SNK Newsletter- November 2011

8/3/2019 SNK Newsletter- November 2011

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DIRECT TAXESJudicial pronouncements

SNK

Issue 11 November, 2011

NewsletterWebsite : www.snkca.com Email: [email protected]

DIRECT TAXES ... 1 - 10

OTHER LAWS ... 12 - 13

IMPORTANT DUE DATES 13

INDIRECT TAXES . 11 - 12

CIT Vs. D. P. R. Charitable trust [(2011) 61 DTR (MP) 410,

Madhya Pradesh High Court, dtd. 01.08.2011]

While considering application under Sec. 12A, CIT is not

required to examine whether the income derived by the

trust is being spent for charitable purposes or the trust is

earning profit while granting registration; assessee trust

established for educational purposes was entitled to reg-

istration.

Sec. 12A prescribes conditions for registration of the trust

whereas Sec. 12AA prescribes the procedure for registration.

A careful reading of the relevant provisions would reveal that

application for registration under Sec. 12A has to be made in

Form 10A prescribed by Rule 17A before expiry of one year

from the date of creation of the trust or establishment of the

institution whichever is later. The application has to be made

by a person in receipt of income of the trust. Thus while deal-

ing with the application for registration the CIT has to exam-

ine whether the application is made in accordance with Sec.

12A r.w.r. 17A and whether Form No. 10A has been properly

filled up. He may also examine whether objects of the trust

are charitable or not.

ACIT Vs. M/s. Punjab State Co. Op. & Marketing Fed. Ltd.

[ITA No. 548/Chd./2011, ITAT Chandigarh Bench, dtd.

30.09.2011]

No Sec. 14A disallowance can be made in absence of

nexus between investment in tax-free securities & bor-

rowed funds. Also Sec. 14A disallowance cannot exceed

exempt income.

In AY 2007-08, the assessee received dividend of Rs. 4 lakhsin respect of investment in shares made in earlier years. No

investments were made during the year. It was claimed that

the investment in the earlier years was made out of reserves

& surplus and that there was no expenditure incurred during

the year to earn the dividend. The AO held that as in the ear-

lier years, the assessee had borrowed funds, s. 14A applied.

He applied the rate of interest paid on the borrowings and

disallowed Rs. 12.73 lakhs. This was deleted by the CIT (A).

On appeal by the department, dismissing the appeal ITAT

Chandigarh bench Held that if there is no nexus between bor-

rowed funds and investments made in purchase of shares,

disallowance u/s 14A is not warranted (Winsome Textiles 319

ITR 204 (P&H) & Hero Cycles 323 ITR 518 followed). Furtheras the total dividend income received was Rs.4 lakhs, a disal-

lowance of Rs.12 lakhs by invoking s.14A is not warranted.

DCIT Vs. Jindal Photo Limited [ITA No. 814(Del)2011,

ITAT Delhi Bench, dtd. 23.09.2011]

AO cannot apply Rule 8D without showing how as-

sessees method is incorrect

For AY 2008-09, the AO made a disallowance of Rs. 31 lakhs

u/s 14A by applying Rule 8D without recording any satisfac-

tion as to how the assessees calculation of s. 14A disallow-

ance was incorrect. In appeal, the CIT (A) upheld the applica-

bility of Rule 8D though he reduced the disallowance to Rs.

19 Lakhs. The department filed an appeal while the assessee

filed a Cross objection.


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Judicial pronouncements

ITAT Delhi Bench held that it is a pre-

requisite that before invoking Rule 8D,

the AO must record his satisfaction on

how the assessees calculation is incor-

rect. The AO cannot apply Rule 8Dwithout pointing out any inaccuracy in

the method of apportionment or alloca-

tion of expenses. Further, the onus is

on the AO to show that expenditure has

been incurred by the assessee for

earning tax-free income. Without dis-

charging the onus, the AO is not enti-

tled to make an ad hoc disallowance. A

clear finding of incurring of expenditure

is necessary. No disallowance can bemade on the basis of presumptions.

Krishna Land developers Pvt. Ltd.

Vs. DCIT [ITA No. 1057\Mum.\2010,

ITAT Mumbai bench, dtd. 12.08.2011]

Rental Income for letting out prem-

ises, which was duly notified as IT

park and can be used only for a spe-

cific purpose along with provision of

complex service facilities and infra-structure for operation of such busi-

ness is chargeable to tax under the

head Income from Business.

The ITAT noted that the property in

question was not a simple building but

an I.T. Park with all infrastructure facili-

ties and services. It observed that the

Ministry of Commerce and Industries,

notifies certain buildings an I.T. park

only if various facilities and infrastruc-

ture, as specified by the department,

are provided. It noted that all the tech-

nical requirements, infrastructures, fa-

cilities and services were being pro-

vided for in the building and it was for

this reason that not only the Ministry of

commerce and Industries but also the

CBDT notified the same as an I.T. Park

which entitles the assessee to earn

certain incentives. It also observed that

the intention of the assessee while pur-

chasing the property is to participate in

the I.T. Park and it cannot be said that

the intention is only to invest in the

property.

The ITAT noted that the Gujarat High

Court has in the case of Saptarshi Ser-

vices Ltd. [265 ITR 379 (Guj.)] held that

the income earned from business cen-

tre is to be assessed under the head

Income from Business and SLP filed

by the Revenue against this judgment

was rejected by the Supreme Court. It

also noted that the Mumbai Bench of

ITAT has in the case of ITO Vs.

Shanaya Enterprises [ITA No. 3648/

Mum./2010, dtd. 30.06.2011] held that

when the property is used for specific

purposes and in the nature of providing

complex services, the income is tax-

able under the head of Income from

Business.

Applying the propositions laid down in

the above mentioned decisions, the

Tribunal held that since the property

can be used only for a specific purpose

and the assessee has provided com-plex service facilities and infrastructure

for operating such business, the in-

come in question be assessed under

the head Income from business.

DCIT Vs. M/s. S. K. Tekriwal [I.T.A

No. 1135/Kol/2010, ITAT Kolkata

Bench, dtd. 21.10.2011]

No disallowance under sec. 40(a)(ia)

can be made for short-deduction of

TDS default

The assessee paid Rs. 3.37 crores as

machine hire charges on which it de-

ducted TDS u/s 194C at 1%. The AO

held that the payment was rent and

TDS ought to have been deducted at

10% u/s 194-I. He disallowed the ex-

penditure u/s 40(a)(ia). This was re-

versed by the CIT (A). On appeal by

the department, ITAT Kolkata bench

dismissing the appeal held that Sec. 40

(a)(ia) provides for a disallowance if

amounts towards rent etc have been

paid without deducting tax at source. It

does not apply to a case of short-

deduction of tax at source. As the as-

sessee had deducted u/s 194C, it was

not a case of non-deduction of TDS. If

there is a shortfall due to difference ofopinion as to which TDS provision

would apply, the assessee may be

treated as a defaulter u/s 201 but no

disallowance can be made u/s 40(a)

(ia).

ITO Vs Rajesh Kr Garg [ ITA No. 532/

Kol/2011, ITAT Kolkata bench, dtd.

05.08.2011]

When the assessee has received

Form 15 I from the payee and no de-

duction is made on that basis, no

disallowance can be made u/s. 40(a)

(ia) only for the reason that the

forms were not submitted in time

before the jurisdictional CIT.

Since the declarations of the payees in

the prescribed form were received by

the assessee at the time of payment,

assessee was not liable to deduct tax

there from under section 194C. If he

was not liable to deduct tax, section 40

(a)(ia) is not attracted.

Even if the assessee has delayed the

filing of the declarations with the office

of the CIT/CCIT (TDS) within the time

limit specified in sub-section (2) of sec-

tion 197A, that is a distinct omission or

default for which a penalty is pre-

scribed.

CIT Vs. V. S. Dempo & Co. (P) Ltd.

[(2011) 244 CTR (Bom) 102, Bombay

High Court, dtd. 19.10.2010]

Subsidiary Company is not a related

person with in the meaning of Sub.-

Cls. (ii) or (iv) of Cl. (b) of Sec. 40A

(2)

The assessee is a company and the

seller is its subsidiary company. The

seller i.e. the subsidiary company does

not fall in any of the capacities men-

tioned under sub.-cl. (ii) of cl. (b).


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Only a director of the company, partner

of the firm, or member of the associa-

tion or family or any relative of such

director, partner or member is a related

person, under sub.-cl. (ii) of cl.(b) ofsub-s. (2). Another company, even if it

is subsidiary company of the assessee

is not a related person within the

meaning of sub-cl. (ii) of cl.(b) of the

Sec. 40A(2). As the subsidiary com-

pany was not the member of the as-

sessee company sub-cl. (iv) of cl. (b) of

Sec. 40A(2) is also not attracted.

Rollatainers Ltd Vs CIT [TS-590-HC-

2011, Delhi High Court, dtd.

05.10.2011]

Waiver of principal amount of work-

ing capital loan not a capital receipt;

Amount waived off taxable as

deemed business profit u/s 41(1)

The assessee, Rollatainers Ltd was

declared as a sick company by Board

for Industrial Financial Reconstruction

(BIFR) due to poor financial position

and erosion of entire net worth. Pursu-

ant to Restructuring Package as ap-

proved by Corporate Restructuring

Cell, the bank waived off the interest

and principal amount of working capital

loan granted in the form of 'Cash

Credit' to the assessee. The assessee

treated the waiver of principal amount

of loan as capital receipt and hence

argued that the same was not taxable.

A division bench of Delhi HC, rejecting

assessees contention, ruled that

waiver of principal amount of working

capital loan in the form of Cash Credit

was 'revenue' in nature. HC thus held

that Sec 41(1) was applicable and

waiver of principle amount of loan was

taxable as income. HC relied on its

own decision in Logitronics Pvt. Ltd.[ TS-54-HC-2011(DEL) ] wherein it was

held that taxability of waiver of loan

amount depends upon purpose of bor-

rowing. In Logitronicss case, HC had

observed that waiver of loan taken for

acquiring a capital asset, would be

treated as non taxable capital receipt

and where the loan is taken for tradingor ongoing business operations, it

would be treated as taxable income.

CIT Vs. Naishadh V. Vachharajani

[ITA No. 1042 of 2011, Bombay High

Court, dtd. 22.09.2011]

Despite high volume & short holding

period, shares gain is STCG

The assessee, a marine consultant,

offered income by way of LTCG,

STCG, speculative profit & profit from

futures trading. The AO held that as

the volume of transactions was high

(222), the period of holding of the

STCG shares was short (2-5 Months)

& there was speculation & F&O profit,

the LTCG & STCG was assessable as

business profit. On appeal, the CIT and

Tribunal upheld the assessees claim

on the basis that (a) as the LTCG

shares were held for several years, the

assessee acted as investor, (b) the

STCG shares were assessable as

such because (i) there was no intra-

day trading, (ii) most of the shares

were held for a period of 2 to 5 months,

(iii) In the preceding AY, the AO did not

assess the STCG as business income

and on the principles of consistency, a

different view cannot be taken on the

same facts, (iv) the assessee has no

borrowings and (v) merely because

there was a speculative business does

not mean that even delivery based

transactions of shares should be as-

sessed under the head business. On

appeal by the department, dismissingthe appeal Bombay High court held

that the Tribunal recorded the finding

that in a number of cases the assessee

had held the LTCG shares for more

than 10 years and that the purchase

and sale of shares within a period of

one year had been offered as STCG.

In the preceding AY, the AO accepted

this. As per Gopal Purohit 228 ITR 582

(Bom) (SLP dismissed) it is open to anassessee to trade in the shares and

also to invest in shares. When shares

are held as investment, the income

arising on sale of those shares is as-

sessable as LTCG/STCG. Accordingly,

the decision of the Tribunal in holding

that the income arising on sale of

shares held as investment were liable

to be assessed as LTCG/STCG cannot

be faulted.

Abhiram Seth Vs. JCIT [ITA No.

2302/Del/2010 ITAT Delhi bench, dtd.

30.09.2011]

Right to exercise an option is a capi-

tal asset and gains arising on sale

are long term capital gains if such

right is held for more than three

years

The assessee was employed in an ex-

ecutive position with M/s. PepsiCo In-

dia Holdings (P) Ltd., part of PepsiCo

Inc. The assessee was granted valu-

able rights in shares of PepsiCo Inc.

Employees Stock Options [ESOP] held

with Barry Group of Merrill Lynch

[Trust], USA. Such rights were granted

on various dates between 1995 and

2000. The assessee could redeem or

encash the ESOPs any time after the

lock in period of three years as a part

of employee retention strategy. The

employee was required to pay the


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purchase price at the time of sale of

shares. The assessee sold the shares

on 25 February, 2004 and offered the

proceeds to tax under long term capital

gains. Besides, the assessee also

claimed exemption for the gains by vir-

tue of alternate investment made by

him. The Assessing Officer [AO] ac-

cepted the return and issued intimation

u/s 143(1)(a) of the Income-tax Act [the

Act].The AO issued a notice to re-open

the case in 2009 on the ground that the

shares were not transferred to the as-

sessee and that he received only the

differential price. The AO held that

shares were allotted to the assessee

and sold on the same day and hence

profits on the same need to be taxed as

short term capital gains and not as

claimed by the assessee. The gains

being short term in nature, the AO held

that no exemption could be claimed

thereon. The Commissioner of Income-

tax (Appeals) upheld the AOs decision

stating the gains were short term and

hence liable to tax at normal rates since

no securities transaction tax had been

paid.

Tribunal ruled that the particular num-

ber of shares was allotted to the as-

sessee in different years at different

prices; only distinctive numbers were

not allotted. Since there was an appar-

ent fixed consideration of ESOPsshares, the right to allotment of particu-

lar quantity of shares accrued to the

assessee at relevant time. The benefit

of deferment of purchase price cannot

lead to an inference that no right ac-

crued to the assessee. Non-allotment

of distinctive number of shares by trust

cannot be detrimental to the proposition

that assessees valuable right of claim-

ing shares was held in trust and stood

sold by PepsiCo. Accordingly, there

was a definite, valuable and transfer-

able right which can be termed as a

capital asset in favour of the assessee.

There will be no taxability if the date of

allotment of shares and sale thereof is

the same as was held by the assessing

officer.

The Tribunal held that the right in

shares constitutes capital asset and

that the gains should be taxed as long-

term capital gains as the holding pe-

riod was more than three years.

CIT Vs Ms Jagriti Aggarwal [TS-609-

HC-2011, Punjab & Haryana High

Court, dtd. 20.10.2011]

Exemption u/s 54 from capital gains

available even if the investment in

new house property is made before

due date of filing belated tax return

u/s 139(4). Assessee not required to

make separate deposit in capital

gains scheme before due date of fil-

ing tax return u/s 139(1)

The assessee Ms Jagriti Aggarwal, sold

her house property in FY 2005-06. The

assessee made investment in new

house property in Jan 2007 i.e. before

due date for filing of the belated return

u/s 139(4). The Assessing Officer (AO)

denied the claim for exemption on the

ground that the assessee did not de-

posit sale proceeds in Capital Gains

Accounts Scheme (the scheme) before

the due date of filing tax return u/s 139

(1). On the other hand assessee con-

tended that she was not required to

deposit any amount in the scheme, as

she had purchased a new house prop-

erty before the due date of filing belated

tax return u/s 139(4).

A Division bench of Punjab & Haryana

HC, while ruling in favour of the as-

sessee, observed that the sub-section

(4) of Section 139 of the Act was in

fact, a proviso to sub-section (1) ofSection 139 of the Act. HC held that

sub-section (4) provided for extension

of due date mentioned in Sec 139(1) to

the end of assessment year in certain

circumstances. The HC further ob-

served that such provision is not an

independent provision, but relates to

time contemplated under Sub-Section

(1) of Section 139. Therefore, such

Sub-Section (4) has to be read along

with Sub-Section (1). Accordingly HC

allowed exemption u/s 54 since a new

house property was purchased before

the due date of filing belated return u/s

139(4), though no deposit in Capital

gains scheme was made before due

date of filing return u/s 139(1), The HC

relied on decisions of Karnataka HC in

Fatima Bai (2009) 32 DTR 243 and Gu-

wahati HC in Rajesh Kumar Jalan

(2006) 286 ITR 274.

DCIT Vs. Bihariji Ispat Udyog Ltd.

[ITA No. 1982 & 1983/Kol./2010, ITAT

Kolkata Bench, dtd. 06.09.2011]

Addition under section 68 not per-

missible when the advances are re-

ceived by account payee cheques

and interest and shares have been

paid and allotted against these ad-

vances

From the record it appears that all the

transactions were by Account Payee

cheques and loan confirmation and

also the confirmation for payment of

Share Application Money were ob-

tained with I.T. File No. and the same

were filed with the A.O.

For the ShareApplication Money received by the as-

sessee, shares were allotted immedi-

ately after close of the accounting year.

For the loans received by the as-

sessee, it paid interest after deduction

of Income-tax and issued necessary

T.D.S. certificate to the said lender,

copy of which was filed before the A.O.

The assessee also filed its bank state-

ments for proving the fact that all re-ceipts of monies were by Account

Payee Cheques. Based on these sub-

missions ld. CIT(A) has deleted the

same.


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After hearing the rival submissions and

on careful perusal of materials available

on record, keeping in view of the fact

that the aforesaid transactions were

duly recorded by assessee and the

transactions are made by account

payee cheques and the interest on the

said transactions have been paid after

deduction of TDS and that AO should

have enucleated or brought on record

unassailable, concrete and incontro-

vertible facts that could have clinched

the issue in the Departmental favour as

observed by ld. CIT(A). ITAT Kolkata

bench found no infirmity in the orders of

ld. CIT(A) and uphold the same.

Umesh Electricals Vs. Assistant

Commissioner of Income Tax [(2011)

141 TTJ (Agra)(TM) 288, ITAT Agra

Bench, dtd. 25.02.2011]

Assessee having filed confirmation,

address, PAN and copies of bank ac-

count as well as the cash book of the

creditor from whom it has taken loan

through a bank draft, it has duly dis-

charged its onus under Sec. 68 and

therefore, the loan cannot be treated as

non genuine simply because the lender

has deposited equal amount of cash in

its bank account on the same day out

of which demand draft was made in

favour of the assessee.

Aneeta Singh Vs. ITO [(2011) 61 DTR(Del)(Trib) 465, ITAT Delhi bench,

dtd. 30.08.2011]

Addition under s. 69B could not be

made simply on the basis of report

obtained from DVO where no mate-

rial whatsoever has been brought on

record by the Revenue to suggest

that the assessee had in fact in-

vested more amount than the

amount stated in the title deed

The DVO was not right in taking the

sale instance of 1999 for comparing the

property of the assessee with that plot

particularly when the sale instance of

the very near property was available.

Therefore, the report of DVO solely

cannot be relied upon for upholding the

addition in the case of the assessee.

Further, it is the case of the assessee

that in the absence of any material to

suggest that the assessee had incurred

any excess amount apart from what

was stated in the title deed, it was not

permissible to infer that the assessee

has made investment in the said prop-

erty more than what was stated in the

title deed. In fact there is complete ab-

sence of any such material except in-

ference drawn by the AO that the

amount shown to be invested by the

assessee was not according to the

market rates of the said property as the

property is situated in a posh residential

area. In the absence of any such mate-

rial, s. 69B could not applied and if s.

69B could not be applied, then, the AO

does not have power to invoke s. 142A.

Therefore, on this account also refer-

ence to DVO could not be made.

Manali Investments Vs. ACIT [(2011)

TIOL 511, ITAT Mumbai Bench]

Brought forward capital loss can be

set-off against capital gain com-

puted u/s. 50 in respect of long term

capital asset.

Sec. 50 is a deeming provision and

only by legal fiction income from thetransfer of otherwise long term capital

assets (held for a period of more than

36 months) is treated as capital gains

arising from the transfer of short term

capital assets. Such deeming provision

has to be restricted only up to the point

which has been covered within the pro-

visions of Sec. 50. The prescription of

Sec. 50 is to be extended only up to

computation of capital gains. Once the

amount of capital gain is determined in

case of depreciable assets as per this

section, ignoring the mandate of Sec.

48 & 49 which otherwise deal with the

mode of computation of capital gains,

the function of this provision shall come

to an end and the capital gain so deter-

mined shall be dealt with as per the

other provisions of the Act. If the as-

sessee is otherwise eligible for any

benefit under the Act which is attached

to a long term capital asset, the same

shall remain intact.

The effect of provision of Sec. 74 is that

the brought forward loss from long term

capital assets can be set-off only

against long term capital gain within the

period prescribed in Sub. Sec. (2) ofSec. 74.

In the instant case, capital gain has

arisen from the transfer of an asset

which was held for period of more than

three years and no long term capital

gain has entered into the computation

of total income of the assessee on this

transaction. This amount would also

retain the character of long term capital

gain for all other provisions and conse-

quently qualify for set-off against the

brought forward loss from the long term

capital assets.

M/s. Vishal Tools & Forgings P. Ltd.

Vs. The Deputy. Commr. Of Income

tax [ITA No. 256(A SR)/2010, ITAT

Amritsar bench, dtd. 15.06.2011]

Deduction u/s. 80IB not available on

Duty drawback and DEPB receipts

DEPB is an incentive. It is given under

Duty Exemption Remission Scheme.

Essentially, it is an export incentive.


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Judicial pronouncementsSNK

No doubt, the object behind DEPB is to

neutralize the incidence of customs duty

payment on the import content of export

product. This neutralization is provided

for by credit to customs duty against

export product. Under DEPB, an ex-

porter may apply for credit as percent-

age of FOB value of exports made in

freely convertible currency. Credit is

available only against the export prod-

uct and at rates specified by DGFT for

import of raw materials, components

etc.. DEPB credit under the Scheme

has to be calculated by taking into ac-

count the demand import content of the

export product as per basic customs

duty and special additional duty payable

on such deemed imports. DEPB/Duty

Drawback are incentives which flow

from the Schemes framed by Central

Government or from Section 75 of the

Customs Act, 1962, hence, incentives

profits are not profits derived from the

eligible business under section 80-IB.

They belong to the category to ancillary

profits of such undertakings.

The next question is what is duty

drawback? Section 75 of the Customs

Act, 1961 and Section 37 of the Central

Excise Act, 1944 empower Government

of India to provide for repayment of cus-

toms and excise duty paid by an as-

sessee. The refund is of the average

amount of duty paid on materials of any

particular class or description of goods

used in the manufacture of export

goods of specified class. The Rules do

not envisage as refund of an amount

arithmetically equal to customs duty or

central excise duty actually paid by an

individual importer-cum--manufacturer.

Sub. Sec. (2) of Section 75 of the Cus-

toms Act requires the amount of draw-

back to be determined on a considera-

tion of all the circumstances prevalent in

a particulars trade and also based on

the facts situation relevant in respect of

each of various classes of goods im-

ported. Basically, the source of duty

drawback receipt lies in Section 75 of

the Customs Act and section 37 of the

Central Excise Act.

Analyzing the concept of remission ofduty drawback and DEPB, ITAT was

satisfied that the remission of duty is on

account of the statutory/policy provi-

sions in the Customs Act/ Scheme(s)

framed by Government of India. ITAT

accordingly hold that profits derived by

way of such incentives do not fall within

the expression Profits derived from

industrial undertaking in Section 80-IB.

CIT Vs. Andhra Pradesh State Co.

Op. Bank Ltd. [(2011) 244 CTR (AP)

86, Andhra Pradesh High Court, dtd.

07.06.2011]

In so far as the profit and gains from the

business of banking by deposit of sur-

plus funds of the bank is concerned,

there cannot be any distinction between

SLR reserves and non-SLR reserves

and assessee co. op. bank was entitledto deduction under Sec. 80P(2)(a)(i) in

respect of income derived out of the

investments made from voluntary re-

serves.

Peico Electronics & Electricals Ltd.

Vs. CIT & Anr. [(2011) 61 DTR (Cal.)

401, Calcutta High Court, dtd.

12.08.2011]

Once brought forward loss is arrived atafter taking into account the unab-

sorbed depreciation, it is the amount of

depreciation, which is less than the

loss, is to be set off in terms of cl. (iv) of

Explanation to Sec. 115J for computing

the book profit.

Vipul Medicorp TPA P Ltd and others

Vs CBDT [TS-579-HC-2011, Delhi


Delhi HC upholds CBDT circular re-

quiring TPAs to deduct TDS u/s 194J

while making payment to hospital;

Circular set aside to the extent it pro-

vides for levy of penalty u/s 271C

CBDT, through Circular No. 8/2009, had

clarified that insurance Third Party Ad-

ministrators (TPAs) should deduct TDS

while making payment to hospitals un-der cashless facility of mediclaim poli-

cies. The assessee, a TPA, had chal-

lenged the circular under a writ petition.

Rejecting the assessee's contentions,

Delhi HC has upheld the validity of

CBDT circular. HC also rejected as-

sessee's submission that TDS u/s 194J

is attracted on payment to individual

professionals and would not cover pay-

ment to corporate entities.

HC however set aside the circular to the

extent it provided levy of penalty u/s

271C on default in deduction of tax u/s

194J.

Vipul Medicorp TPA P Ltd (the as-

sessee) filed a writ petition in Delhi HC

challenging CBDT circular no 8/2009

dated 24th November 2009. The as-

sessee was third party administrators

(TPA) duly authorized by IRDA. TPAs

act as facilitator of insurance company

which provides cashless facility to medi-

claim policy holders. CBDT circular No.

8/2009 clarified that the TPAs were li-

able to deduct tax u/s 194J while mak-

ing payment to hospitals towards medi-

cal treatment of policy holders. Delhi

HC upheld the validity of the said circu-

lar. HC observed that to determine the

applicability of TDS u/s 194J, the

'nature and characteristics of payment

in the hands of payee' was relevant. HC

observed that, how the payment had

been accounted in the books of payer,

was not at a relevant consideration.

Further, the fact that third person and

not the payer had availed the service,

was also not relevant. HC held that

even if payer makes payment of 'fees

for professional service' on behalf of

third person, he would be liable to de-

duct TDS u/s 194J.


7/137

SNKDIRECT TAXES


The assessee had also contended that

the hospitals, being corporate bodies,

could not carry on medical profession

under Medical Council Act, 1956.

Hence, the hospitals were engaged inbusiness and income received by

hospitals could not be regarded as

professional income. Rejecting as-

sessee's contentions, HC observed

that it was not necessary that the per-

son rendering services ought to be a

medical professional. Hence, HC held

that TDS u/s 194J was applicable in

respect of services which were ancil-

lary, incidental or allied services con-

nected to specified profession. HC re-

lied on decision of Bombay HC in case

of Dedicated Health Care Services

TPA India P Ltd (324 ITR 345). HC,

however, set aside the circular to the

extent it postulated that the liability u/s

271C would be attracted in case of

failure to deduct tax u/s 194J. HC re-

lied on the Bombay HC decision in

Dedicated Health Care case. Bombay

HC, in that case, observed that the

circular, to that extent, was interfering

with quasi judicial discretion of AO and

appellate authority.

The Metal Rolling Works Ltd Vs CIT

[TS-613-HC-2011, Bombay High

Court, dtd. 21.10.2011]

Sec 271(1)(c) penalty cannot be lev-

ied on income addition from devel-

opment agreement transfer; Tax

position as on date of filing of re-

turn supported by ITAT judgment;

Subsequent HC decision in case of

Chaturbhuj Kapadia does not justify

levy of penalty

The assessee had entered into a land

development agreement in FY 2001-

02. The assessee had received ad-

vance under the development agree-

ment in FY 2001-02, which was not

offered to tax, but disclosed in the fi-

nancial statements. After an extensive

litigation, the AO passed an order in

Dec 2008, levying capital gains tax in

FY 2001-02. The AO also levied the

penalty u/s 271(1)(c).

A Division bench of Bombay HC while

reversing the ITATs order, held that

penalty u/s 271(1)(c) was not attracted

on account of the following reasons -

The assessee cannot be said to

have concealed income or fur-

nished inaccurate particulars of

income as the receipt of Rs 6

crores was disclosed in the originalreturn of income as advance re-

ceipt.

As on the date of filing of the origi-

nal return for AY 2002-03, there

was a decision of the Mumbai

Bench in Asan Distributors Ltd.

[2001] 70 TTJ (Mumbai) 88,

wherein it was held that under de-

velopment agreement, the transfer

takes place only on payment of

last installment, if there is a clause

in development agreement to the

effect that the possession stands

transferred only on payment of last

installment. In assessees case

such clause was present in the

agreement.

The Revenue had argued that af-

ter adverse Bombay HC decision

of Chaturbhuj Kapadia [2003] 260ITR 491 (Bom), the assessee

could have revised the return of

income for AY 2002-03. HC re-

jected Revenues contention on

the ground that the HCs decision

Chaturbhuj Kapadia was prospec-

tive in effect and would not have

affected earlier transactions.

The AO himself could not take a

clear stand on the year of taxability

and head of income. Thus, it would

be improper to hold that the as-

sessee has concealed income or

furnished inaccurate particulars of

income.

CIT Large Tax Payers Unit, New

Delhi Vs. M/s. Mahanagar TelephoneNigam Ltd. [ITA No. 626/2011, Delhi


No Sec. 271(1)(c) penalty without

AOs finding on Inaccurate Particu-

lars

The AO imposed sec. 271(1)(c) on the

ground that the assessee had filed

inaccurate particulars by wrongly (i)

claiming deduction for contribution to astaff welfare fund despite the bar in s.

40A(9) and the qualification of the

auditors and (ii) claiming depreciation

on vehicles at 25% though the pre-

scribed rate was 20%. The assessee

argued that despite s. 40A(9), the pay-

ment to the fund was allowable as

business expenditure and that the

higher depreciation was claimed on the

basis that the vehicles were plant &machinery despite the lower rate pre-

scribed for vehicles in the Rules. The

CIT (A) & Tribunal deleted the penalty.

On appeal by the department, Delhi

High Court dismissing the appeal held

that there is no finding by the AO that

the assessee furnished inaccurate par-

ticulars and that its explanation was

not bona fide. Accordingly, the imposi-

tion of penalty u/s 271(1)(c) was acomplete non-starter. A mere errone-

ous claim made by an assessee,

though under a bona fide belief that, it


8/138

SNKDIRECT TAXES


was a claim which was maintainable in

law cannot lead to an imposition of

penalty. The claim for deduction was

made in a bona fide manner and the

information with respect to the claims

was provided in the return and docu-

ments appended thereto. Accordingly,

there is no furnishing of inaccurate

particulars. Making of an incorrect

claim for expenditure does not consti-

tute furnishing of inaccurate particulars

of income (Reliance Petroproducts

322 ITR 158 (SC) followed).

CIT Vs. Praveen B. Gada (HUF)[(2011) 62 DTR (MP) 23, Madhya

Pradesh High Court, dtd. 17.02.2011]

Merely because the assessee

treated certain sum as business

loss, whereas the Revenue treated it

as a capital loss, the provisions con-

tained under Sec. 271(1)(c) would

not be attracted.

In the absence of any independentfinding by the AO that the assessee

either concealed his income or fur-

nished inaccurate particulars, merely

because the assessee treated it as

business loss, whereas the Revenue

treated it as a capital loss, the provi-

sions contained under Sec. 271(1)(c)

would not attract.

Growth Avenues Ltd Vs Joint Com-

missioner of Income Tax [ITA No.

1939-1940/Ahd./2009, ITAT Ahemda-

bad Bench, dtd. 19.05.2011]

No penalty can be levied u/s 271D /

271E for the amount received and

repaid in cash in the hands of the

assessee company though as per

the statement of the lender the

amount was given to and repaid by

the directors in their individual ca-pacity.

Five promissory notes of Rs.5 lakh

each were found during the course of

search operation at the residence of

Shri KKS. These promissory notes

were issued by Shri Rakesh Doshi and

Viren Shah to Shri KKS against receipt

of cash. In the statement recorded u/

s.132(4) in response to Question No.22

Shri KKS stated that an amount of

Rs.25 lakh in cash was given on 23-01-

2003 to Growth Avenues Ltd. and the

promissory notes were in respect of

that amount. However, during the re-

mand proceedings, the cross-

examination of Shri KKS was carried

out by Shri Viren Shah on 24-12-2008.

In this cross-examination, Shri KKS in

reply to Question No.1 has categori-

cally stated that he had given loan to

Shri Viren Shah and Rakesh Doshi of

Rs.25 lakh for which promissory notes

were obtained. In reply to Question

No2 he mentioned that promissory

notes were in the name of individuals

and not in the name of Growth Ave-

nues Ltd. In reply to Question No.5 he

has mentioned that the loan was repaid

by Shri Viren Shah and Rakesh Doshi.

It is clear from this that assessee com-

pany neither took any loan from Shri

KKS nor repaid any amount to him in

cash. The provisions of Section 271D

read as under:-271D If a person takes

or accepts any loan or deposit in con-

travention of the provisions of section

269SS, he shall be liable to pay, by

way of penalty, a sum equal to the

amount of the loan or deposit so taken

or accepted.

It is clear that penalty u/s 271D can be

levied against a person who takes or

accepts any loan or deposit in contra-

vention of the provisions of Section

269SS. Sine in this case there is no

such violation on the part of assessee

company the penalty cannot be levied

against it. If at all there is any violation

of the provisions of Section 269SS, it

was on the part of Shri Rakesh Doshi

and Viren Shah as is clear from the

cross-examination of Shri KKS. In view

of this, the penalty imposed by Assess-

ing Officer u/s.271D/269SS and sus-

tained by Ld. CIT(A) was deleted by

ITAT.

CIT Vs. Mohair Investment & Trading

Co. [ITA NO. 511/2011, Delhi High

Court, dtd. 30.09.2011]

Sec. 275(1)(a) Penalty limitation pe-

riod not curbed by Proviso

Sec. 275(1) (a) provides that no order

imposing penalty shall be passed after

the expiry of six months from the end of

the month in which the quantum order

of the CIT (A) or Tribunal is received by

the CIT. The Proviso to sec. 275(1)

(a),as inserted by the FA 2003, pro-

vides that if the CIT (A) passes the or-

der on the quantum appeal on or after

1.6.2003, the order imposing penalty

has to be passed before the expiry of

one year from the end of the financial

year in which the order of the CIT (A) is

received by the CIT. The Tribunal heldthat the effect of the Proviso was that

one could only have regard to the order

of the CIT (A) for determining limitation.

The fact that an appeal was pending

before the Tribunal was irrelevant. Ac-

cordingly the penalty order having

been passed after 1 year of receipt of

the CIT (A)s order was barred by limi-

tation. On appeal by the department,

Delhi High Court reversing the Tribu-nals order held that the period of six

months provided for imposition of pen-

alty u/s 275(1)(a) starts running after

the successive appeals from an as-

sessment order have been finally de-

cided by the CIT(A) or the ITAT. The

proviso to s. 275(1)(a) extends the pe-

riod for imposing penalty from six

months to one year of the receipt of the

CIT (A)s order after 1.6.2003. The pro-viso carves out an exception from the

main section inasmuch as in cases

where no appeal is filed before the

ITAT the AO must impose penalty


9/139

SNKDIRECT TAXES

Judicial pronouncements (International Taxation)

within a period of one year of the date

of receipt of the CIT (A)s order. To

read the provision as suggested by the

assessee would obliterate the main

provision itself. A proviso is merely a

subsidiary to the main section and

must be construed harmoniously with

the main provision. The proviso to sec.

275(1)(a) does not nullify the availabil-

ity to the AO of the period of limitation

of six months from the end of the

month when the order of the ITAT is

received (Rayala Corporation 288 ITR

452 (Mad) followed).

Judicial Pronouncements - Inter-national Taxation

DCIT vs. Leroy Somer & Controls

(India) (P) Ltd [ITA No.1330/

Del/2011, ITAT Delhi bench, dtd.

30.09.2011]

No s. 271G Penalty for failure to re-

spond to omnibus notice

Though no transfer pricing adjustment

was made, the AO levied penalty u/s

271G of Rs. 22 lakhs (2% of the value

of international transactions) on the

ground that the assessee had not fur-

nished the documents prescribed un-

der Rule 10D r.w.s. 92D(3). This was

deleted by the CIT (A). On appeal by

the department, ITAT Delhi bench dis-

missing the appeal held that Sec.

271G authorizes the levy of penalty if

the information/ documents prescribed

by s. 92D (3) are not furnished. Rule

10D prescribes a voluminous list of

information and documents required to

be maintained and it is only in rare

cases that all clauses would be at-

tracted. Some of the documents may

not be necessary in case of some as-

sessees. Before issuing a notice u/s

92D(3), the AO has to apply his mind

to what information and documents are

relevant and necessary for determining

ALP. A notice u/s 92D(3) is not routine

and cannot be casually issued but re-

quires application of mind to consider

the material on record and what further

information on specific points is re-

quired. The notice cannot be vague or

call for un-prescribed information. On

facts, the TPO issued a notice calling

for information and documents main-

tained as prescribed u/s 92D r.w. Rule

10D without specifying any particular

information under any clause of Rule

10D. The notice was omnibus, issued

in a casual manner, without examining

records nor nature or details of interna-

tional transactions and showed total

lack of application of mind as to what

information was required in this case.

Even in the penalty order, the exact

nature of default was not brought out.

Li & Fung (India) Pvt. Ltd. v. DCIT

[ITA No.5156/Del./2010, ITAT Delhi

Bench, dtd. 30.09.2011]

Markup on costs incurred is not an

arms length remuneration for

sourcing support service and the

taxpayer should be compensated on

the basis of value of the goods

sourced through it

Tribunal ruling that the amount of com-

pensation to be received ought to be a

reflection of the functions performed,

assets deployed and risks assumed by

the associated enterprises (AE) whilst

discharging the business. On the con-cept of location savings the Tribunal

held that the entire savings are passed

on to customers, a part of it is retained

by the AE, and the same should be

factored in while determining the inter-

company transfer price.

Arviva Industries Ltd Vs ACIT [TS-614-ITAT-2011, ITAT Mumbai Bench,

dtd. 21.10.2011]

Transfer pricing adjustment merely

on the ground that AE situated in a

tax haven (Panama) contrary to law;

Domestic transactions cannot be

compared with export for transfer

pricing benchmarking

A Mumbai Bench of ITAT observed

that whether an AE is a tax heaven or

not, this fact has no bearing so far as

method of application of ALP determi-

nation is concerned. The only differ-

ence situs of an enterprise in a tax

heaven can make is with regard to its

treatment as an AE, in the absence of

usual transparency about true owner-

ship, and even such a treatment must

have an enabling provision in thetransfer pricing legislation. The as-

sessee exported fabrics to independ-

ent entities as well as its AE in Pa-

nama. The TPO noticed that the fab-

rics were sold to AEs at a lower rate as

compared to independent entities. The

TPO then adopted the price at which

the fabrics were sold in the domestic

Indian market as arms length price and

made a TP adjustment. On first ap-peal, the CIT(A) upheld the adjustment

on the ground that no comparables

were produced and since Panama was

a low tax jurisdiction, the motive of

shifting profits could not be ruled out. A

Mumbai Bench of ITAT ruled in favour

of the assessee and rejected the ap-

proach adopted by the CIT(A). ITAT

observed that an enterprise being lo-

cated in a tax heaven can at the mostbring such an enterprise within scrutiny

of transactions taking place at the

arms length price, and not beyond that.


10/1310

SNKDIRECT TAXES

Judicial pronouncements (International Taxation)/ Circulars / Notifications

ITAT also held that the TPO had erred

in comparing the price of domestic un-

controlled transactions with interna-

tional controlled transactions, without

taking into account expenses incurred

solely for the purposes of domestic

sales, such as discounts and sales

promotion expenses. Thus, ITAT de-

leted the adjustments made by the

TPO.

Cabot India Ltd. Vs. Deputy Com-

missioner of Income Tax [(2011) 61

DTR (Mumbai) (Trib.) 408, ITAT

Mumbai Bench, dtd. 31.05.2011]

CUP method not suitable to bench-

mark royalty payment in the ab-

sence of comparable uncontrolled

transactions

In light of r. 10C(2), CUP method could

not be regarded as most appropriate

method for determining ALP of the roy-

alty paid by the assessee to its AE as

there is no data available in respect of

uncontrolled transactions which aresimilar to the transactions of the as-

sessee company.

Further expenditure on payment of

royalty was incurred merely to improve

efficiency and profitability, and as-

sessee cannot be said to have ac-

quired asset or advantage of enduring

nature and therefore payment of roy-

alty was allowable as revenue expen-

diture.

ING Vysya Bank Ltd. Vs. Deputy Di-

rector of Income Tax (International

Taxation) [(2011) 61 DTR (Bang.)

(Trib.) 401, ITAT Bangalore Bench,

dtd. 05.08.2011]

Fee for use of software is taxable as

Royalty

Payment made by the assessee to a

Swiss Company for obtaining licence

of ODB software is in the nature of

royalty both under the IT Act as well

as the DTAA between India and Swit-

zerland hence assessee was required

to deduct tax at source before making

the remittance. Assessee having failed

to do so, it has to be treated as an as-

sessee in default under Sec 201(1).

Circulars / Notifications / Instruc-

tions / Press Release

Notification no. 57/2011, dtd.

24.10.2011

Vide the above notification, the due

date for filing form 24Q/26Q where

deductor is Govt. office is extended in

view of filing of Form No.24G by them;

(ii) compulsory uploading of particularsof amount paid without deduction of

tax in view of furnishing of declaration

under section 197A; and (iii) enlarging

the scope for grant of TDS credit to

person other than the deductee.

The revised due date for filing TDS

return where deductor is Government

office is as under:

Notification No. 58/2011, dtd.29.10.2011

Vide the above notification; CBDT has

introduced w.e.f. 01.11.2011, new PAN

application form for resident (Form

49A) and non resident (Form 49AA).

Press Release No.402/92/2006-MC

(26 of 2011), dtd. 20.10.2011

The Central Board of Direct Taxes

(CBDT) has made public the discus-

sion paper on accounting standards, to

be known as Tax Accounting Stan-

dards (TAS), for feedback from all con-

cerned. The discussion paper is avail-

able on the following web-sites:

finmin.nic.in ; incometaxindia.gov.in ;

www.irsofficersonline.gov.in ;

The proposed TAS, while enabling

smooth transition to International Fi-

nancial Reporting Standards (IFRS),

will provide certainty on accounting

issues for tax purposes as it removes

alternatives and will cover all tax ac-

counting issues.

The TAS, applicable only to computa-

tion of taxable income under the In-

come Tax Act 1961, will be different

from accounting standards issued by

the Institute of Chartered Accountants

of India (ICAI) and notified by the Min-

istry of Corporate Affairs under the

Companies Act 1956. However, sepa-

rate books of account are not required

to be maintained under TAS, thus re-

ducing compliance burden on busi-

nesses.

At present, section 145 provides that

the method of accounting for computa-

tion of income under the head Profits

and gains of business or profession

and Income from other sources can

either be the cash or mercantile sys-

tem of accounting. The Finance Act,

1995 empowered the Central Govern-

ment to notify Accounting Standards

for any class of taxpayer or for any

class of income.

SrNo

Date ofending ofthe quarter

of the fi-nancial

Year

Due datewhere deduc-tor is Govern-

ment Office

1 30th June 31st July of thefinancial Year

2 30th

Sep-tember

31st

October ofthe financialYear

3 31st Decem-ber

31st January ofthe financialYear

4 31st March 15th May of thefinancial yearimmediatelyfollowing thefinancial year inwhich deductionis made.


11/1311

SNKINDIRECT TAXES

Judicial Pronouncements

Grasim Industries Ltd. Vs. Union of

India [Civil Appeal No. 7453 of 2008,

The Supreme Court of India, dtd.

13.10.2011]

The metal scrap or waste generatedwhilst repairing of worn out machin-

eries or parts of cement manufac-

turing plant does not amounts to

manufacture, and thereby, is not

liable to excise duty.

Process of repair and maintenance of

the machinery of the cement manufac-

turing plant, in which M.S. scrap and

Iron scrap arise, has no contribution or

effect on the process of manufacturing

of the cement, which is the excisable

end product, as since welding elec-

trodes, mild steel, cutting tools, M.S.

Angles, M.S. Channels, M.S. Beams

etc. which are used in the process of

repair and maintenance are not raw

material used in the process of manu-

facturing of the cement, which is the

end product. The issue of getting a

new identity as M.S. Scrap and Iron

Scrap as an end product due to manu-

facturing process does not arise. The

repairing activity in any possible man-

ner cannot be called as a part of

manufacturing activity in relation to

production of end product. Therefore,

the M.S. scrap and Iron scrap cannot

be said to be a by-product of the final

product. At the best, it is the by-

product of the repairing process which

uses welding electrodes, mild steel,

cutting tools, M.S. Angles, M.S. Chan-

nels, M.S. Beams etc.The metal scrap

and waste arising out of the repair and

maintenance work of the machinery

used in manufacturing of cement, by

no stretch of imagination, can be

treated as a subsidiary product to the

cement which is the main product. The

metal scrap and waste arise only when

the assessee undertakes repairing and

maintenance work of the capital goods

and, therefore, do not arise regularly

and continuously in the course of a

manufacturing business of cement.

Commissioner of CustomsVs. Aggarwal Industries Ltd. [ Civil

Appeal No. 2521 of 2006, The Su-

preme Court of India, dtd.

17.10.2011]

Onus to prove under-valuation is on

revenue but once revenue dis-

charges burden of proof by produc-

ing evidence of contemporaneous

imports at higher price, onus shifts

to importer to establish that price

indicated in invoice relied upon by

him is correct

A mere suspicion upon the correctness

of the invoice produced by an importer

is not sufficient to reject it as evidence

of the value of imported goods. The

doubt held by the officer concerned

has to be based on some material evi-

dence and is not to be formed on amere suspicion or speculation. Al-

though strict rules of evidence do not

apply to adjudication proceedings un-

der the Act, yet the Adjudicating Au-

thority has to examine the probative

value of the documents on which reli-

ance is sought to be placed by the

revenue. It is well settled that the onus

to prove under-valuation is on the

revenue but once the revenue dis-charges the burden of proof by produc-

ing evidence of contemporaneous im-

ports at a higher price, the onus shifts

to the importer to establish that the

price indicated in the invoice relied

upon by him is correct.

Commissioner of C. Ex., Ludhiana

Vs. Jainsons Industries [2011 (24)STR 234 (Tri.-Del.) CESTAT New

Delhi Principal Bench]

Service of Commission agent is a

service of sales promotion and

would be covered in the definition

of input service

The definition of input service as

given in Rule 2(I) of the Cenvat Credit

Rules, 2004 specifically coversadvertisement or sale promotion ser-

vices. The service received is of com-

mission agent appointed abroad who

secure the export orders. The service

of commission agent is a service of the

sales promotion and would be covered

by the definition of input service. Also

the activities relating to business are

also covered by the definition of input

service and the service received fromthe agents for securing export orders

would certainly cover by the term activ-

ity relating to business.

Com. of Central Excise, Visakhapat-

nam-II Vs. Sai Sahmita Storages (P)

Ltd. [(2011) 23 STR 341 (A.P.)]

Without using cement and TMT Bar,

the assessee could not provide

storage and warehousing servicesand hence the assessee is entitled

to credit of Central Excise duty paid

on these items

The assessee provided storage and

warehousing services. They used ce-

ment and TMT bars for construction of

warehouse and took credit of Central

Excise duty paid on cement and TMT

bars which was disallowed, against

which the assessee filed an appeal

before the Com.(Appeals) who dis-

missed the appeal and allowed the

Departments claim of suppression


12/1312

SNKINDIRECT TAXES / OTHERS

Judicial Pronouncements / Circulars / Notifications

regarding availment of Cenvat Credit

on ineligible goods.

CESTAT referred to the judgment of

the Supreme Court in Maruti Suzuki

Ltd. Vs. Com. of central Excise, DelhiIII [2009 (9) SCC 193] wherein it was

held that all goods used in or in rela-

tion to the manufacture of final prod-

ucts qualify as inputs and had recti-

fied the decision of the Appellate Au-

thority by allowing the Credit. The

Court confirmed CESTATs stand on

allowance of credit and consequently

non levy of penalty.

Ceolric Services Vs. Com. of Cen-

tral Excise, Bangalore [(2011) 23

STR 369 (Tri.-Bang.)]

Rule 7C states revised return can-

not be ignored just because it is

filed after period provided in Rule

7B.

Service tax was demanded and pen-

alty was levied. The applicant had

filed a return under Rule 7 of the Ser-

vice tax Rules, 1994 and subse-

quently revised it. The lower authority

had not taken into consideration the

revised return as it was filed after a

lapse of 11 months and as per the

rules, the revised return was to be

filed within 60 days.

It was held that the revised return

cannot be ignored simply on theground that the same was filed after

the period provided under Rule 7B by

virtue of Rule 7C of the Service tax

Rules, 1994.

Small Industries & Development

Bank of India Vs. Com. of Central

Excise, Chandigarh [(2011) 23 STR

392 (Tri.-Del.)]

The activity of foreclosure could

not be treated as Banking and fi-

nancial Services

Foreclosure premium was kind of

compensation for possible loss of in-

terest revenue on the loan amount

returned by the customers and hence

the same cannot be treated as

Banking and financial Services.

Circulars / Notifications / In-

structions

Circular No. 147/2011-ST dtd.

21.10.2011

Vide circular No. 138/2011-ST dated

06.05.2011, it was clarified that the

services provided by the subcontrac-

tors / consultants and other service

providers to the Works Contract Ser-

vice (WCS) provider in respect of con-

struction of Dams, Tunnels, Road,Bridges etc. are classifiable as per

Section 65 A of the Finance Act, 1994

under respective sub clauses (105) of

Section 65 of the Finance Act and are

chargeable to service tax accordingly.

Clarification was required as to

whether the exemption available to

the Works Contract Service providers

in respect of projects involving con-

struction of roads, airports, railways,transport terminals, bridges, tunnels,

dams etc., is also available to the

sub-contractors who provide Works

Contract Service to these main con-

tractors in relation to those very pro-

jects.

Vide the above circular; it has been

clarified that in case the services pro-

vided by the sub-contractors to the

main contractor are independently

classifiable under WCS, then they too

will get the benefit of exemption so

long as they are in relation to the in-

frastructure projects mentioned

above.

the benefit of exemption of

Order No. 1/2011 ST, dtd.

20.10.2011

Vide the above order; the due date for

filing ST-3 return for the half year end-

ing of 30.09.2011 has been extended

to 26.12.2011 from 25.10.2011.

OTHERS


Larsen & Toubro Ltd v. Union of

India [Special Civil Application No.5575 of 2011, Gujarat High Court,

dtd. 02.09.2011]

Supply of goods to offshore instal-

lations i.e. Exclusive Economic

Zone (EEZ) will not be subject to

sales tax, especially Central Sales

Tax, since EEZ does not form part

of the territory of India.

The High Court examined in detail the

provisions of the Maritime Zones of

India Act, 1976 (MZA) and observed

that Union of India had no sovereignty

over the EEZ. The Union of India only

had certain sovereign rights over the

EEZ. The High Court further observed

that MZA empowers the Central Gov-

ernment to issue specific notifications

to extend the ambit of certain laws to

any part of the EEZ and to make such

provisions as are necessary for the

enforcement of such laws in the EEZ.

Accordingly, for the purpose of the

extension and application of the law,

so notified, and for such limited pur-

pose, EEZ shall deem to be a part of

the territory of India. Hence, the High

Court concluded that the movement

of goods from Hazira to Bombay High

was not covered within the expression

movement of goods from one State

to another ( Section 3(a) of the CST

Act) since Bombay High did not form

part of the territory of India in general


13/13

SNKOTHER LAWS


sense, under MZA or any other law.

Moreover no notification had been

issued by the Government under the

CST Act so as to extend the provi-

sions of the CST Act to the EEZ. In the

absence of such notification, the court

held that the Gujarat VAT authorities

could not demand tax under the CST

Act treating the sale transaction under

consideration as an interstate sale.

Due Dates of key compliances pertaining to the month of November 2011:

5th

November Payment of Service Tax & Excise duty for the month of October

6th

November Payment of Service tax & Excise duty paid electronically through internet banking for the

month of October

7th November TDS/ TCS Payment for the month of October

10th November Excise Return ER1/ER2/ER6

15th November PF Contribution of October

21stNovember ESIC payment of October

30th November Excise Return ER-4.

The information contained in this newsletter is of a general nature and it is not intended to address specific facts, merits and circumstances of any indi-vidual or entity. We have tried to provide accurate and timely information in a condensed form however, no one should act upon the information pre-sented herein, before seeking detailed professional advice and thorough examination of specific facts and merits of the case while formulating businessdecisions. This newsletter is prepared exclusively for the information of clients, staff, professional colleagues and friends of SNK.

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Documents

SNK Newsletter- November 2011