tax Returns for the Assessment Year 2020-21 for the other taxpayers [for whom the due date, as per the provisions of section 139(1) of the Income-tax Act, 1961, was 31st July, 2020 and which was extended to 30th November, 2020 and then to 31st December, 2020] has been further extended to 10th January, 2021.

d.            The date for furnishing of various audit reports under the Act including tax audit report and report in respect of international/specified domestic transaction for the Assessment Year 2020-21 has been further extended to 15th January, 2021.

e.            The last date for making a declaration under Vivad Se Vishwas Scheme has been extended to 31st January, 2021 from 31st December, 2020.

f.             The date for passing of orders under Vivad Se Vishwas Scheme, which are required to be passed by 30th January, 2021 has been extended to 31st January, 2021.

g.            The date for passing of order or issuance of notice by the authorities under the Direct Taxes & Benami Acts which are required to be passed/ issued/ made by 30th March, 2021 has also been extended to 31st March, 2021.

Further, in order to provide relief for the third time to small and middle class taxpayers in the matter of payment of self-assessment tax, the due date for payment of self-assessment tax date is hereby again being extended. Accordingly, the due date for payment of self-assessment tax for taxpayers whose self-assessment tax liability is up to Rs. 1 lakh has been extended to 15th February, 2021 for the taxpayers mentioned in para 4(a) and para 4(b) and to 10th January, 2021 for the taxpayers mentioned in para 4(c).

The Government has also extended the due date of furnishing of annual return under section 44 of the Central Goods and Services Tax Act, 2017 for the financial year 2019-20 from 31st December, 2020 to 28th February, 2021.

The necessary notifications in this regard shall be issued in due course.


Ministry of Finance

[Press Release dt. 30-12-2020]

Case BriefsSupreme Court Roundups

2020 has been a year of COVID-19, challenges, and changes. Of many things that this year has taught us, one of the biggest lessons has been our ability to work from home alone – but together! Like most of us, the Courts too took the cue and started functioning via video conferencing when the pandemic hit the World. At first, the Supreme Court restricted it’s functioning to avoid mass gatherings in Courts and directed that only urgent matters will be heard, however, soon all the in-person hearings were completely banned and the Court directed that it would hear “extremely urgent” matters via video conferencing.

Ultimately, faced with the unprecedented and extraordinary outbreak of a pandemic, Supreme Court issued guidelines on functioning of courts through video conferencing. It said that it was necessary that Courts at all levels respond to the call of social distancing and ensure that court premises do not contribute to the spread of virus.

Also read:

When the video conference hearings first began, the Courts and the public at large were skeptical about it’s success, however, the Supreme Court, in October, said that the “the system of Video Conferencing has been extremely successful in providing access to justice.” 

Read: SC says “system of Video Conferencing has been extremely successful”; alters only one guideline from April 6 order

Here are a few unmissable facts and stories from the highest Court of the country:

  • Even though most of the Court functioning took place online and through video conferencing, 696 judgments were delivered in the year 2020 .
  • All the Constitution bench verdicts were unanimous with no dissenting opinion. [Read more]
  • In a first, Single-Judge bench started hearing cases. [Read more]
  • A new dress code was notified for advocates in light of the COVID-19 pandemic. [Read more]
  • 228 advocates registered as Advocates-on-Record of the Supreme Court. [Read more]
  • 2 judges, Justice R. Banumathi and Justice Arun Mishra retired

Read:

Read: “Justice Ramana’s proximity with Mr. Chandrababu Naidu is too well-known”; Read what Andhra Pradesh CM Jagan Mohan Reddy wrote in his letter to CJI

Here’s a quick roundup of all the important Supreme Court judgments:

11 Constitution bench judgments 

  • All the Constitution bench verdicts were unanimous with no dissenting opinion.
  • 9 out of 11 Constitution bench judgments were delivered by benches consisting of Justices Arun Mishra, Indira Banerjee, Vineet Saran and M.R. Shah, followed by Justices Aniruddha Bose and S. Ravindra Bhat who were part of Constitution benches in 5 and 4 cases, respectively.

Read more…


Maintenance in matrimonial disputes| Extensive guidelines framed; Issue of overlapping jurisdiction under different Laws resolved

The bench ofIndu Malhotra and R. Subhash Reddy, JJ framed guidelines on overlapping jurisdiction under different enactments for payment of maintenance, payment of Interim Maintenance, the criteria for determining the quantum of maintenance, the date from which maintenance is to be awarded, and enforcement of orders of maintenance.

Read more…

Also read: Guidelines

[ Rajnesh v. Neha,  2020 SCC OnLine SC 903 ]


Appointments and functioning of Tribunals

A 3-judge bench issued extensive directions in relating to selection, appointment, tenure, conditions of service, etc. relating to various tribunals, 19 in number, thereby calling for certain modifications to the Tribunal, Appellate Tribunal and other Authorities [Qualification, Experience and Other Conditions of Service of Members] Rules, 2020.

“Dispensation of justice by the Tribunals can be effective only when they function independent of any executive control: this renders them credible and generates public confidence.”

Read more…

Also read: ‘It’s high time we put an end to the disturbing trend of Govt ignoring our directions.’ Read why Supreme Court directed constitution of National Tribunals Commission

[Madras Bar Association v. Union of India2020 SCC OnLine SC 962 ]


Constitutionality of imposition of GST on lotteries, betting and gambling

Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defined the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes.

Read more…

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990 ]


Homebuyer can choose between seeking remedy under the RERA Act or the Consumer Protection Act

The bench of UU Lalit and Vineet Saran, JJ held that the Real Estate (Regulation and Development) Act, 2016 (RERA Act) does not bar the initiation of proceedings by allottees against the builders under the Consumer Protection Act, 1986.

Read more… 

[Imperia Structures v. Anil Patni,  2020 SCC OnLine SC 894 ]


Domestic Violence| Wife’s right to residence in shared household belonging to not just husband but also to his relatives

“The domestic violence in this country is rampant and several women encounter violence in some form or the other or almost every day, however, it is the least reported form of cruel behavior. A woman resigns her fate to the never-ending cycle of enduring violence and discrimination as a daughter, a sister, a wife, a mother, a partner or a single woman in her lifetime.” 

Read more…

[Satish Chander Ahuja v. Sneha Ahuja, 2020 SCC OnLine SC 841 ]


Daughters’ coparcenary rights

The 3-judge bench of Arun Mishra, SA Nazeer and MR Shah, JJheld that daughters have right in coparcenary by birth and that it is not necessary that the father coparcener should be living when the Hindu Succession (Amendment) Act, 2005 came into force.

“The conferral of right is by birth, and the rights are given in the same manner with incidents of coparcenary as that of a son and she is treated as a coparcener in the same manner with the same rights as if she had been a son at the time of birth.”

Read more…

[ Vineeta Sharma v. Rakesh Sharma, (2020) 9 SCC 1 ]


Permanent commission to all women Army officers

The bench of Dr. DY Chandrachud and Ajay Rastogi, JJ has ordered that the permanent commission will apply to all women officers in the Indian Army in service, irrespective of their years of service.

“Underlying the statement that it is a “greater challenge” for women officers to meet the hazards of service “owing to their prolonged absence during pregnancy, motherhood and domestic obligations towards their children and families” is a strong stereotype which assumes that domestic obligations rest solely on women.”

Read more… 

[Ministry of Defence v. Babita Puniya, (2020) 7 SCC 469]


RBI’s ban on Cryptocurrency trading quashed

The 3-judge bench of Rohinton Fali Nariman, S Ravindra Bhat and V Ramasubramania, JJ has struck down the curb on trading in virtual currency, cryptocurrency and bitcoins in India.

In the 180 pages long verdict penned by Justice Ramasubramania, it was held,

“When the consistent stand of RBI is that they have not banned Virtual currencies (VCs) and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”

Read more…

[Internet & Mobile Assn. of India v. Reserve Bank of India, (2020) 10 SCC 274 ]


Installation of CCTV Cameras in all Police Station

The 3-judge bench of RF Nariman*, KM Joseph and Anirudhha Bose, JJ directed all the States and UTs to install CCTV cameras in all Police Stations and file compliance affidavits within 6 weeks. The Court said that the directions are in furtherance of the fundamental rights of each citizen of India guaranteed under Article 21 of the Constitution of India, and hence, the Executive/Administrative/police authorities are to implement this Order both in letter and in spirit as soon as possible.

Read more… 

[Paramvir Singh Saini v. Baljit Singh, 2020 SCC OnLine SC 983 ]


Automatic expiration of stay 

“Whatever stay has been granted by any court including the High Court automatically expires within a period of six months, and unless extension is granted for good reason, within the next six months, the trial Court is, on the expiry of the first period of six months, to set a date for the trial and go ahead with the same.” 

Read more…

[Also read detailed report on the 2018 verdict in Asian Resurfacing of Road Agency Pvt. Ltd. v. Central Bureau of Investigation, 2018 SCC OnLine SC 310,  here.]


Political parties to publish criminal antecedents of candidates & give reasons for their selection

A bench of RF Nariman and S. Ravindra Bhat, JJ directed all political parties to upload on their website details of pending criminal cases against candidates contesting polls, noting that there has been an alarming increase in criminalisation of politics. The Court said political parties will also have to upload reasons for selecting candidates with pending criminal cases on their website.

Read more… 

[Rambabu Singh Thakur v. Sunil Arora, (2020) 3 SCC 733 ]


SC/ST (Prevention of Atrocities) Amendment Act, 2018 constitutionally valid

 A 3-judge bench of Arun Mishra, Vineet Saran and S. Ravindra Bhat, JJ has upheld the constitutional validity of the SC/ST (Prevention of Atrocities) Amendment Act, 2018, and said that a court can grant anticipatory bail only in cases where a prima facie case is not made out. In the unanimous verdict, Justice Mishra penned the opinion for himself and Justice Saran whereas Justice Bhat wrote a separate but concurring opinion.

Read more… 

[Prathvi Raj Chauhan v. Union of India, (2020) 4 SCC 727 ]


Test for determining non-arbitrability of disputes

The 3-judge bench of NV Ramana*Sanjiv Khanna** and Krishna Murari, JJ overruled the ratio in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 wherein it was held that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882, are not arbitrable as this would be contrary to public policy.

Read more…

[Vidya Drolia v. Durga Trading Corporation, 2020 SCC OnLine SC 1018 ]


Admissibility of electronic evidence without certificate under Section 65B of Evidence Act, 1872

In a reference dealing with the interpretation of Section 65B of the Evidence Act, 1872 that deals with admissibility of electronic records, the 3-judge bench of RF Nariman, S. Ravindra Bhat and V. Ramasubramanian, JJ held that the certificate required under Section 65B(4) is a condition precedent to the admissibility of evidence by way of electronic record, as correctly held in by the 3-judge bench in Anvar P.V. v. P.K. Basheer, (2014) 10 SCC 473, and incorrectly “clarified” by a division bench in Shafhi Mohammad v. State of Himachal Pradesh, (2018) 2 SCC 801. The Court further clarified that the required certificate under Section 65B(4) is unnecessary if the original document itself is produced.

Read more…

[Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal, (2020) 7 SCC 1 ]


Advance tax ruling system

The bench of SK Kaul and Indu Malhotra, JJ has recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. It suggested that a council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

Writing two postscripts, the Court said that it was forced to do so on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee.

Read more… 

[National Co-operative Development Corporation v. Commissioner of Income Tax, 2020 SCC OnLine SC 733 ]


Telecos get 10 years to pay AGR dues

Asking Telecom Operators to make the payment of 10% of the total AGR dues as by 31.3.2021, the 3-judge bench of Arun Mishra, SA Nazeer and MR Shah, JJ gave 10 years to the Telecom Service Providers (TSPs) to complete the payment of their AGR dues.

Read more…

[Union of India v. Assn. of Unified Telecom Service Providers of India, (2020) 9 SCC 748 ]


All petitions challenging the IBC provisions relating to personal guarantors transferred to Supreme Court

The Insolvency and Bankruptcy Code is at a nascent stage and it is better that the interpretation of the provisions of the Code is taken up by the Supreme Court to avoid any confusion.

Read more…

[Insolvency and Bankruptcy Board of India v. Lalit Kumar Jain,  2020 SCC OnLine SC 884 ]


The final order that sealed the fate for the Nirbhaya convicts

Putting the last nail in the coffin for the Nirbhaya death row convicts, the 3-judge bench of R. Banumathi, Ashok Bhushan and AS Bopanna, JJ dismissed the plea file by Pawan Kumar Gupta challenging the rejection of his mercy petition by the President on the ground that his plea of juvenility had not been finally determined and this aspect was not kept in view by the President of India while rejecting his mercy plea.

The hearing took place late at night at 2:30 AM.

Read more…

Also read:

[Pawan Kumar Gupta v. State of NCT of Delhi, 2020 SCC OnLine SC 340 ]


Shaheen Bagh Protests

“Democracy and dissent go hand in hand, but then the demonstrations expressing dissent have to be in designated places alone. The present case was not even one of protests taking place in an undesignated area, but was a blockage of a public way which caused grave inconvenience to commuters. We cannot accept the plea of the applicants that an indeterminable number of people can assemble whenever they choose to protest.” 

The 3-judge bench of SK Kaul, Aniruddha Bose and Krishna Murari, JJ has, in the Shaheen Bagh protests matter, held that while there exists the right to peaceful protest against a legislation, public ways and public spaces cannot be occupied in such a manner and that too indefinitely.

Read more…

[Amit Sahni v. Commissioner of Police, 2020 SCC OnLine SC 808 ]


Farmers’ protest

“Indeed the right to protest is part of a fundamental right and can as a matter of fact, be exercised subject to public order.”

Refusing to interfere with the ongoing Farmers’ protest, the 3-judge bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ said that the farmers’ protest should be allowed to continue without impediment and without any breach of peace either by the protesters or the police.

Read more…

[Rakesh Vaishnav v. Union of India, 2020 SCC OnLine SC 1032 ]


Sushant Singh Rajput Death Case

When truth meets sunshine, justice will not prevail on the living alone but after Life’s fitful fever, now the departed will also sleep well. Satyameva Jayate.”

A single judge bench of Hrishikesh Roy, J has held the ongoing investigation by the CBI to be lawful and further directed that if any other case is registered on the death of the actor Sushant Singh Rajput and the surrounding circumstances of his unnatural death, the CBI is directed to investigate the new case as well.

Read more… 

[Rhea Chakraborty v. State of Bihar, 2020 SCC OnLine SC 654 ]


Scandalous allegations against Supreme Court judges

After finding advocates Vijay Kurle, Nilesh Ojha and Rashid Khan Pathan guilty of levelling scandalous allegations against Justice RF Nariman and Justice Vineet Saran, the bench of Deepak Gupta and Aniruddha Bose, JJ has sentenced all 3 to undergo simple imprisonment for a period of 3 months each with a fine of Rs. 2000/-. It further said that in default of payment of fine, each of the defaulting contemnors shall undergo further simple imprisonment for a period of 15 days.

Read: 

[Vijay Kurle, In re, 2020 SCC OnLine SC 407  and Rashid Khan Pathan v. Vijay Kurle, 2020 SCC OnLine SC 711]


Vikas Dubey Encounter

After Vikas Dubey, a history-sheeter and gangster-turned-politician, was killed in a police encounter on July 10, 2020, the Supreme Court gave a go ahead to Inquiry Committee headed by Former SC judge Justice B S Chauhan.

Later,  a 3-judge bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ refused to scrap the Judicial Committee constituted to look into the killing of Vikas Dubey and said that the allegations of bias made against the members of the Commission merely on the basis of newspaper reports and nothing more, are liable to be rejected outright.

“ … the Chairman and a Member of the Commission had held high Constitutional positions and while making allegations the petitioner has based his claim only on the newspaper report and the manner in which the averments are made in the application is unacceptable.”

Read: 

[Ghanshyam Upadhyay v. State of Uttar Pradesh2020 SCC OnLine SC 587 and 2020 SCC OnLine SC 658 ]


Prashant Bhushan Contempt proceedings

Twitter row

The 3-judge bench of Arun Mishra, BR Gavai and Krishna Murari, JJ has, in a 108-pages long verdict, held advocate Prashant Bhushan guilty of criminal contempt in the suo motu contempt petition initiated against him after he criticised the Supreme Court and the sitting and former CJIs in a couple of tweets. It held,

The tweets which are based on the distorted facts, in our considered view, amount to committing of ‘criminal contempt’. 

The Court, however, sentenced Bhushan with a fine of Rupee 1 for his contemptuous tweets and said

“If we do not take cognizance of such conduct it will give a wrong message to the lawyers and litigants throughout the country. However, by showing magnanimity, instead of imposing any severe punishment, we are sentencing the contemnor with a nominal fine of  Re.1/­ (Rupee one).”

Read:

[Prashant Bhushan, In re, 2020 SCC OnLine SC 646 and  2020 SCC OnLine SC 698 ]

Tehelka contempt

In another contempt proceeding against Bhushan, after refusing to accept the explanation of advocate Prashant Bhushan in the 2009 contempt petition against Advocate Prashant Bhushan and former Tehelka Tarun Tejpal, the 3-judge bench of Arun Mishra, BR Gavai and MR Shah, JJ framed larger questions in the matter that will have far-reaching ramifications.

Read more… 

[Amicus Curiae v. Prashant Bhushan, 2020 SCC OnLine SC 651 ]


Kunal Kamra and Rachita Taneja contempt cases 

The 3-judge bench of Ashok Bhushan, R. Subhash Reddy and MR Shah, JJ issued notice to cartoonist Rachita Taneja and comedian Kunal Kamra in two separate cases relating contemptuous social media posts.

Read more…

[Shrirang Katneshwarkar v. Kunal Kamra2020 SCC OnLine SC 1041 and Aditya Kashyap v. Rachita Taneja, 2020 SCC OnLine SC 1042 ]


Here’s the list of some of the important COVID-19 Orders/Direction issued by the Supreme Court:

“Even if one survives from COVID-19, many times financially and economically he is finished.”

“To a worker who has faced the brunt of the pandemic and is currently laboring in a workplace without the luxury of physical distancing, economic dignity based on the rights available under the statute is the least that this Court can ensure them.” 


Also read:

2020 Roundup: 11 Constitution bench judgments, 17 judges, Zero dissent

 

Legislation UpdatesNotifications

In view of the challenges faced by taxpayers in meeting the statutory and regulatory compliances due to the outbreak of COVID-19, the Government brought the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (‘the Ordinance’) on 31-03-2020 which, inter alia, extended various time limits. The Ordinance has since been replaced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act.

The Government issued a Notification on 24-06-2020 under the Ordinance which, inter alia, extended the due date for all Income Tax Returns for the FY 2019-20 (AY 2020-21) to 30-11-2020. Hence, the returns of income which were required to be filed by 31-07-2020 and 31-10-2020 are required to be filed by 30-11-2020. Consequently, the date for furnishing various audit reports including tax audit report under the Income-tax Act, 1961 (the Act) has also been extended to 31-10-2020.

In order to provide more time to taxpayers for furnishing of Income Tax Returns, it has been decided to further extend the due date for furnishing of Income-Tax Returns as under:

(A)       The due date for furnishing of Income Tax Returns for the taxpayers (including their partners) who are required to get their accounts audited [for whom the due date (i.e. before the extension by the said notification) as per the Act is 31-10- 2020] has been extended to 31-01-2021.

(B)   The due date for furnishing of Income Tax Returns for the taxpayers who are required to furnish a report in respect of international/specified domestic transactions [for whom the due date (i.e. before the extension by the said notification) as per the Act is 30-11-2020] has been extended to 31-01-2021.

(C)      The due date for furnishing of Income Tax Returns for the other taxpayers [for whom the due date (i.e. before the extension by the said notification) as per the Act was 31-07-2020] has been extended to 31-12-2020.

Consequently, the date for furnishing of various audit reports under the Act including tax audit report and report in respect of international/specified domestic transaction has also been extended to 31-12-2020.

Further, in order to provide relief to small and middle-class taxpayers, the said notification dated 24-06-2020 had also extended the due date for payment of self-assessment tax for the taxpayers whose self-assessment tax liability is up to Rs. 1 lakh. Accordingly, the due date for payment of self-assessment tax for the taxpayers who are not required to get their accounts audited was extended from 31-07-2020 to 30-11-2020 and for the auditable cases, this due date was extended from 31-10-2020 to 30-11-2020.

In order to provide relief for the second time to small and middle-class taxpayers in the matter of payment of self-assessment tax, the due date for payment of self-assessment tax date is hereby again being extended. Accordingly, the due date for payment of self-assessment tax for taxpayers whose self-assessment tax liability is up to Rs. 1 lakh has been extended to 31-01-2021 for the taxpayers mentioned in para 3(A) and para 3(B) and to 31-12-2020 for the taxpayers mentioned in para 3(C).

The necessary notification in this regard shall be issued in due course.


Ministry of Finance

[Press Release dt. 24-10-2020]

Legislation UpdatesStatutes/Bills/Ordinances

President gave assent to the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 on 29-09-2020.

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (Ord. 2 of 2020) was promulgated on the 31-03-2020 which, inter alia, relaxed certain provisions of the specified Acts relating to direct taxes, indirect taxes and prohibition of Benami property transactions. Further, certain notifications were also issued under the said Ordinance.

The said Act will provide for the extension of various time limits for completion or compliance of actions under the specified Acts and reduction in interest, waiver of penalty and prosecution for the delay in payment of certain taxes or levies during the specified period.

Amendments to Income-tax Act, 1961 will also be made:

  • Providing of tax incentive for Category-III Alternative Investment Funds located in the International Financial Services Centre (IFSC) to encourage relocation of foreign funds to the IFSC.
  • deferment of a new procedure of registration and approval of certain entities introduced through the Finance Act, 2020.
  • providing for the deduction for donation made to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) and exemption to its income,
  • Incorporation of Faceless Assessment Scheme, 2019 therein, empowering the Central Government to notify schemes for faceless processes under certain provisions by eliminating physical interface to the extent technologically feasible and to provide deduction or collection at source in respect of certain transactions at a three-fourths rate for the period from 14th May, 2020 to 31st March, 2021.
  • Amendment to the Direct Tax Vivad se Viswas Act, 2020 to extend the date for payment without additional amount to 31-12-2020 and to empower the Central Government to notify certain dates relating to filing of declaration and making of the payment.
  • Finance Act, 2020 is also proposed to be amended to clarify regarding capping of the surcharge at 15% on dividend income of the Foreign Portfolio Investor.
  • Central Government empowered to remove any difficulty up to a period of 2 years and provide for repeal and savings of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020.

Read the detailed Act, here: Taxation & Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020


Ministry of Law and Justice

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Mumbai: Dealing with the issue on disallowance under Section 14A of the Income Tax Act, 1961, the Tribunal has reiterated that no deduction is allowed in respect of expenditure incurred by the Assessee in relation to income which does not form part of the total income under this Act.

The Assessee, in the present case was engaged in the business of banking including foreign exchange transaction. It has branches in India and head office is based out in Muscat. Assessment proceedings were initiated against the Assessee, involving following issues: –

  1. Assessee credited an amount of ₹ 14,35,542/– as interest received from the head office in its profit and loss account but in the computation of income filed along with the return of income, it has reduced the above said interest income from the taxable income stating that the same is not taxable as it is received from head office. The Assessing Officer brought the above interest received from head office as taxable income of the Assessee.
  2. Assessee claimed for deduction of specifically incurred expenses by Head Office on behalf of Indian branches of ₹ 45,164/– which were justified by the Assessee as travel expenses and certification fees. The Assessing Officer rejected the contention of the Assessee and made the disallowance of ₹ 45,164/–
  3. Assessee debited an amount of ₹ 1,64,68,864/– on account of interest paid to the Head Office. In the computation of income, the Assessee added back to the total income stating that the same is not claimed as a deduction in view of the fact it is a payment to self and hence no expenses incurred on amount of payment to self. The Assessing Officer treated the interest received from head office as taxable income and interest paid to head office not treated as taxable since the Assessee has added back this amount to the total income.

Aggrieved by the order passed by the Assessing Officer, Assessee preferred an Appeal before the CIT(A) whereby CIT (A): –

  1. deleted the interest income received from head office of ₹ 14,35,542/– being income to self and holding the principle of mutuality as provided under the Act is applicable in respect of interest income earned from Head Office.
  2. deleted the disallowance of ₹ 45,164/- under Section 37 of the Act.
  3. confirmed that when the income of the assessee is not taxable, the provision of section 14A is applicable for expenditure incurred on income not part of taxable income.

Being aggrieved by the said order, both the parties preferred an Appeal before the ITAT, whereby the issue no. 1 and 2 decided by CIT where upheld. In reference to issue no. 3 the ITAT held that the interest income earned by Assessee dealing with Head Office held that the transaction between the head office and its branch office shall be treated like mutual concerns and all the transaction between them shall be eliminated.

“Therefore, we do not agree with the assessee that only exempt income which is not part of total income alone should be considered to disallowance u/s 14A. As per the provision of section14A at that point of time, it clearly says that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Nowhere it says it is confine to exempt income which is not form part of total income.”

The matter was, hence, remitted back to the AO to quantify the disallowance u/s 14A by eliminating the expenditure relevant for earning the above said income, it may not the interest expenditure alone, it will include the administrative and other expenditure.

[DCIT (IT) Versus Oman International Bank S. A. O. G. (now known as HSBC International Bank S.A.O.G.) I.T.A. No. 4174/Mum/2014. Decided on 15.09.2020]


Advocate, Supreme Court of India and Delhi High Court 

Case BriefsSupreme Court

Supreme Court: The bench of SK Kaul and Indu Malhotra, JJ has recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. It suggested that a council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward.

Writing two postscripts, the Court said that it was forced to do so on account of the backbreaking dockets which are ever increasing and as a move towards a trust between the Tax Department and the assessee. The Court said that it hoped that both the aspects meet consideration at an appropriate level.

Postscript 1:

The Indian legal system is reeling under a docket explosion. The Government and public authorities are active contributories to this deluge. To top it, a number of litigations arise inter se the Government and its bodies and, thus, the only question, as stated in the beginning, is which pocket of the Government will be benefitted?

The Central Government and the State authorities have been repeatedly emphasising that they have evolved a litigation policy. Our experience is that it is observed more in breach. The approach is one of bringing everything to the highest level before this Court, so that there is no responsibility in the decision-making process – an unfortunate situation which creates unnecessary burden on the judicial system.

“The object appears to be that a certificate for dismissal is obtained from the highest court so that a quietus could be put to the matter in the Government Departments. Undoubtedly, this is complete wastage of judicial time and in various orders of this Court it has been categorized as “certificate cases”, i.e., the purpose of which is only to obtain this certificate of dismissal.”

  • In 1988, the 126th Law Commission of India Report titled ‘Government and Public Sector Undertaking Litigation Policy and Strategies’ debated the Government versus Government matters which weighed heavily on the time of the Courts as well as the public exchequer.
  • In 2010, the National Litigation Policy (for short ‘NLP’) was formulated with the aim of reducing litigation and making the Government an efficient and responsible litigant. Five (5) years later it reportedly saw a revision to increase its efficacy, but it has hardly made an impact.
  • In 2018, the Central Government gave its approval towards strengthening the resolution of commercial disputes of Central Public Sector Enterprises (for short ‘CPSEs’)/ Port Trusts inter se, as well as between CPSEs and other Government Departments/Organisations. The aim was and is to put in place a mechanism within the Government for promoting a speedy resolution of disputes of this kind, however it excluded disputes relating to Railways, Income Tax, Customs and Excise Departments. This now been made applicable to all disputes other than those related to taxation matters.
  • Insofar as non-taxation matters are concerned, the Administrative Mechanism for Resolution of CPSEs Disputes was conceptualised to replace the Permanent Machinery of Arbitration and to promote equity through collective efforts to resolve disputes. It has a two-tiered structure. At the first level, commercial disputes will be referred to the Committee comprising Secretaries of the Administrative Ministries/Departments to which the disputing parties belong and the Secretary, Department of Legal Affairs. In case the two disputing parties belong to the same Ministry/Department, the Committee will comprise Secretary of Administrative Ministry/Department concerned; the Secretary, Department of Legal Affairs and the Secretary, Department of Public Enterprises. If a dispute is between a CPSE and a State Government Department/Organisation, the Committee will comprise of the Secretary of the Ministry Department of the Union to which the CPSE belongs, the Secretary, Department of Legal Affairs and the Chief Secretary of the State concerned. Such disputes are ideally to be resolved at the first level itself within a time schedule of three (3) months, and in the eventuality of them remaining unresolved, the same may be referred to the Cabinet Secretary at the second level, whose decision will be final and binding on all concerned.

The Court, however, noticed that one of the main impediments to such a resolution, plainly speaking, is that the bureaucrats are reluctant to accept responsibility of taking such decisions, apprehending that at some future date their decision may be called into question and they may face consequences post retirement.

“In order to make the system function effectively, it may be appropriate to have a Committee of legal experts presided by a retired Judge to give their imprimatur to the settlement so that such apprehensions do not come in the way of arriving at a settlement.”

It was hence, noticed that a serious thought should be given to the aspect of dispute resolution amicably, more so in the post-COVID period.

Postscript 2:

This part dealt with the issue of matters pertaining to CPSEs and Government authorities insofar as taxation matters are concerned, because they are consistently sought to be carved out as a separate category of cases. One of the largest areas of litigation for the Government is taxation matters. The petition rate of the tax department before the Supreme Court is at 87%.

The Court was of the opinion that a vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is not only true of these kinds of disputes but even disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.

“Instead of first filing a return and then facing consequences from the Department because of a different perception which the Department may have, an Advance Ruling System can facilitate not only such a resolution, but also avoid the tiers of litigation which such cases go through as in the present case. In fact, before further discussing this Advance Ruling System, we can unhesitatingly say that, at least, for CPSEs and Government authorities, there would be no question of taking this matter further once an Advance Ruling is delivered, and even in case of private persons, the scope of any further challenge is completely narrowed down.”

  • In 1971 that a report was submitted by the Direct Taxes Enquiry Committee recognising the need for providing Advance Ruling System, particularly in cases involving foreign collaboration with the aim to give advance rulings to taxpayers or prospective taxpayers, which would then considerably reduce the Revenue’s workload and decrease the number of disputes.
  • In 1993, a scheme of Advance Ruling was brought into effect, with the introduction of a new Chapter in the Income Tax Act, 1961. A quasi-judicial tribunal was established as the Authority for Advance Rulings (AAR) to provide certainty and avoid litigation related to taxation of transactions involving non-residents.
  • The scope of the transactions on which an advance ruling can be sought from the AAR has gradually increased to now include both residents and non-residents, who can seek the same for issues having a substantial tax impact. Chapter XIX-B of the IT Act deals with advance rulings and it has been defined in Section 245N(a) of the 43 IT Act. These rulings are binding both on the Income Tax Department and the applicant, and while there is no statutory right to appeal, the Supreme Court has held that a challenge an advance ruling first lies before the High Court, and subsequently before the Supreme Court. The advance ruling may be reversed in the event a substantial question of general public importance arises or a similar question is already pending before the Supreme Court for adjudication.

The Court, however, noticed that the ground level situation is that this methodology has proved to be illusionary because there is an increasing number of applications pending before the AAR due to its low disposal rate and contrary to the expectation that a ruling would be given in six months (as per Section 245R(6) of the IT Act), the average time taken is stated to be reaching around four years!

“There is obviously lack of adequate numbers of presiding officers to deal with the volume of cases. Interestingly, the primary reason for this is the large number of vacancies and delayed appointments of Members to the AAR. In view of the time taken, the very purpose of AAR is defeated, resulting in the mechanism being used infrequently as is evident from the everincreasing tax related litigation.”

Noticing a significant development in Section 245N of the IT Act, the Court said that in 2000, public sector companies were added to the definition of ‘applicant’, and in 2014, it was made applicable to a resident who had undertaken one or more transactions of the value of Rs. 100 crore or more.

“Insofar as a resident is concerned, the limit is so high that it cannot provide any solace to any individual, and we do believe that it is time to reconsider and reduce the ceiling limit, more so in terms of the recent announcement stated to be in furtherance of a tax friendly face-less regime!”

Referring to the international scenario where there has been an incremental shift towards mature tax regimes adopting advance ruling mechanisms, the bench noticed that the increase in global trade puts the rulings system at the centre-stage of a robust international tax cooperation regime. The Organisation for Economic Cooperation and Development (OECD) lists advance rulings as one of the indicators to assess trade facilitation policies, making it an aspirational international best practice standard.

The Court, hence, said,

“The aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process.”

The Court concluded by referring to the legal legend Mr. Nani A. Palkhivala, who while addressing a letter of congratulations to Mr. Soli J. Sorabjee on attaining his appointment as the Attorney General on 11.12.1989 referred to the greatest glory of Attorney General as not to win cases for the Government but to ensure that justice is done to the people. In this behalf, he refers to the motto of the Department of Justice in the United States carved out into the Rotunda of the Attorney General Office:

“The United States wins its case whenever justice is done to one of its citizens in the courts.”

The Court said that the Indian citizenry is entitled to a hope that the aforesaid is what must be the objective of Government litigation, which should prevail
even within the Indian legal system. In the words of Martin Luther King, Jr.,

“We must accept finite disappointment, but never lose infinite hope.”

[National Co-operative Development Corporation v. Commissioner of Income Tax, 2020 SCC OnLine SC 733, decided on 11.09.2020]

Case BriefsSupreme Court

Supreme Court: Dealing with the question as to whether disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 is confined/limited to the amount “payable” and not to the amount “already paid”, the bench of AM Khanwilkar and Dinesh Maheshwari, JJ held that the expression “payable” is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. Stating that the term “payable” has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein, the Court said that the argument that the expression “payable” be read in contradistinction to the expression “paid”, sans merit and could only be rejected.

Section 40(a)(ia) provides for the consequences of default in the case where tax is deductible at source on any interest, commission, brokerage or fees but had not been so deducted, or had not been paid after deduction (during the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under “profits and gains of business or profession”.

The Court, further, said that

“Section 40(a)(ia) is not a stand-alone provision but provides one of those additional consequences as indicated in Section 201 of the Act for default by a person in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act.”

Explaining the scheme of the Act, the Court said that Section 194C is placed in Chapter XVII of the Act on the subject “Collection and Recovery of Tax”; and specific provisions are made in the Act to ensure that the requirements of Section 194C are met and complied with, while also providing for the consequences of default. Section 200 specifically provides for the duties of the person deducting tax to deposit and submit the statement to that effect. The consequences of failure to deduct or pay the tax are then provided in Section 201 of the Act which puts such defaulting person in the category of “the assessee in default in respect of the tax” apart from other consequences which he or it may incur. Section 40 of the Act, and particularly the provision contained in sub-clause (ia) of clause (a) thereof, indeed provides for one of such consequences.

Hence, holding that when the obligation of Section 194C of the Act is the foundation of the consequence provided by Section 40(a)(ia) of the Act, reference to the former is inevitable in interpretation of the latter, the Court said that the scheme of these provisions makes it clear that the default in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act (that carries Sections 194C, 200 and 201) leads, inter alia, to the consequence of Section 40(a)(ia) of the Act. Hence, the contours of Section 40(a)(ia) of the Act could be aptly defined only with reference to the requirements of the provisions contained in Part B of Chapter XVII of the Act, including Sections 194C, 200 and 201.

On the question whether sub-clause (ia) of Section 40(a) of the Act, as inserted by the Finance (No. 2) Act, 2004 with effect from 01.04.2005, is applicable only from the financial year 2005-2006 and not retrospectively, the Court said that

“It needs hardly any detailed discussion that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication.”

As per Section 4 of the Act of 1961, the charge of income tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression “previous year” is defined in Section 3 of the Act to mean ‘the financial year immediately preceding the assessment year’; and the expression “assessment year” is defined in clause (9) of Section 2 of the Act to mean ‘the period of twelve months commencing on the 1st day of April every year’. The legislature consciously made the said sub-clause (ia) of Section 40(a) of the Act effective from 01.04.2005, meaning thereby that the same was to be applicable from and for the assessment year 2005-2006; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-2006.

The Court, hence, said

“We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable.”

 

[Shree Choudhary Transport Company v. Income Tax Officer, 2020 SCC OnLine SC 610 , decided on 29.07.2020]

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud and Ajay Rastogi, JJ has held that Medical Oxygen IP and Nitrous Oxide IP falls within the ambit of ‘drugs’ under Section 3(b)(i) of the the Drugs and Cosmetics Act 1940 and are consequently covered in Entry 88 of the Andhra Pradesh Value Added Tax Act 2005. It said,

“Medical Oxygen IP and Nitrous Oxide IP are medicines used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder in human beings falling within the ambit of Section 3(b)(i) of the 1940 Act.”

The Court noticed that the comprehensive nature of the definition of ‘drugs’ under Section 3(b)(i) includes both medicines and something other than medicines, but which are used for treatment. A substance may be a product, which though not specifically used as a medicine is used for diagnosis, treatment, mitigation or prevention of diseases. Where a product other than a medicine is intended to be used for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder, the same would be a „substance? falling within the ambit of Section 3(b)(i).

Explaining the law on interpretation, the Court said that the words of a statute should be first understood in their natural, ordinary or popular sense and phrases and sentences should be construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary. It, hence, noticed,

“The ordinary or popular understanding of the term medicine is characterized by its curative properties in general and specifically, its use for or in diagnosis, treatment, mitigation or prevention of any disease or disorder.”

Medical Oxygen is used for the treatment of patients and to mitigate the intensity of disease or disorder in human beings. In order to carry out critical surgical procedures, supplemental oxygen is administered to patients. Medical Oxygen is also administered in resuscitation, major trauma, anaphylaxis, major hemorrhage, shock and active convulsions, amongst other conditions. Nitrous Oxide is used in surgery and dentistry for its anesthetic and analgesic effects.

[State of Andhra Pradesh v. Linde India Ltd.,  2020 SCC OnLine SC 362, decided on 13.04.2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: A Coram of Manmohan Singh (Chairman), J. and G.C. Mishra (Member) set aside the Adjudicating Authority’s order allowing retention of seized property, on the ground of non-compliance of provisions of Prevention of Money Laundering Act, 2002.

An investigation was initiated on the basis of a notice issued by the Income Tax Department under Black Money Act, 2015 against one Sanjay Bhandari for not disclosing his foreign assets for the purpose of taxation before the tax authorities. Since the appellant had received a certain sum as legal fees for advice rendered to Sanjay Bhandari, a search and seizure was initiated against him pursuant to which the respondent prayed for retention of seized property. Appellant objected to the same stating that the seized material was not connected with the proceedings related to Sanjay Bhandari. Adjudicating Authority allowed retention of documents under Section 17(4) PMLA vide order dated 26-05-2017. Hence, the present appeal.

The Tribunal noted that neither any report against the appellant had been forwarded to the Magistrate, nor had any complaint against the appellant been filed before a Magistrate. It was observed that the prescribed period for filing prosecution complaint is ninety days. But in the present case, no prosecution complaint had been filed even after almost a year and ten months had passed. Further, Section 8(3)(a) of PMLA provides that attachment or retention of seized property shall continue during an investigation for a period not exceeding ninety days. The said prescribed period had already expired as more than a year had elapsed but the properties and records had not been returned so far which was in clear violation of the provisions of PMLA.

It was opined that if a particular thing is to be done in a particular manner, it must be done in that way and none other. Reliance in this regard was placed on Dipak Babaria v. State of Gujarat, (2014) 3 SCC 502.

In view of the above, the appeal was allowed directing the respondent to return seized documents/records to the appellant.[Sanjeev Kapoor v. Deputy Director, Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 8, decided on 09-04-2019]

Case BriefsSupreme Court

Supreme Court: While examining the applicability of the turnover tax as defined under Section 6 B(1) of the Karnataka Sales Tax Act, 1957, the bench of AM Khanwilkar and Ajay Rastogi, JJ held:

“the expression ‘total turnover’ which has been incorporated as referred to under Section 6­B(1) is for the purpose of identification of the dealers and for prescribing different rates/slabs. The first proviso to Section 6­B(1) provides an exhaustive list of deductions which are to be made in computation of such turnover with a further stipulation as referred to in second proviso that except for the manner provided for in Section 6­B(1), no other deduction shall be made from the total turnover of a dealer.”

The Court said that the expression “total turnover” and “turnover” which has been used under Section 6­B has the same meaning as defined under Section 2(1)(u­2) and 2(v) of the Act. Under Section 6­B, reference is made on ‘total turnover’ and not the ‘turnover’ as defined under Section 2(v) of the KST Act and taking note of the exemption provided under first proviso clause(iii), exclusion has been made in reference to use of sale or purchase of goods in the course of inter­state trade or commerce.

It was contended before the Court that the ‘total turnover’ in Section 6­B(1) is to be read as ‘taxable turnover’ and the determination of the rate of the turnover tax is to be ascertained on the ‘taxable turnover’. The Court held that this submission was unsustainable and deserved outright rejection.

It said:

“the expression ‘total turnover’ has been referred to for the purpose of identification/classification of dealers for prescribing various rates/slabs of tax leviable to the dealer and read with first and second proviso to Section 6­B(1), this makes the intention of the legislature clear and unambiguous   that except the deductions provided under the first proviso to Section 6­B(1) nothing else can be deducted from the total turnover as defined under Section 2(u­2) for the purpose of levy of turnover tax under Section 6­B of the Act.”

[Achal Industries v. State of Karnataka, 2019 SCC OnLine SC 428, decided on 28.03.2019]