HC upholds constitutional validity of Sec 50C of Income Tax Act (Look for detailed coverage on Monday)

Power Plants - whether it is the aggregate capacity or the individual capacity that is to be reckoned for deciding exemption? (See 'DDT')

Board Circulars - binding? - Consistency and discipline are of far greater importance than the winning or losing of court proceedings (See 'DDT')

Big Bonanza for Central Government Babus – Minimum pay packet to be Rs 10,000/-

Customs mop-up goes down but Excise picks up;

Union Cabinet approves Pay Panel report; arrears to be given from Jan, 2006; 40% arrears to be paid in current fiscal + gives nod to Indian Leather Development Scheme;

MoF gives nod to merger of State Bank of Saurashtra with SBI;

Wildlife Crime Control Bureau seizes leopard skins near Dehradun;

FM advises banks not to raise interest rate on existing home loans;

ddt 14 Aug.pdf

Circular cannot take away the effect of Notifications statutorily issued – Supreme Court;

cobweb.pdf

Politico-bureaucratic negativism negating judicial positivism!

rbi08cir007.pdf + rbi08cir006.pdf

RBI allows Trust & Society to invest overseas in JVs in same sectors + further liberalises norms for direct dispatch of shipping documents and repatriation of export proceeds;

Office Order 221.pdf

MoF issues transfer order of 15 SOs;

mbuzz876.pdf

DRI arrests absconding smuggler; also seizes red sanders logs at Tuticorin Port ;

mbuzz875.pdf

Customs mop-up goes down but Excise picks up ;

mbuzz874.pdf

Big Bonanza for Central Government Babus – Minimum pay packet to be Rs 10,000/- ;

mbuzz873.pdf

DGCEI arrests absconding MD of copper unit;

mbuzz872.pdf

IGI Airport - Bird hit cases - Illegal slaughterhouses to be shut down ;

2008-TIOL-370-ITAT-MUM.pdf

M/s Essar Sisco Management Co Ltd Vs ACIT, Madras (Dated : July 14, 2008)

If the income does not result at all, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical income which does not materialise - Real income principle reiterated Income Tax is a levy on income. Though Income Tax Act takes into account two points of time at which the liability to tax is attracted viz. the accrual of income or its receipt, but the substance of the matter is the income. If the income does not result at all, there cannot be a tax, eventhough in book-keeping an entry is made about a hypothetical income, which does not materialize.

The main objective of assessee company is rendering ship management services. On 16.11.1992 it entered into an agreement with Essar Shipping Ltd. providing for management of ship in consideration of fixed ship management fee payable in addition to the reimbursement of actual expenditure on operation of ship. An addendum dated 30.12.1992 was made whereby certain terms and conditions were modified and this resulted in assessee suffering a huge loss in the year. Assessing authority did not allow this loss on the ground that the addendum to the original agreement is an afterthought since the transaction was with group concerns and the original of the addendum agreement was not produced. Since negotiations with Essar Shipping was going on, the original return was filed with a hope that Essar Shipping will reimburse the expenditure incurred. However since Essar Shipping refused to reimburse the expenses, revised return was filed claiming the disputed loss. Tribunal held that since Essar Shipping never accepted its liability for making payment, no income accrued to the assessee. Even otherwise, since the amount was never realized from Essar Shipping, it will be a trading loss. Assessee's appeal allowed. :MUMBAI ITAT;

2008-TIOL-369-ITAT-MAD.pdf

ACIT, Chennai Vs M/s G H Reddy & Associates (Dated : February 8, 2008)

Income Tax - Demerger - all the assets and liabilities of the existing businesses transferred to the new firm - AO concludes that assessee firm was dissolved and two new firms evolved out of such dissolution and made additions at market value and observed that provision of section 45(4) are attracted – CIT(A) held that there was no dissolution of the firm and the assets of the firm need not be valued at the market value as the provisions of section 45(4) are not attracted - Held, provisions of Sec 45(4) very much attracted and Revenue was correct in adopting market value of assets - Revenue's appeal allowed:CHENNAI ITAT;

2008-TIOL-368-ITAT-BANG.pdf

M/s H M Exports Vs ACIT, Bangalore (Dated : April 30, 2008)

Income tax – Assessee made a VDIS on 31.12.1997 and filed returns for assessment years 1993-94 and 1994-95 on 20.08.98 disclosing certain income (already disclosed in VDIS) and claimed deduction under Sec. 80HHC of the Act - Search conducted on 29.05.2001 revealed documents related to export of films – Assessment proceedings initiated u/s. 158BC read with s. 158BD

Held - Information disclosed earlier cannot be disregarded – Search did not reveal any additional undisclosed income - Assessment proceedings initiated under wrong premise disregarding earlier disclosures quashed – Assessee's appeal allowed :BANGALORE ITAT;

2008-TIOL-367-ITAT-DEL.pdf + hotel story.pdf

M/s C J International Hotels Ltd Vs ACIT, New Delhi (Dated : July 24, 2007)

PART OF THE BUILDING LEASED OUT WITHOUT CHARGING RENT - DOES NOT BELONG TO ASSESSEE AS POSSED AND ENJOYED BY THE SUB-LICENSEES - HENCE NOT LIABLE FOR ASSESSING INCOME FROM HOUSE PROEPRTY ON SUCH PART OF THE PREMISES

SERVICE CHARGES RECEIVED FROM SUB-LICENSEES - TO BE DEDUCTED FROM EXPENSES WHILE COMPUTING DEDUCTION U/S 80 HHD

TRANSFER FEE EARNED FROM SUB-LICENSEES ON TRASNFER OF LICENSES - INTERST ON BANK DEPOSITS – EXCLUDE FROM PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80 HHD

RENT RECEIVED FROM ROOMS GIVEN ON LONG TERM OCCUPATION – COMMISSION EARNED FROM FOREIGN EXCHANGE DEALERS – TO BE INCLUDED IN PROFITS FOR COMPUTING DEDCUTION U/S 80 HHD.

COLLECTION CHARGES RETAINED BY BANK ON PAYMENT THROUGH CRDIT CARDS – DEEMED AS FOREIGN EXCHANGE RECEIVED BY ASSESSEE IN INDIA – FORMS PART OF NUMERATOR WHILE COMPUTING DEDUCTION U/S 80 HHD.

INTEREST ON FUNDS GIVEN TO SISTER CONCERN AT CONCESSIONAL RATE OF INTEREST – PROPORTIONATE DISALLOWANCE UPHELD.

Dominant activity of assessee is to provide hotel facilities to its customers and to earn income from such business activity.

A part of the building was leased out by assessee to various parties on the basis of interest free security deposit and without charging any rent. According to AO, assessee is the owner of the premises by virtue of the license deed executed by NDMC in its favour and hence liable fro notional income from House Property u/s 22 & 23 of the I.T. Act. On appeal, Tribunal held that in view of sec. 27(iiib) read with section 269UA(f)(ii), sub-licensees can only be treated as owners of the property especially because the concept of “real ownership” and not “legal ownership” is the essence of taxing the income under the head “House Property”. Since the sub-licensees are having possession over the property, are letting out the property and enjoying the income from such property, they are to be treated as owner of the space sub-licenses to them and assessee cannot be assessed on the income from such part of the premises.

Service charges received from sub-licensees was excluded by the AO from the profits of the business while computing deduction u/s 80 HHD. On appeal, Tribunal held that these charges are received by the assessee for providing various services to its sub-licensees to whom space was let out and the corresponding expenditure is debited to P & L a/c of assessee; hence claim of reduction of such charges received from the service expenses claimed by assessee, is proper as it amounts to only re-imbursement of expenses.

Transfer fee earned by assessee from various licensees / sub-licensees on transfer of sub-licensed offices was neither derived from providing service to the foreign tourists nor can be considered as profits earned from hotel business. Hence this cannot be treated as business income and not eligible for deduction u/s 80 HHD.

Rent received from hotel rooms given on long term occupation for running offices, to be treated as business income for the purpose of computation of deduction u/s 80 HHD since such letting upto 10% of total rooms, is allowed by Government in the lease deed and while approving the hotel.

Interest earned on short term deposits made with Banks using surplus money cannot be treated to form part of regular business activities of the assessee and hence are not eligible for deduction u/s 80 HHD.

Commission received from authorized foreign exchange dealer on conversion of foreign exchange to be included in profits for the purpose of computation of deduction u/s 80 HHD.

Assessee claimed deduction u/s 80 HHD on the total receipts of business received in India in convertible foreign exchange. While doing so, the collection charges retained by American Express bank on payments made by clients through credit cards were also included in the numerator. AO excluded the same as such foreign exchange was not received by assessee. On appeal, CIT(A) and ITAT concluded that American Express bank received the gross amount in India in convertible foreign exchange on behalf of assessee and hence the collection charges retained by them will also form part of the numerator for computing the deduction u/s 80 HHD.

Amount advanced to sister concern at concessional rate of interest was disallowed by AO. Assesssee argued that no direct nexus between the borrowed funds and amount advanced to sister concern exists and that such advances were covered by share holders funds and reserves. After detailed analysis, CIT(A) concluded that on certain dates the advances resulted in negative balance or increase in already existing negative balance in the bank accounts from where the advances have gone and on that basis, disallowance was upheld in part. Tribunal concurred with this finding.

Appeal by both assessee and revenue, allowed in part. :DELHI ITAT;

CENTRAL EXCISE SECTION

2008-TIOL-148-SC-CX.pdf + sc story.pdf

M/s Sandur Micro Circuits Ltd Vs CCE, Belgaum ( Dated: August 13, 2008 )

Circular cannot take away the effect of Notifications statutorily issued.: SUPREME COURT;

2008-TIOL-1308-CESTAT-MUM.pdf + rubber story.pdf

Rubber Products Ltd Vs CCE, Mumbai III (Dated: July 21, 2008)

Credit availed on furnace oil used as a fuel for the purpose of generation of steam in boiler – Benefit of Exemption notification 4/97-CE, 5/99-CE rightly denied in respect of Rubberised Textile fabrics – Tribunal.

Even if the credit availed on furnace oil is minuscule, it would not make the assessee eligible for exemption under the notifications 4/97-Ce and 5/99-Ce as the notification stipulates that no credit should be availed on inputs.

Limitation - the assessee had mis-declared in their classification declarations that they would not be availing modvat while claiming benefit of notifications 4/97CE, 5/99CE and hence the extended period was rightly invoked.: MUMBAI CESTAT;

2008-TIOL-1307-CESTAT-MAD.pdf

BHEL, Trichy Vs CCE, Trichy (Dated: April 25, 2008)

Central Excise – Valuation – inclusion of value of engineering drawings in the Boilers supplied – since the assessments are provisional, the demand is premature – assessments cannot be finalized in installments - short levy if any can be determined after the clearance of the complete Boiler. : CHENNAI CESTAT;

2008-TIOL-1306-CESTAT-BANG.pdf

M/s Coromandel Paints Ltd Vs CCE & C, Vizag (Dated: May 16, 2008)

CE – Valuation - Expenditure incurred by the buyer for supervisors and quality control personnel - Buyer has not paid this production overhead to the appellant and such expenditure is in their own interest - No legal justification for inclusion of the expenses incurred by the buyer in the AV – Impugned orders set aside – Appeal allowed with consequential relief : BANGALORE CESTAT;

SERVICE TAX SECTION

2008-TIOL-1311-CESTAT-DEL.pdf + cab story.pdf

M/s R S Travels Vs CCE, Meerut (Dated: July 15, 2008)

Service Tax – rent-a-cab operator service – the service rendered by the appellant is outside the purview of Service Tax under Rent-a-cab operator service under Secion 65(105)(0) of the Finance Act. - when a cab operator provides his cab with a driver to his client on demand for going from one place to another and charges him on per kilometer basis or a lump sum amount based on distance, as fixed with the client and control of the vehicle always remains with the cab operator/driver, he is providing transport service and this activity would be outside the purview of the entry, ‘rent a cab operator's service. : DELHI CESTAT;

2008-TIOL-1310-CESTAT-AHM.pdf

Smt Bhartiben R Patel Vs CCE, Vapi (Dated: July 23, 2008)

ST - Rent-a-cab service - Assessee claims its vehicle was given on per km basis - Since the hiring company's letter clearly talks of payment to be made for rent-a-cab service, assessee's appeal dismissed : AHMEDABAD CESTAT;

2008-TIOL-1309-CESTAT-AHM.pdf

M/s Fascel Ltd Vs CST, Ahmedabad (Dated: July 23, 2008)

ST - Cenvat Credit - Assessee claims input credit on towers used in output services as telephone service - Commissioner finds that the credit stands availed in respect of duty paid on steel bars, tubes and angles which are used in manufacture of tower which is not an excisable good - Matter remanded for fresh consideration : AHMEDABAD CESTAT;

CUSTOMS SECTION

NOTIFICATION

ctariff08_096.pdf

India notifies concessional Customs duty for 500 items imported from Least Developed Countries;

cnt08_100.pdf

CBEC notifies rules for determination of origin of goods under Duty Free Tariff Preference Scheme for Least Developed Countries;

CASE LAWS

2008-TIOL-1305-CESTAT-MAD.pdf + cus story.pdf

M/s BSES Kerala Power Ltd Vs CC, Chennai (Dated: July 28, 2008)

Once an exemption is claimed, the responsibility to prove the eligibility for exemption is on the person claiming the exemption - Evidence on record to prove diversion of duty free import of brass scrap under Advance License – Supporting manufacturer's address mis-declared - Appellant's contention with regard to non-fulfilment of export obligation brushed aside – Allegation of not following principles of natural justice negated by evidence on record – Commissioner to provide details of exact duty payable – Penalty reduced and Appeal set aside

In fact the very purpose of requiring the appellants to declare the supporting manufacturer and require them to submit periodical returns and require them to fulfil the export obligation within a specified period is to ensure that they utilize the raw material imported for export. Further once an exemption is claimed, the responsibility to prove the eligibility for exemption is on the person claiming the exemption and this is well settled law. Therefore it is sufficient if the Department proves that the raw material imported is not available & no exports have been made & no accounts have been maintained : CHENNAI CESTAT;

2008-TIOL-1304-CESTAT-AHM.pdf

M/s Banlev Chemexim Pvt Ltd Vs CC, Kandla (Dated: June 24, 2008)

Once an exemption is claimed, the responsibility to prove the eligibility for exemption is on the person claiming the exemption - Evidence on record to prove diversion of duty free import of brass scrap under Advance License – Supporting manufacturer's address mis-declared - Appellant's contention with regard to non-fulfilment of export obligation brushed aside – Allegation of not following principles of natural justice negated by evidence on record – Commissioner to provide details of exact duty payable – Penalty reduced and Appeal set aside

In fact the very purpose of requiring the appellants to declare the supporting manufacturer and require them to submit periodical returns and require them to fulfil the export obligation within a specified period is to ensure that they utilize the raw material imported for export. Further once an exemption is claimed, the responsibility to prove the eligibility for exemption is on the person claiming the exemption and this is well settled law. Therefore it is sufficient if the Department proves that the raw material imported is not available & no exports have been made & no accounts have been maintained : AHMEDABAD CESTAT;